Belden Inc. — Q3 2010 Form 10-Q
Business and period. Belden designs, manufactures, and markets cable, connectivity, and networking products. The quarter ended October 3, 2010; results are compared with the quarter ended September 27, 2009. The nine-month 2010 period included 276 calendar days, six more than the comparable 2009 period.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $411.5 million | $355.2 million | $1,238.0 million | $1,027.5 million |
| Gross profit | $125.7 million | $108.1 million | $369.9 million | $300.8 million |
| Operating income (loss) | $38.4 million | $20.9 million | $103.5 million | $(10.5) million |
| Net income (loss) | $20.6 million | $(7.5) million | $52.0 million | $(44.8) million |
| Diluted EPS | $0.43 | $(0.16) | $1.09 | $(0.96) |
- Q3 revenue rose 15.9%; nine-month revenue rose 20.5%. Management attributed the increase mainly to higher unit volumes, higher selling prices (primarily copper-related), acquisitions, and, for Wireless, recognition of previously deferred revenue.
- Gross margin was approximately 30.6% in Q3 versus 30.4% a year earlier; nine-month gross margin was approximately 29.9% versus 29.3%. Operating margin was approximately 9.3% versus 5.9% for Q3 and 8.4% versus negative 1.0% for the nine-month periods.
- Q3 income from continuing operations was $20.8 million, compared with a $7.5 million loss. Nine-month continuing income was $52.5 million, compared with a $44.8 million loss. Prior-year results included $26.2 million of impairments and a $17.2 million loss on a German business sale; neither item recurred in 2010.
- Segment trends: Americas, EMEA, and Asia Pacific each reported higher revenue and operating income for Q3. Wireless remained loss-making, with Q3 operating loss of $2.7 million versus $6.6 million; nine-month loss was $8.6 million versus $22.9 million.
Cash flow, balance sheet, and liquidity
- Nine-month operating cash flow was $55.4 million, down from $119.9 million. Working-capital changes used $39.3 million of cash, compared with providing $77.3 million in the prior period; receivables were the largest unfavorable factor. Management reported improved days sales outstanding (64 days versus 65) and inventory turns (6.8 versus 6.6).
- Capital expenditures were $19.2 million, compared with $26.2 million. Operating cash flow less capital expenditures was approximately $36.2 million; this simple measure is not a company-defined free-cash-flow metric.
- Cash was $296.1 million at October 3, 2010, versus $308.9 million at year-end 2009. Total debt carrying value was $551.2 million; principal outstanding was $550.0 million. The company had no borrowings under its secured revolving facility and $204.6 million of available capacity, and reported compliance with its covenants.
- Current assets were $799.6 million and current liabilities $344.4 million. Receivables increased to $291.1 million from $242.1 million and inventory to $167.5 million from $151.3 million. Stockholders’ equity was $583.3 million, up from $551.0 million at year-end.
- Nine-month financing cash outflow was $48.6 million, including repayment of $46.3 million of facility borrowings and $7.1 million of dividends paid. The declared dividend was $0.05 per share in Q3.
Management commentary, outlook, and notable items
- Management said operating activities were expected to generate cash through 2010 and considered liquidity sufficient for working capital, capital expenditures, retirement-plan contributions, dividends, restructuring payments, and near-term strategies. No numerical revenue or earnings guidance was provided.
- Wireless results benefited from adoption of new multiple-deliverable revenue accounting, which reduced deferred revenue and improved reported revenue and operating loss. Management expected a similar positive impact in Q4 2010, with no significant impact beyond 2010. The filing provides illustrative pre-adoption Wireless results: Q3 revenue of $10.3 million and operating loss of $5.3 million; nine-month revenue of $34.8 million and loss of $15.0 million.
- Existing global restructuring actions generated $1.1 million of severance costs in the first nine months of 2010; the company said it did not expect further severance costs from these actions, while noting that it continued to assess possible new restructuring measures.
- Belden terminated all interest-rate swaps and a cap during Q3. The net effect of derivative gains and losses, including termination, was a $0.2 million loss for Q3 and $2.9 million for the nine months. Debt was fixed-rate at period-end; management did not expect interest-rate changes to materially affect 2010 income or cash flows.
- On October 21, 2010, after quarter-end, Belden agreed to acquire Thomas & Betts’ LRC Electronics division for approximately $78 million cash, subject to adjustments and customary closing conditions. The company expected to fund it with available cash and anticipated year-end completion.
- Risks include economic conditions and demand, competition and pricing, copper and other material costs, currency movements, execution of productivity initiatives and acquisitions, and interest-rate and counterparty risks. The company disclosed 76 pending asbestos-related personal-injury cases as of October 27, 2010; it believed pending matters would not materially affect results, while acknowledging litigation uncertainty. It reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether revenue and margin growth reflects sustained end-market volume and pricing, rather than copper pass-through, acquisitions, or the Wireless accounting change.
- Whether working-capital investment continues to constrain operating cash flow as sales grow.
- Debt terms, covenant headroom, and remaining liquidity after the planned $78 million acquisition and ongoing capital needs.
- Wireless operating performance excluding the temporary accounting benefit, and the segment’s progress toward reducing losses.
- Exposure to copper and competitive pricing, and developments in asbestos litigation and other contingencies.