Belden Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; the filing also reports quarterly results. Belden designs and sells cable, connectivity, and networking products for industrial, enterprise, broadcast, and broadband markets.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $1.841 billion | $1.882 billion |
| Gross profit / gross margin | $566.6 million / 30.8% | $541.5 million / 28.8% |
| Operating income / operating margin | $108.5 million / 5.9% | $165.2 million / 8.8% |
| Income from continuing operations | $43.2 million | $101.3 million |
| Net income | $194.5 million | $114.3 million |
| Diluted EPS, continuing operations | $0.94 | $2.11 |
| Net cash from operating activities | $139.4 million | $184.6 million |
| Cash and cash equivalents, year-end | $395.1 million | $382.6 million |
| Total debt, year-end | $1.151 billion | $550.9 million |
Cash generated from operations declined by $45.2 million, chiefly as operating assets and liabilities used $27.6 million of cash, versus providing $13.9 million in 2011. Capital expenditures were $41.0 million. Current assets were $959.6 million and current liabilities were $452.5 million, including $86.9 million of current liabilities related to discontinued operations. The company reported $187.6 million of available borrowing capacity and compliance with credit-facility covenants. Net debt, calculated as debt less cash, was approximately $756 million.
Changes versus the prior year
- Revenue fell 2.2%. Management attributed the decline to lower unit volumes and channel/customer inventory depletion (about $50 million), lower selling prices following reduced copper costs (about $50 million), and unfavorable currency translation (about $35 million). Acquisitions added approximately $94 million.
- Gross profit increased 4.6%, supported by acquisitions, productivity improvements, and a greater mix of higher-margin networking products. Operating income fell 34.3%, reflecting lower revenue, higher acquisition-related costs and amortization, and asset impairment and sale charges of $33.7 million versus $2.5 million in 2011.
- Continuing-operations pretax income fell to $5.0 million, including a $52.5 million loss on debt extinguishment. A $38.2 million income tax benefit—principally from the Cooper Industries tax settlement and reduced deferred-tax valuation allowances—supported continuing-operations income.
- Net income rose despite lower continuing-operations income because 2012 included a $134.5 million after-tax gain on disposal of discontinued operations. The sale of Thermax and Raydex generated $265.6 million in cash and a $211.6 million pretax gain.
- Americas revenue rose 4.7%, while EMEA and Asia Pacific revenue each fell 10.1%. Asia Pacific operating income declined to $4.5 million, including a $29.7 million impairment and loss on sale related to the Chinese consumer-electronics cable assets.
Transactions, outlook, and risks
- Belden acquired Miranda Technologies for approximately $374.7 million in July and PPC Broadband for $521.4 million in December. Both were reported in the Americas segment. Acquisition purchase-price allocations remained provisional.
- Belden sold its Thermax and Raydex cable business in December and sold certain Chinese cable-business assets for $40.0 million, recording a $29.7 million impairment and loss on the latter sale.
- Management expected operating activities to generate cash in 2013 and considered liquidity sufficient for working capital, capital expenditures, retirement-plan contributions, share repurchases, debt repurchases, dividends, and near-term strategies. A significant acquisition would require external financing. No numerical earnings or revenue guidance was provided.
- Debt rose substantially to fund acquisitions and was restructured: Belden issued $700 million of 5.5% notes due 2022 and repurchased most of its 2017 and 2019 subordinated notes. Year-end debt also included a $247.7 million variable-rate term loan and $198.3 million of revolving-credit borrowings.
- Key risks include economic weakness—particularly in Europe—channel inventory volatility, reliance on distributors (Anixter represented 16% of 2012 revenue), copper and other input-cost volatility, foreign exchange, competition, acquisition integration and goodwill valuation, and technological substitution among copper, fiber, and wireless products.
- The filing describes 103 pending asbestos-related personal-injury cases and a remediation matter involving a former Canadian property. Management did not expect these matters to have a material adverse effect, while noting their outcomes remain uncertain.
- Management and the auditor reported effective internal control over financial reporting; however, the 2012 control assessment excluded Miranda and PPC, which together represented $962.2 million of year-end assets and $83.4 million of 2012 revenue. The financial-statement and internal-control audit opinions were unqualified.
Important facts for investors to verify
- How much of reported earnings and per-share growth reflects recurring operations versus the Thermax and Raydex disposal gain and tax benefits?
- Whether acquisitions deliver expected revenue, margins, synergies, and cash returns, and how final purchase-price allocations affect goodwill and amortization.
- Debt repayment capacity, variable-rate exposure, covenant headroom, and the impact of acquisition funding on future interest expense and liquidity.
- Whether operating cash flow recovers from its 2012 decline and whether channel inventories, customer demand, and European conditions improve.
- The resolution and potential financial exposure of the Trapeze escrow dispute, asbestos litigation, and Kingston environmental matter.