Belden Inc. — Q1 2012 Form 10-Q
Business context and period: Belden designs, manufactures, and markets cable, connectivity, and networking products for industrial, enterprise, broadcast, and consumer electronics markets. This filing covers the three months ended April 1, 2012; the comparable quarter ended April 3, 2011 and had one more day (93 days versus 92). Financial amounts below are in millions of dollars, except per-share data.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $464.3 | $461.6 | +0.6% |
| Gross profit / margin | $141.7 / 30.5% | $130.5 / 28.3% | +8.6% gross profit |
| Operating income | $44.0 | $42.1 | +4.5% |
| Income from continuing operations | $24.3 | $22.0 | +10.3% |
| Net income | $24.3 | $21.9 | +10.9% |
| Diluted EPS | $0.52 | $0.45 | Up $0.07 |
| Operating cash flow | $12.7 | $(15.6) | Improved $28.4 |
| Capital expenditures | $7.6 | $6.8 |
- SG&A rose 11.1% to $83.2 million; R&D rose 3.0% to $14.0 million. Operating margin was approximately 9.5%, versus 9.1%.
- Cash and cash equivalents were $370.0 million at quarter-end, down $12.7 million from year-end. Current assets were $901.7 million and current liabilities $346.5 million.
- Long-term debt was $550.3 million on the balance sheet. The company reported $549.4 million principal outstanding in senior subordinated notes: $349.4 million due 2017 at 7.0% and $200.0 million due 2019 at 9.25%. No borrowings were outstanding on its $400 million senior secured facility; $386.3 million remained available. The company reported compliance with facility covenants.
- Cash flow from operations benefited from improved working-capital movements versus the prior year. Receivables provided $11.9 million of cash, compared with a $12.4 million use in Q1 2011; days sales outstanding improved to 57 from 65.
Material changes versus the prior comparable period
- Revenue was nearly flat: acquisitions added $10.2 million and higher volume and pricing added $6.1 million, partly offset by an estimated $10 million reduction from lower copper-related selling prices and $3.6 million of unfavorable currency effects. Channel inventory changes were also unfavorable.
- Gross margin expanded to 30.5% from 28.3%, which management attributed to acquisitions, productivity gains from Lean initiatives, and revenue factors.
- Americas revenue, including affiliate sales, increased 7.1% to $309.7 million and operating income rose 16.6% to $36.3 million. EMEA revenue declined 3.8% to $121.6 million, while operating income increased 26.5% to $17.4 million, helped by favorable product mix. Asia Pacific revenue fell 12.2% to $71.1 million and operating income decreased 25.7% to $4.7 million.
- By product group, cable revenue rose 3.2% to $329.3 million; networking declined 8.3% to $65.3 million; connectivity declined 2.1% to $69.7 million.
- Q1 2012 operating cash flow was positive versus negative in Q1 2011, primarily because working-capital uses were lower. Investing cash outflow declined to $8.1 million from $28.9 million, as prior-year acquisition spending was higher. Financing cash flow shifted to a $21.7 million outflow, mainly reflecting $25.0 million of share repurchases.
Outlook, commentary, and risks
- Management expected operating activities to generate cash in 2012 and believed liquidity was sufficient for working capital, capital expenditures, retirement-plan contributions, repurchases, dividends, and short-term operating strategies. The filing provides no specific revenue or earnings guidance.
- Management cited softening economic conditions in Europe and China and lower channel inventories in Asia Pacific. It continued to evaluate strategic alternatives for the underperforming consumer electronics business in Asia Pacific.
- Key exposures include global economic conditions and demand, channel inventory, competition, copper and other material costs, foreign currency, execution of strategic initiatives and acquisitions, product development, and operational disruptions. Management said market-risk exposure had not changed materially since year-end 2011.
- The company repurchased 640,816 shares during the quarter for $25.0 million; cumulative repurchases under the $150 million authorization were 2.3 million shares for $75.0 million as of April 1, 2012. The quarterly dividend declared was $0.05 per share.
- Legal proceedings include approximately 100 pending asbestos-related cases as of April 30, 2012 and an environmental matter concerning a former property in Kingston, Canada. Management did not expect either matter to have a material adverse effect based on information then available, but noted outcomes were uncertain. Standby letters of credit, bank guarantees, and surety bonds totaled $7.0 million, $4.9 million, and $1.7 million, respectively.
- Of $370.0 million in cash, $316.3 million was held outside the United States and was intended to remain permanently reinvested abroad; repatriation could result in U.S. tax. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the improved gross margin and cash generation persist, particularly given the quarter’s differing period length and working-capital timing.
- How channel inventory, economic softness in Europe and China, copper prices, and currency movements affect subsequent revenue and margins.
- Progress and returns from strategic investments, acquisitions, Lean initiatives, and actions concerning the Asia Pacific consumer electronics business.
- Cash availability and the implications of foreign cash being treated as permanently reinvested, alongside the company’s debt maturities, interest costs, and repurchase plans.
- Developments in asbestos litigation and the Kingston environmental matter, for which the filing states outcomes remain uncertain.