Belden Inc. — FY 2010 Form 10-K
Business context and period. Belden designs and manufactures cable, connectivity, and networking products serving industrial, enterprise, broadcast, and consumer-electronics markets. This annual report covers the fiscal year ended December 31, 2010; the filing also provides fourth-quarter results. The company reports Americas, EMEA, and Asia Pacific segments.
Financial performance and liquidity
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $1,617.1 million | $1,362.0 million |
| Gross profit / gross margin | $467.3 million / 28.9% | $387.7 million / 28.5% |
| Operating income / operating margin | $129.2 million / 8.0% | $36.4 million / 2.7% |
| Continuing-operations income (loss) | $69.3 million | $(7.3) million |
| Net income (loss) | $108.5 million | $(24.9) million |
| Diluted EPS, continuing operations / total | $1.45 / $2.27 | $(0.16) / $(0.53) |
| Cash from operating activities | $111.5 million | $151.8 million |
Cash and equivalents ended the year at $358.7 million, up from $308.9 million. Current assets were $860.9 million and current liabilities $357.9 million (approximately 2.4x current ratio). Total assets were $1.696 billion and stockholders’ equity $638.5 million.
Debt was $551.2 million carrying value, comprising $350 million of 7.0% notes due 2017 and $200 million of 9.25% notes due 2019. No borrowings were outstanding under the secured credit facility; available capacity was $220.2 million, and Belden reported compliance with its amended covenants. Interest expense was $49.8 million, versus $42.0 million in 2009.
Changes versus prior period
- Revenue rose 18.7%, reflecting $159.1 million of higher volume as markets recovered and $75.4 million of estimated selling-price increases associated with higher copper prices. The filing also attributes growth to market-share gains and acquisition-related revenue.
- Operating income improved substantially as revenue rose and restructuring costs declined. Cost of sales included $11.7 million of restructuring costs in 2010 versus $37.8 million in 2009. SG&A increased 6.6% and R&D increased 5.4%.
- Operating cash flow declined $40.3 million, primarily because working capital consumed cash as receivables and inventory increased. Days sales outstanding rose to 62 from 59, and inventory turns declined to 6.9 from 7.3.
- Americas revenue increased 21.6%, EMEA 10.4%, and Asia Pacific 26.1%. EMEA returned to operating income of $64.0 million from a $36.8 million loss.
- FY 2010 net income includes a $44.8 million after-tax gain on the sale of Trapeze; continuing-operations income was $69.3 million. Trapeze’s operations are reported as discontinued operations.
Outlook, commentary, risks, and unusual items
- Management expected operating activities to generate cash in 2011 and considered liquidity sufficient for working capital, capital expenditures, retirement-plan contributions, dividends, and short-term strategies. No specific revenue or earnings guidance was provided.
- Belden sold Trapeze for $152.1 million in December 2010, including $136.9 million received at closing and $15.2 million held in escrow. It acquired the Thomas & Betts Communications Products business for $76.9 million and GarrettCom for $56.8 million in the fourth quarter. Purchase-price allocations were provisional.
- 2010 included $16.6 million of asset impairment charges, including $8.9 million related to abandoned customer-management and enterprise-system assets, and $1.1 million of severance. The company said no further severance was expected from the completed restructuring program, while noting that additional restructuring actions could still be considered.
- Key risks include economic and end-market weakness, competitive pricing, copper and other input-cost volatility, dependence on distributors (Anixter represented 14% of revenue), acquisition integration and financing, foreign exchange and political exposure, technology substitution, tax uncertainty, and environmental, litigation, labor, and information-system risks.
- Belden disclosed 82 pending asbestos-related personal-injury cases as of February 7, 2011, generally involving multiple defendants; management did not expect pending claims to have a material adverse effect but noted outcomes remain uncertain. The filing also reports $24.1 million of unrecognized tax benefits and possible reductions of up to $4.3 million within 12 months.
- The quarterly dividend was $0.05 per share; management anticipated comparable quarterly cash dividends in the foreseeable future. The audited financial statements and internal-control opinion were unqualified, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How much of 2010’s revenue and earnings recovery reflects sustainable volume and market-share gains versus copper-related price increases and the Trapeze disposal gain.
- Whether working-capital demands reverse or continue, given lower inventory turns, higher receivables, and reduced operating cash flow.
- Integration performance and final purchase-price allocations for the two fourth-quarter acquisitions, including goodwill and intangible-asset valuations.
- Debt service capacity, refinancing needs, facility covenant headroom, and the effect of elevated interest expense.
- Realizability of tax attributes and resolution of uncertain tax positions, as well as any material developments in litigation or environmental matters.