Business context and reporting period
Belden Inc. filed this Form 10-K for the fiscal year ended December 31, 2020. It supplies specialty networking solutions through two reportable segments: Enterprise Solutions and Industrial Solutions. Results are presented for continuing operations unless otherwise noted; Grass Valley was sold during 2020 and reported as discontinued operations. Prior-year segment data was recast for a product-line transfer between segments.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1,862.7 million | $2,131.3 million |
| Gross profit / margin | $663.3 million / 35.6% | $793.5 million / 37.2% |
| Operating income | $125.4 million | $207.2 million |
| Income from continuing operations | $54.4 million | $109.9 million |
| Adjusted EBITDA / margin | $249.2 million / 13.4% | $350.9 million / 16.5% |
| Operating cash flow | $173.4 million | $276.9 million |
| Capital expenditures | $90.2 million | $110.0 million |
| Cash and cash equivalents at year-end | $502.0 million | $407.5 million |
| Long-term debt carrying value | $1,573.7 million | $1,439.5 million |
Net loss attributable to Belden common stockholders was $55.2 million, or $1.23 per diluted share, in 2020, versus a $395.5 million loss in 2019. Continuing-operations diluted EPS was $1.21 in 2020 versus $2.15 in 2019. The consolidated loss included $99.5 million of losses from discontinued operations and a $9.9 million after-tax loss on the Grass Valley disposal. Operating cash flow less capital expenditures was approximately $83.1 million in 2020; this is a simple calculation, not a separately reported company measure.
Cash was $502.0 million, including $214.1 million held outside the U.S. Belden had $1.591 billion of senior subordinated notes outstanding, all euro-denominated, and no Revolver borrowings at year-end; available Revolver capacity was $230.2 million. The company drew and repaid $190 million on the Revolver during 2020. It repurchased $35.0 million of shares and paid $9.0 million in cash dividends.
Material changes versus the prior comparable period
- Revenue fell 12.6% year over year. Lower sales volume, including channel-inventory changes, reduced revenue by $302.7 million; acquisitions added $34.3 million.
- Adjusted EBITDA declined 29.0%, and its margin fell 3.1 percentage points to 13.4%. Management attributed the decrease primarily to lower revenue, partly offset by cost-reduction benefits.
- Industrial Solutions revenue decreased 16.4% and segment EBITDA decreased 34.7%; Enterprise Solutions revenue decreased 7.8% and segment EBITDA decreased 21.7%.
- Operating cash flow decreased $103.5 million. Receivables generated $70.7 million of cash, while inventory used $8.5 million.
- SG&A decreased $51.1 million, reflecting approximately $43.1 million in estimated savings from the cost-reduction program and productivity initiatives. R&D expense increased 13.7% to $107.3 million.
Outlook, management commentary, risks and unusual items
Management’s stated strategic goals are annual adjusted revenue growth of 5–7%, adjusted EBITDA margins of 20–22%, free-cash-flow growth of 13–15%, and return on invested capital of 13–15%. These are longer-term business goals, not specific 2021 guidance. Management expects operating activities to generate cash in 2021 and believes liquidity is sufficient for expected operating needs, capital spending, retirement-plan contributions, repurchases, dividends, and note repurchases; a significant acquisition could require external financing.
- COVID-19 disrupted demand, customer projects, suppliers, and operations. Management expected continued near-term adverse effects, with duration and impact uncertain.
- Belden completed the Grass Valley sale on July 2, 2020. Consideration included approximately $56.2 million net cash, a $175 million seller’s note due 2025, and potential earnout payments. The note’s estimated fair value was $34.9 million; $7.8 million of accrued interest was reserved. Potential earnouts were not recorded as an asset at disposal.
- The company recorded $113.0 million of Grass Valley impairment charges in 2020, following $521.4 million in 2019. The disposal generated a $9.9 million after-tax loss.
- Belden realized approximately $40 million of the targeted $60 million annual SG&A savings in 2020; management expected the full benefit in 2021 and forecast about $8 million of additional program costs in 2021. It also expected approximately $1 million of additional FutureLink/Opterna/SPC integration costs.
- Belden planned to divest up to approximately $200 million in annual revenue from low-margin cable product lines. The filing cautions that a suitable buyer and acceptable terms are not assured.
- In January 2021, Belden acquired OTN Systems for approximately $71 million, net of cash acquired, funded with cash on hand.
- A November 2020 data incident exposed some employee data and limited business-partner information. Two putative class actions followed; potential exposure was not estimable in the filing. Management said it did not expect a material business or financial impact.
- Other key risks include economic and pandemic uncertainty, distributor concentration (WESCO accounted for 15% of 2020 revenue), copper and other input-cost volatility, foreign exchange exposure, competition, cyber and information-system risks, and technology substitution, including fiber replacing copper.
Important facts for investors to verify
- Whether demand, channel inventory, and segment margins recover, and whether the 2021 cost savings are sustained.
- The collectability and valuation of the Grass Valley seller’s note and any eventual earnout, along with the status and economics of planned cable-line divestitures.
- Debt repayment capacity, euro-related currency exposure, Revolver availability, and the planned use of substantial cash held overseas.
- Developments in the data-incident lawsuits and any related costs or regulatory actions.
- Goodwill was $1.252 billion; no continuing-operations goodwill impairment was recorded in 2020, but management’s valuations assume economic improvement. The auditor identified goodwill valuation and revenue recognition estimates as critical audit matters.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2020.