Belden Inc. 2011 Form 10-K Summary
Business context and reporting period. Belden designs, manufactures, and markets cable, connectivity, and networking products for industrial, enterprise, broadcast, and consumer electronics markets. This filing covers the fiscal year ended December 31, 2011; fourth-quarter results are also reported. Operations are organized into Americas, EMEA, and Asia Pacific segments. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; the control assessment excluded the three businesses acquired during 2011.
Financial performance and position
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $1,982.0 million | $1,617.1 million | +22.6% |
| Gross profit / margin | $571.8 million / 28.8% | $467.3 million / 28.9% | +22.4% gross profit |
| Operating income / margin | $187.0 million / 9.4% | $129.2 million / 8.0% | +44.8% |
| Continuing-operations income | $115.3 million | $69.3 million | +66.3% |
| Net income | $114.3 million | $108.5 million | +5.4% |
| Diluted EPS from continuing operations | $2.40 | $1.45 | — |
| Operating cash flow | $184.6 million | $111.5 million | +65.5% |
| Capital expenditures | $40.1 million | $28.2 million | — |
- Revenue growth reflected $124.2 million from acquisitions, approximately $75 million from higher copper-related selling prices, $35.4 million of favorable currency translation, and higher volume, market growth, and pricing.
- Networking and connectivity products grew 43.4% and 52.9%, respectively; together they rose to 30% of revenue from 25%. Management says these products generally carry higher gross margins than cable products.
- Cash and cash equivalents were $382.7 million, including $290.2 million held outside the United States. Current assets were $925.4 million and current liabilities $381.6 million, a current ratio of approximately 2.4.
- Debt carrying value was $550.9 million: $350 million of 7.0% senior subordinated notes due 2017 and $200 million of 9.25% notes due 2019 (9.75% effective rate). No borrowings were outstanding under the $400 million secured credit facility; available capacity was $386 million. The company reported covenant compliance. Cash less debt was approximately $168 million.
- Stockholders’ equity was $694.5 million. The quarterly dividend was $0.05 per share, or $0.20 for the year. The company repurchased $50 million of shares during 2011.
Fourth-quarter performance
Fourth-quarter 2011 revenue was $464.4 million, gross profit $132.0 million, operating income $34.9 million, and continuing-operations income $27.0 million. Fourth-quarter 2010 revenue was $425.2 million, gross profit $121.4 million, operating income $16.7 million, and net income $56.4 million. The 2010 net income included a $44.8 million after-tax gain on the sale of Trapeze, so reported net income comparisons are not representative of recurring performance. Fourth-quarter 2011 included $5.0 million of severance and $2.5 million of asset impairment charges.
Material changes versus prior comparable period
- Operating income increased by $57.8 million, supported by revenue growth, favorable product mix, Lean and restructuring benefits, and $14.0 million lower impairment charges. SG&A and R&D also rose, reflecting strategic investment, acquisitions, and product development.
- Operating cash flow improved by $73.0 million. Receivables were a $4.7 million source of cash versus a $39.5 million use in 2010; days sales outstanding improved from 62 to 58. Inventory increased $26.5 million on the balance sheet.
- Investing cash outflow was $99.4 million, including $60.5 million net acquisition spending and $40.1 million of capital expenditures. The 2010 comparison benefited from $139.0 million of business and asset-sale proceeds, primarily from Trapeze.
- Americas revenue increased 27.9% and operating income 46.8%; EMEA revenue increased 20.4% and operating income 78.6%. Asia Pacific revenue grew 11.2%, but operating income fell 14.3% to $25.3 million and margin declined to 7.2% from 9.4%.
- Belden acquired ICM, Poliron, and Byres Security for approximately $57.7 million in stated cash consideration. Acquisitions contributed $124.2 million to consolidated revenue growth. Goodwill and intangible assets recognized for these acquisitions totaled $27.8 million and $21.3 million, respectively.
Outlook, commentary, risks, and contingencies
- No numerical revenue or earnings guidance is provided. Management expected operating activities to generate cash in 2012 and believed liquidity was sufficient for working capital, capital spending, retirement-plan contributions, dividends, repurchases, debt repurchases, and short-term strategies.
- Management’s strategy emphasizes market-share growth, higher-growth geographies, networking and connectivity products, acquisitions, Lean operations, and working-capital management. The company was evaluating strategic alternatives for its underperforming Asia Pacific consumer electronics business; challenging pricing and lower demand had produced negative operating income there.
- Key exposures include economic downturns, competitive pricing, copper and other raw-material volatility, distributor inventory swings, foreign exchange, European economic uncertainty, acquisition integration, and competition from fiber and wireless technologies. Anixter represented 16% of 2011 revenue and approximately 11% of year-end receivables.
- Management noted $290.2 million of foreign cash was intended to remain permanently reinvested abroad; repatriation could trigger U.S. tax. The company had $256.9 million of net operating loss carryforwards, $55.2 million of tax credit carryforwards, and $23.2 million of unrecognized tax benefits.
- Cooper Industries sued Belden for $11.9 million under a tax-sharing agreement; Belden intends to contest the claim and stated it did not expect a material adverse effect. The company also disclosed 112 pending asbestos-related personal-injury cases as of February 1, 2012, and considered the litigation not expected to be material, while acknowledging uncertain outcomes.
- Contractual obligations totaled $1.08 billion, including $550 million of principal debt due after five years, $273.5 million of scheduled interest, and $135.1 million of pension and postemployment obligations. The company reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- How much of reported growth and margin improvement is sustainable after separating acquisition contributions, copper-price pass-through, and currency effects from organic volume and mix.
- Whether the Asia Pacific consumer electronics business improves, and whether segment operating margins recover amid pricing pressure and weaker demand.
- Cash generation and working-capital trends, including inventory growth, the location and accessibility of foreign cash, and planned repurchases and dividends.
- Debt terms, refinancing needs and capacity, covenant headroom, and the ability to service the 2017 and 2019 notes.
- Resolution and potential financial exposure from the Cooper tax-sharing dispute, uncertain tax positions, asbestos claims, and environmental contingencies.
- Acquisition integration and performance, including the effect of acquired businesses and the exclusion of those businesses from the 2011 internal-control assessment.