Belden Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 29, 2013. Belden designs and sells signal-transmission solutions for broadcast, enterprise, and industrial markets. In 2013 it reorganized into four global business segments: Broadcast, Enterprise Connectivity, Industrial Connectivity, and Industrial IT.
Financial performance
Amounts below are in millions, except per-share data and percentages. Comparisons are with the corresponding 2012 period.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $522.5 | $465.2 | $1,559.4 | $1,363.1 |
| Gross profit / margin | $182.8 / 35.0% | $138.8 / 29.8% | $529.4 / 34.0% | $416.3 / 30.5% |
| Operating income (loss) / margin | $53.9 / 10.3% | $(13.3) / (2.9)% | $152.1 / 9.8% | $76.9 / 5.6% |
| Continuing-operations income (loss) | $29.1 | $(55.7) | $80.8 | $3.8 |
| Net income (loss) | $29.1 | $(38.8) | $80.8 | $27.9 |
| Diluted EPS | $0.65 | $(0.87) | $1.80 | $0.60 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $50.8 | $93.3 |
- Q3 revenue rose 12.3%; nine-month revenue rose 14.4%. Acquisitions contributed $81.3 million and $278.6 million, respectively. Excluding acquisitions, the filing cites modest Q3 volume growth and a slight nine-month volume decline; lower copper prices also reduced reported revenue.
- Q3 gross profit increased on higher sales, acquired businesses, improved product mix, favorable input costs, and productivity. Nine-month operating income improved, but includes acquisition-related amortization and integration costs.
- Segment Q3 revenue and operating income: Broadcast $176.1 million and $7.5 million; Enterprise Connectivity $123.4 million and $14.0 million; Industrial Connectivity $167.0 million and $22.9 million; Industrial IT $56.0 million and $9.2 million. Broadcast growth primarily reflects acquisitions; Enterprise revenue declined 4.1%, while Industrial Connectivity revenue grew 4.8%.
Balance sheet, debt, and liquidity
- At September 29, 2013, cash and cash equivalents were $503.8 million, total current assets $1,114.4 million, and current liabilities $390.0 million. Cash was up from $395.1 million at year-end 2012.
- Total debt and borrowing arrangements were $1,343.8 million, versus $1,151.2 million at year-end 2012; long-term debt was $1,322.5 million. Debt included $700.0 million of 5.5% notes due 2022, $404.7 million of 5.5% notes due 2023, a $233.9 million variable-rate term loan, and $5.2 million of 9.25% notes due 2019. The filing reports a 5.2% effective rate on outstanding borrowings.
- The company had no revolver borrowings at period-end and reported $386.4 million of available capacity under its then-existing facility; it was in covenant compliance. Cash plus available capacity was subject to the facility’s leverage covenant.
- Nine-month operating cash flow was $50.8 million, investing cash flow $(34.5) million, and financing cash flow $90.3 million. Operating cash flow fell from $93.3 million, principally reflecting $84.2 million of cash used for accrued taxes, including $41.8 million of tax payments related to the Thermax and Raydex sale and a $30.0 million tax-sharing settlement with Cooper Industries.
- Capital expenditures were $31.4 million. The company spent $93.8 million on share repurchases and paid $4.5 million in dividends during the nine months. Cash held outside the U.S. was $169.5 million; management said it intended to permanently reinvest those funds abroad.
Material changes, outlook, and risks
- Comparability: Miranda and PPC were acquired in 2012 and Softel in January 2013; acquired results are included from their respective acquisition dates. The 2012 Chinese consumer-electronics cable business was sold. 2012 comparisons also included $29.9 million of asset impairment and a $50.6 million debt-extinguishment loss, neither recorded in 2013. 2012 discontinued operations included gains and income from disposed businesses.
- Integration costs: Nine-month 2013 results included $9.5 million of restructuring costs, $4.9 million of accelerated depreciation, and $6.6 million of PPC inventory fair-value cost. Management expected approximately $4 million of additional restructuring costs in 2013 and said further actions could result in additional future costs.
- Management outlook: Belden expected operating activities to generate cash in 2013 and believed available liquidity would fund working capital, capital spending, retirement-plan contributions, repurchases, dividends, and near-term strategies. A significant acquisition would require external financing. No earnings or revenue guidance is provided in the filing.
- Refinancing after quarter-end: Belden replaced its existing senior secured facility with a $400 million multi-currency asset-based revolver maturing in 2018 and borrowed $250 million under a new term loan maturing in 2020. It used the new term-loan proceeds to repay the former term loan and expected an approximately $2 million fourth-quarter charge for unamortized debt issuance costs.
- Operating and financial risks: Management identifies economic and end-market demand, distributor and channel inventories, copper and other input costs, currency movements, competition, acquisition integration, manufacturing realignment, tax-rate variability, and potential impairment as risks. Market-risk exposure was reported as not materially changed from year-end 2012.
- Contingencies: The company reported 90 pending asbestos-related personal-injury cases as of October 24, 2013 and an unresolved environmental matter at a former Kingston, Canada property. Management did not expect either matter to have a material adverse effect based on information then available, but noted outcomes were uncertain. It also reported a $3.8 million estimated receivable from the Trapeze sale escrow, with negotiations ongoing. Standby letters of credit, bank guarantees, and surety bonds totaled $7.0 million, $4.9 million, and $1.7 million, respectively.
Important facts for investors to verify
- How much of reported revenue and operating improvement reflects acquired businesses versus organic growth, and whether weaker Enterprise Connectivity demand or channel-inventory movements persist.
- Whether acquisition integration delivers the expected productivity and margin benefits, and the ultimate amount and timing of restructuring and accelerated-depreciation costs.
- Whether operating cash flow recovers after the exceptional tax payments and working-capital uses, and how the new debt facilities affect interest expense, covenant headroom, and liquidity.
- The final PPC purchase-price allocation and acquired intangible amortization, as well as the resolution and collectability of the Trapeze escrow receivable and the legal and environmental matters.
- How share repurchases and dividends are balanced against debt repayment, liquidity needs, and any future acquisition financing.