Belden Inc. — Q1 2011 Form 10-Q
Business context and reporting period
Belden designs, manufactures, and markets cable, connectivity, and networking products for industrial, enterprise, broadcast, and consumer electronics markets. The quarter ended April 3, 2011; the comparable quarter ended April 4, 2010. The 2011 period had 93 days versus 94 days in 2010. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $461.6 million | $384.4 million | +20.1% |
| Gross profit / margin | $130.5 million / 28.3% | $110.4 million / 28.7% | +18.2% gross profit |
| Operating income / margin | $42.1 million / 9.1% | $31.3 million / 8.1% | +34.4% |
| Continuing-operations income | $22.0 million | $14.3 million | +53.6% |
| Net income | $21.9 million | $11.7 million | +86.3% |
| Diluted earnings per share | $0.45 | $0.25 | Up $0.20 |
| Operating cash flow | $(15.6) million | $(13.2) million | Greater cash use |
Cash and equivalents were $323.1 million at quarter-end, down $35.6 million from December 31, 2010. Current assets were $882.9 million and current liabilities $385.5 million. Long-term debt was $551.1 million; cash exceeded the reported debt carrying value by approximately $228 million. The company had no borrowings under its revolving facility and $219.3 million of available capacity at quarter-end, and reported covenant compliance. Capital expenditures were $6.8 million; cash used for acquisitions, net of cash acquired, was $23.2 million. Dividends declared were $0.05 per share.
Material changes versus the prior period
- Revenue growth reflected $29.5 million from acquisitions, $27.3 million from higher selling prices (partly copper-related), $17.9 million from increased unit volume, and $2.5 million from favorable currency translation.
- Gross profit rose, but gross margin edged down. Management attributed the profit increase partly to the absence of significant restructuring costs in 2011; 2010 cost of sales included $5.0 million of such costs.
- SG&A rose 9.0%, slower than revenue growth; R&D rose 32.2%, partly due to acquisitions and higher costs. Operating income also benefited from restructuring completion, Lean initiatives, and regional manufacturing strategies.
- Interest expense decreased by $1.1 million, reflecting lower average borrowings. The effective tax rate increased to 27.6% from 22.7%, primarily due to income mix by jurisdiction and prior-year discrete tax benefits.
- Operating cash use increased by $2.4 million. Working-capital changes used $50.3 million, including a $24.6 million inventory cash use; inventory turns declined to 6.4 from 7.0 a year earlier.
Segments, outlook, risks, and unusual items
Segment revenue below includes affiliate revenue. Americas revenue was $289.1 million (+25.3%) and operating income $31.6 million (+32.7%); EMEA revenue was $126.4 million (+20.0%) and operating income $17.1 million (+54.6%); Asia Pacific revenue was $81.0 million (+6.7%) and operating income $6.4 million (+11.6%). Asia Pacific faced competitive pressure and lower unit volume, partly offset by pricing and currency effects.
Belden acquired ICM for $21.9 million on January 7, 2011. It acquired Poliron on April 1 for $29.2 million, paid April 4; the purchase price was accrued at quarter-end. Both acquisitions were reported in Americas and were described as not material to the quarter's reported financial position or results. The Trapeze Networks sale closed in December 2010; the prior-year comparison includes a $2.5 million after-tax discontinued-operations loss related to Trapeze.
Management expected full-year operating activities to generate cash and believed available liquidity would fund working capital, capital expenditures, retirement contributions, dividends, and short-term strategies. No quantified earnings or revenue guidance was provided in the filing text. On April 25, after quarter-end, Belden entered a new $400 million secured credit facility maturing in April 2016, replacing the facility then scheduled to mature in January 2013.
Risks identified include economic and customer-demand uncertainty, competition, commodity and energy costs, currency movements, distributor reliance, execution and integration of acquisitions and strategic initiatives, manufacturing realignment, product development, and operational or cyber disruptions. Belden reported 84 pending asbestos-related personal-injury cases as of April 24, 2011; it believed pending matters would not have a material adverse effect but noted litigation outcomes are uncertain. It also disclosed standby letters of credit of $10.7 million, bank guarantees of $6.4 million, and surety bonds of $1.7 million. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and operating-margin improvement persist after separating acquisition, pricing, currency, and restructuring effects.
- Whether inventory growth and weaker inventory turns reverse, and whether operating cash flow turns positive as management expected for the full year.
- Integration and performance of ICM and Poliron, including Poliron's post-quarter cash payment and contribution to results.
- Terms and effects of the April 2011 refinancing, including leverage-based borrowing spreads, covenant requirements, and available liquidity.
- Developments in asbestos litigation, other contingencies, commodity prices, and the risks described in the filing.