SECURITIES AND EXCHANGE COMMISSION
_________________________________________________
_________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 20162, 2017
Commission File No. 001-12561 _________________________________________________
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 36-3601505 |
(State or other jurisdiction of incorporation or organization) | | Identification No.) |
1 North Brentwood Boulevard
St. Louis, Missouri 63105
(Address of principal executive offices)
Registrant’s telephone number, including area code
_________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨. Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ.Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
As of
July 29, 2016,August 3, 2017, the Registrant had
42,120,27942,299,344 outstanding shares of common stock.
| |
PART I | FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | July 3, 2016 | | | December 31, 2015 | |
| | (Unaudited) | | | | |
| | (In thousands) | |
ASSETS | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 175,772 | | | $ | 216,751 | |
Receivables, net | | | 393,436 | | | | 387,386 | |
Inventories, net | | | 198,625 | | | | 195,942 | |
Other current assets | | | 51,403 | | | | 37,079 | |
| | | | | | | | |
Total current assets | | | 819,236 | | | | 837,158 | |
| | |
Property, plant and equipment, less accumulated depreciation | | | 314,697 | | | | 310,629 | |
Goodwill | | | 1,404,099 | | | | 1,385,115 | |
Intangible assets, less accumulated amortization | | | 614,422 | | | | 655,871 | |
Deferred income taxes | | | 34,747 | | | | 34,295 | |
Other long-lived assets | | | 67,689 | | | | 67,534 | |
| | | | | | | | |
| | $ | 3,254,890 | | | $ | 3,290,602 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 204,272 | | | $ | 223,514 | |
Accrued liabilities | | | 291,944 | | | | 323,249 | |
Current maturities of long-term debt | | | 2,500 | | | | 2,500 | |
| | | | | | | | |
Total current liabilities | | | 498,716 | | | | 549,263 | |
| | |
Long-term debt | | | 1,681,866 | | | | 1,725,282 | |
Postretirement benefits | | | 106,862 | | | | 105,230 | |
Deferred income taxes | | | 43,700 | | | | 46,034 | |
Other long-term liabilities | | | 39,291 | | | | 39,270 | |
Stockholders’ equity: | | | | | | | | |
Preferred stock | | | - | | | | - | |
Common stock | | | 503 | | | | 503 | |
Additional paid-in capital | | | 609,061 | | | | 605,660 | |
Retained earnings | | | 733,852 | | | | 679,716 | |
Accumulated other comprehensive loss | | | (59,069) | | | | (58,987) | |
Treasury stock | | | (401,089) | | | | (402,793) | |
| | | | | | | | |
Total Belden stockholders’ equity | | | 883,258 | | | | 824,099 | |
| | | | | | | | |
Noncontrolling interest | | | 1,197 | | | | 1,424 | |
| | | | | | | | |
Total stockholders’ equity | | | 884,455 | | | | 825,523 | |
| | | | | | | | |
| | $ | 3,254,890 | | | $ | 3,290,602 | |
| | | | | | | | |
|
| | | | | | | |
| July 2, 2017 | | December 31, 2016 |
| (Unaudited) | | |
| (In thousands) |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 670,360 |
| | $ | 848,116 |
|
Receivables, net | 419,591 |
| | 388,059 |
|
Inventories, net | 252,534 |
| | 190,408 |
|
Other current assets | 43,623 |
| | 29,176 |
|
Assets held for sale | 30,743 |
| | 23,193 |
|
Total current assets | 1,416,851 |
| | 1,478,952 |
|
Property, plant and equipment, less accumulated depreciation | 319,371 |
| | 309,291 |
|
Goodwill | 1,453,993 |
| | 1,385,995 |
|
Intangible assets, less accumulated amortization | 600,417 |
| | 560,082 |
|
Deferred income taxes | 35,735 |
| | 33,706 |
|
Other long-lived assets | 36,303 |
| | 38,777 |
|
| $ | 3,862,670 |
| | $ | 3,806,803 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | |
Accounts payable | $ | 280,796 |
| | $ | 258,203 |
|
Accrued liabilities | 255,092 |
| | 310,340 |
|
Liabilities held for sale | 1,803 |
| | 1,736 |
|
Total current liabilities | 537,691 |
| | 570,279 |
|
Long-term debt | 1,679,382 |
| | 1,620,161 |
|
Postretirement benefits | 109,599 |
| | 104,050 |
|
Deferred income taxes | 18,341 |
| | 14,276 |
|
Other long-term liabilities | 38,554 |
| | 36,720 |
|
Stockholders’ equity: | | | |
Preferred stock | 1 |
| | 1 |
|
Common stock | 503 |
| | 503 |
|
Additional paid-in capital | 1,119,763 |
| | 1,116,090 |
|
Retained earnings | 823,761 |
| | 783,812 |
|
Accumulated other comprehensive loss | (65,188 | ) | | (39,067 | ) |
Treasury stock | (400,501 | ) | | (401,026 | ) |
Total Belden stockholders’ equity | 1,478,339 |
| | 1,460,313 |
|
Noncontrolling interest | 764 |
| | 1,004 |
|
Total stockholders’ equity | 1,479,103 |
| | 1,461,317 |
|
| $ | 3,862,670 |
| | $ | 3,806,803 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial
Statements-1-
Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands, except per share data) | |
| | | | |
Revenues | | $ | 601,631 | | | $ | 585,755 | | | $ | 1,143,128 | | | $ | 1,132,712 | |
Cost of sales | | | (353,418) | | | | (351,479) | | | | (669,880) | | | | (690,787) | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 248,213 | | | | 234,276 | | | | 473,248 | | | | 441,925 | |
Selling, general and administrative expenses | | | (123,057) | | | | (127,584) | | | | (245,463) | | | | (267,632) | |
Research and development | | | (36,652) | | | | (36,632) | | | | (72,785) | | | | (72,831) | |
Amortization of intangibles | | | (26,263) | | | | (25,917) | | | | (51,795) | | | | (52,421) | |
| | | | | | | | | | | | | | | | |
Operating income | | | 62,241 | | | | 44,143 | | | | 103,205 | | | | 49,041 | |
Interest expense, net | | | (24,049) | | | | (24,769) | | | | (48,445) | | | | (48,615) | |
| | | | | | | | | | | | | | | | |
Income from continuing operations before taxes | | | 38,192 | | | | 19,374 | | | | 54,760 | | | | 426 | |
Income tax benefit | | | 3,558 | | | | 2,303 | | | | 3,415 | | | | 1,615 | |
| | | | | | | | | | | | | | | | |
Income from continuing operations | | | 41,750 | | | | 21,677 | | | | 58,175 | | | | 2,041 | |
Loss from disposal of discontinued operations, net of tax | | | - | | | | (86) | | | | - | | | | (86) | |
| | | | | | | | | | | | | | | | |
Net income | | | 41,750 | | | | 21,591 | | | | 58,175 | | | | 1,955 | |
Less: Net loss attributable to noncontrolling interest | | | (99) | | | | - | | | | (198) | | | | - | |
| | | | | | | | | | | | | | | | |
Net income attributable to Belden stockholders | | $ | 41,849 | | | $ | 21,591 | | | $ | 58,373 | | | $ | 1,955 | |
| | | | | | | | | | | | | | | | |
| | | | |
Weighted average number of common shares and equivalents: | | | | | | | | | | | | | | | | |
Basic | | | 42,085 | | | | 42,655 | | | | 42,046 | | | | 42,596 | |
Diluted | | | 42,548 | | | | 43,233 | | | | 42,493 | | | | 43,224 | |
| | | | |
Basic income per share attributable to Belden stockholders: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.99 | | | $ | 0.51 | | | $ | 1.39 | | | $ | 0.05 | |
Discontinued operations | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 0.99 | | | $ | 0.51 | | | $ | 1.39 | | | $ | 0.05 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diluted income per share attributable to Belden stockholders: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.98 | | | $ | 0.50 | | | $ | 1.37 | | | $ | 0.05 | |
Discontinued operations | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Net income | | | 0.98 | | | | 0.50 | | | | 1.37 | | | | 0.05 | |
| | | | | | | | | | | | | | | | |
| | | | |
Comprehensive income attributable to Belden stockholders | | $ | 43,485 | | | $ | 19,562 | | | $ | 58,291 | | | $ | 13,839 | |
| | | | | | | | | | | | | | | | |
| | | | |
Dividends declared per share | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.10 | | | $ | 0.10 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2017 |
| July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | |
| (In thousands, except per share data) |
Revenues | $ | 610,633 |
| | $ | 601,631 |
| | $ | 1,162,014 |
| | $ | 1,143,128 |
|
Cost of sales | (368,124 | ) | | (353,418 | ) | | (697,391 | ) | | (669,880 | ) |
Gross profit | 242,509 |
| | 248,213 |
| | 464,623 |
| | 473,248 |
|
Selling, general and administrative expenses | (117,771 | ) | | (123,057 | ) | | (230,357 | ) | | (245,463 | ) |
Research and development | (35,144 | ) | | (36,652 | ) | | (69,666 | ) | | (72,785 | ) |
Amortization of intangibles | (27,113 | ) | | (26,263 | ) | | (50,782 | ) | | (51,795 | ) |
Operating income | 62,481 |
| | 62,241 |
| | 113,818 |
| | 103,205 |
|
Interest expense, net | (23,533 | ) | | (24,049 | ) | | (47,039 | ) | | (48,445 | ) |
Loss on debt extinguishment | (847 | ) | | — |
| | (847 | ) | | — |
|
Income before taxes | 38,101 |
| | 38,192 |
| | 65,932 |
| | 54,760 |
|
Income tax benefit (expense) | (2,210 | ) | | 3,741 |
| | (4,460 | ) | | 3,531 |
|
Net income | 35,891 |
| | 41,933 |
| | 61,472 |
| | 58,291 |
|
Less: Net loss attributable to noncontrolling interest | (86 | ) | | (99 | ) | | (192 | ) | | (198 | ) |
Net income attributable to Belden | 35,977 |
| | 42,032 |
| | 61,664 |
| | 58,489 |
|
Less: Preferred stock dividends | 8,733 |
| | — |
| | 17,466 |
| | — |
|
Net income attributable to Belden common stockholders | $ | 27,244 |
| | $ | 42,032 |
| | $ | 44,198 |
| | $ | 58,489 |
|
| | | | | | | |
Weighted average number of common shares and equivalents: | | | | | | | |
Basic | 42,283 |
| | 42,085 |
| | 42,249 |
| | 42,046 |
|
Diluted | 42,832 |
| | 42,533 |
| | 42,753 |
| | 42,459 |
|
Basic income per share attributable to Belden common stockholders | $ | 0.64 |
| | $ | 1.00 |
| | $ | 1.05 |
| | $ | 1.39 |
|
| | | | | | | |
Diluted income per share attributable to Belden common stockholders | $ | 0.64 |
| | $ | 0.99 |
| | $ | 1.03 |
| | $ | 1.38 |
|
| | | | | | | |
Comprehensive income attributable to Belden | $ | 19,267 |
| | $ | 43,668 |
| | $ | 35,543 |
| | $ | 58,407 |
|
| | | | | | | |
Common stock dividends declared per share | $ | 0.05 |
| | $ | 0.05 |
| | $ | 0.10 |
| | $ | 0.10 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial
Statements-2-
Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
| | | | | | | | |
| | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | |
| | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 58,175 | | | $ | 1,955 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 75,445 | | | | 75,654 | |
Share-based compensation | | | 8,587 | | | | 9,891 | |
Tax benefit related to share-based compensation | | | (116) | | | | (5,288) | |
Changes in operating assets and liabilities, net of the effects of currency exchange rate changes and acquired businesses: | | | | | | | | |
Receivables | | | (3,750) | | | | (6,250) | |
Inventories | | | 368 | | | | (11,837) | |
Accounts payable | | | (20,730) | | | | (43,689) | |
Accrued liabilities | | | (39,356) | | | | (4,363) | |
Accrued taxes | | | (17,759) | | | | (10,214) | |
Other assets | | | 2,457 | | | | (1,736) | |
Other liabilities | | | (2,867) | | | | 923 | |
| | | | | | | | |
Net cash provided by operating activities | | | 60,454 | | | | 5,046 | |
| | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (25,124) | | | | (27,224) | |
Cash used to acquire businesses, net of cash acquired | | | (17,848) | | | | (695,345) | |
Proceeds from disposal of tangible assets | | | 41 | | | | 80 | |
| | | | | | | | |
Net cash used for investing activities | | | (42,931) | | | | (722,489) | |
Cash flows from financing activities: | | | | | | | | |
Payments under borrowing arrangements | | | (51,250) | | | | (625) | |
Cash dividends paid | | | (4,204) | | | | (4,235) | |
Withholding tax payments for share-based payment awards, net of proceeds from the exercise of stock options | | | (3,598) | | | | (11,439) | |
Borrowings under credit arrangements | | | - | | | | 200,000 | |
Debt issuance costs paid | | | - | | | | (643) | |
Tax benefit related to share-based compensation | | | 116 | | | | 5,288 | |
| | | | | | | | |
Net cash provided by (used for) financing activities | | | (58,936) | | | | 188,346 | |
| | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | | | 434 | | | | (3,646) | |
| | | | | | | | |
Decrease in cash and cash equivalents | | | (40,979) | | | | (532,743) | |
Cash and cash equivalents, beginning of period | | | 216,751 | | | | 741,162 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 175,772 | | | $ | 208,419 | |
| | | | | | | | |
|
| | | | | | | |
| Six Months Ended |
| July 2, 2017 | | July 3, 2016 |
| | | |
| (In thousands) |
Cash flows from operating activities: | | | |
Net income | $ | 61,472 |
| | $ | 58,291 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 73,693 |
| | 75,445 |
|
Share-based compensation | 8,924 |
| | 8,587 |
|
Loss on debt extinguishment | 847 |
| | — |
|
Changes in operating assets and liabilities, net of the effects of currency exchange rate changes and acquired businesses: | | | |
Receivables | (17,982 | ) | | (3,750 | ) |
Inventories | (42,052 | ) | | 368 |
|
Accounts payable | 14,748 |
| | (20,730 | ) |
Accrued liabilities | (55,094 | ) | | (39,356 | ) |
Accrued taxes | (12,523 | ) | | (17,875 | ) |
Other assets | (6,573 | ) | | 2,457 |
|
Other liabilities | 9,321 |
| | (2,867 | ) |
Net cash provided by operating activities | 34,781 |
| | 60,570 |
|
Cash flows from investing activities: | | | |
Cash used to acquire businesses, net of cash acquired | (166,945 | ) | | (17,848 | ) |
Capital expenditures | (22,197 | ) | | (25,124 | ) |
Proceeds from disposal of tangible assets | — |
| | 41 |
|
Net cash used for investing activities | (189,142 | ) | | (42,931 | ) |
Cash flows from financing activities: | | | |
Cash dividends paid | (21,688 | ) | | (4,204 | ) |
Payments under borrowing arrangements | (5,221 | ) | | (51,250 | ) |
Withholding tax payments for share-based payment awards, net of proceeds from the exercise of stock options | (4,726 | ) | | (3,598 | ) |
Debt issuance costs paid | (2,044 | ) | | — |
|
Net cash used for financing activities | (33,679 | ) | | (59,052 | ) |
Effect of foreign currency exchange rate changes on cash and cash equivalents | 10,284 |
| | 434 |
|
Decrease in cash and cash equivalents | (177,756 | ) | | (40,979 | ) |
Cash and cash equivalents, beginning of period | 848,116 |
| | 216,751 |
|
Cash and cash equivalents, end of period | $ | 670,360 |
| | $ | 175,772 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial
Statements-3-
Statements.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENT
SIX MONTHS ENDED JULY 3, 20162, 2017
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Belden Inc. Stockholders | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | Additional | | | | | | | | | Other | | | | | | | |
| | Common Stock | | | Paid-In | | | Retained | | | Treasury Stock | | | Comprehensive | | | Noncontrolling | | | | |
| | Shares | | | Amount | | | Capital | | | Earnings | | | Shares | | | Amount | | | Income (Loss) | | | Interest | | | Total | |
| | (In thousands) | |
| | | | | | | | | |
Balance at December 31, 2015 | | | 50,335 | | | $ | 503 | | | $ | 605,660 | | | $ | 679,716 | | | | (8,354) | | | $ | (402,793) | | | $ | (58,987) | | | $ | 1,424 | | | $ | 825,523 | |
| | | | | | | | | |
Net income (loss) | | | - | | | | - | | | | - | | | | 58,373 | | | | - | | | | - | | | | - | | | | (198) | | | | 58,175 | |
Foreign currency translation, net of $1.9 million tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,064) | | | | (29) | | | | (1,093) | |
Adjustments to pension and postretirement liability, net of $0.6 million tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 982 | | | | - | | | | 982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (111) | |
Exercise of stock options, net of tax withholding forfeitures | | | - | | | | - | | | | (963) | | | | - | | | | 19 | | | | 136 | | | | - | | | | - | | | | (827) | |
Conversion of restricted stock units into common stock, net of tax withholding forfeitures | | | - | | | | - | | | | (4,339) | | | | - | | | | 111 | | | | 1,568 | | | | - | | | | - | | | | (2,771) | |
Share-based compensation | | | - | | | | - | | | | 8,703 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8,703 | |
Dividends ($0.10 per share) | | | - | | | | - | | | | - | | | | (4,237) | | | | - | | | | - | | | | - | | | | - | | | | (4,237) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at July 3, 2016 | | | 50,335 | | | $ | 503 | | | $ | 609,061 | | | $ | 733,852 | | | | (8,224) | | | $ | (401,089) | | | $ | (59,069) | | | $ | 1,197 | | | $ | 884,455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Belden Inc. Stockholders | | | | | | |
| Mandatory Convertible | | | | | | Additional | | | | | | Accumulated Other | | Non-controlling | | |
| Preferred Stock | | Common Stock | | Paid-In | | Retained | | Treasury Stock | | Comprehensive | | | |
| Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Income (Loss) | | Interest | | Total |
| | (In thousands) | | |
Balance at December 31, 2016 | 52 |
| | $ | 1 |
| | 50,335 |
| | $ | 503 |
| | $ | 1,116,090 |
| | $ | 783,812 |
| | (8,155 | ) | | $ | (401,026 | ) | | $ | (39,067 | ) | | $ | 1,004 |
| | $ | 1,461,317 |
|
Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 61,664 |
| | — |
| | — |
| | — |
| | (192 | ) | | 61,472 |
|
Foreign currency translation, net of $0.4 million tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26,895 | ) | | (48 | ) | | (26,943 | ) |
Adjustments to pension and postretirement liability, net of $0.5 million tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 774 |
| | — |
| | 774 |
|
Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | | | | (26,169 | ) |
Exercise of stock options, net of tax withholding forfeitures | — |
| | — |
| | — |
| | — |
| | (1,034 | ) | | — |
| | 22 |
| | (8 | ) | | — |
| | — |
| | (1,042 | ) |
Conversion of restricted stock units into common stock, net of tax withholding forfeitures | — |
| | — |
| | — |
| | — |
| | (4,217 | ) | | — |
| | 95 |
| | 533 |
| | — |
| | — |
| | (3,684 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 8,924 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,924 |
|
Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | — |
| | (17,466 | ) | | — |
| | — |
| | — |
| | — |
| | (17,466 | ) |
Common stock dividends ($0.10 per share) | — |
| | — |
| | — |
| | — |
| | — |
| | (4,249 | ) | | — |
| | — |
| | — |
| | — |
| | (4,249 | ) |
Balance at July 2, 2017 | 52 |
| | $ | 1 |
| | 50,335 |
| | $ | 503 |
| | $ | 1,119,763 |
| | $ | 823,761 |
| | (8,038 | ) | | $ | (400,501 | ) | | $ | (65,188 | ) | | $ | 764 |
| | $ | 1,479,103 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial
Statements-4-
Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
The accompanying Condensed Consolidated Financial Statements include Belden Inc. and all of its subsidiaries (the Company, us, we, or our). We eliminate all significant affiliate accounts and transactions in consolidation.
The accompanying Condensed Consolidated Financial Statements presented as of any date other than December 31,
2015: | ● | Are prepared from the books and records without audit, and
|
| ● | Are prepared in accordance with the instructions for Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States for complete statements, but
|
| ● | Include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements.
|
2016:
Are prepared from the books and records without audit, and
Are prepared in accordance with the instructions for Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States for complete statements, but
Include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Supplementary Data contained in our
20152016 Annual Report on Form 10-K.
We are
an innovativea signal transmission solutions provider built around
fivefour global business platforms – Broadcast Solutions, Enterprise
Connectivity Solutions, Industrial
Connectivity Solutions, Industrial IT Solutions, and Network
Security Solutions. Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.
Our fiscal year and fiscal fourth quarter both end on December 31. Our fiscal first quarter ends on the Sunday falling closest to 91 days after December 31, which was April
3, 2016,2, 2017, the
94th92nd day of our fiscal year
2016.2017. Our fiscal second and third quarters each have 91 days. The six months ended July
2, 2017 and July 3, 2016
included 183 and
June 28, 2015 included 185
and 179 days, respectively.
We have made certain reclassifications to the
20152016 Condensed Consolidated Financial Statements with no impact to reported net income in order to conform to the
20162017 presentation.
Operating Segments
To leverage the Company's strengths in networking, IoT, and cybersecurity technologies, effective January 1, 2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments. The formation is a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications. We have revised the prior period segment information to conform to the change in the composition of these reportable segments. In connection with this change, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of 10 years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of $0.8 million and $1.6 million for the three and six months ended July 2, 2017, respectively.
Accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
| ● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
|
-5-
| ● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
|
| ● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As of and during the three and six months ended July
2, 2017 and July 3, 2016,
and June 28, 2015, we utilized Level 1 inputs to determine the fair value of cash
equivalents.equivalents, and we utilized Level 2 and Level 3 inputs to determine the fair value of net assets acquired in business combinations (see Note 2). We did not have any transfers between Level 1 and Level 2 fair value measurements during the six months ended July
2, 2017 and July 3,
2016 and June 28, 2015.2016.
Cash and Cash Equivalents
We classify cash on hand and deposits in banks, including commercial paper, money market accounts, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. We periodically have cash equivalents consisting of short-term money market funds and other investments. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations. We do not enter into investments for trading or speculative purposes. As of July
3, 2016,2, 2017, we did not have any significant cash equivalents.
We have established liabilities for environmental and legal contingencies that are probable of occurrence and reasonably estimable, the amounts of which are currently not material. We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in consultation with our environmental consultants and legal counsel. We are, from time to time, subject to routine litigation incidental to our business. These lawsuits primarily involve claims for damages arising out of the use of our products, allegations of patent or trademark infringement, and litigation and administrative proceedings involving employment matters and commercial disputes. Based on facts currently available, we believe the disposition of the claims that are pending or asserted will not have a materially adverse effect on our financial position, results of operations, or cash flow.
As of July
3, 2016,2, 2017, we were party to standby letters of credit,
surety bonds, and bank guaranties
and surety bonds totaling
$8.9$8.1 million,
$2.9$2.4 million, and
$2.4$1.8 million, respectively.
Contingent Gain
On July 5, 2011, our wholly-owned subsidiary, PPC Broadband, Inc. (PPC), filed an action for patent infringement against Corning Optical Communications RF LLC (Corning). The complaint alleged that Corning infringed two of PPC’s patents. In July 2015, a jury found that Corning willfully infringed both patents. In November 2016, following a series of post-trial motions, the trial judge issued rulings for a total judgment in our favor of approximately $61.3 million. In December 2016, Corning appealed the case to the U.S. Court of Appeals for the Federal Circuit, and that appeal remains pending. We have not recorded any amounts in our consolidated financial statements related to this matter due to the pendency of the appeal.
We recognize revenue when all of the following circumstances are satisfied: (1) persuasive evidence of an arrangement exists, (2) price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. At times, we enter into arrangements that involve the delivery of multiple elements. For these arrangements, when the elements can be separated, the revenue is allocated to each deliverable based on that element’s relative selling price and recognized based on the period of delivery for each element. Generally, we determine relative selling price using
our best estimate of selling price, unless we have established vendor specific objective evidence (VSOE)
or third party evidence of fair
value exists for such arrangements.value.
We record revenue net of estimated rebates, price allowances, invoicing adjustments, and product returns. We record revisions to these estimates in the period in which the facts that give rise to each revision become known.
-6-
Taxes collected from customers and remitted to governmental authorities are not included in our revenues.
We have certain products subject to the accounting guidance on software revenue recognition. For such products, software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, collection is probable and VSOE of the fair value of undelivered elements exists. As substantially all of the software licenses are sold in multiple-element arrangements that include either support
and maintenance or both support
and maintenance and professional services, we use the residual method to determine the amount of software license revenue to be recognized. Under the residual method, consideration is allocated to undelivered elements based upon VSOE of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as software license revenue.
In our Network Security Solutions segment, weWe have established VSOE of the fair value of support
and maintenance, subscription-based software licenses, and professional services. Software license revenue is generally recognized upon delivery of the software if all revenue recognition criteria are met.
Revenue allocated to support services under our
Network Security Solutions support
and maintenance contracts
is typically paid in advance and recognized ratably over the term of the service. Revenue allocated to subscription-based software and remote ongoing operational services is
also paid in advance and recognized ratably over the term of the service. Revenue allocated to professional services, including remote implementation services, is recognized as the services are performed.
Discontinued Operations
In both the three and six months ended June 28, 2015, we recognized a $0.2 million ($0.1 million net of tax) loss from disposal of discontinued operations for a final escrow settlement related to the 2010 disposition of Trapeze Networks, Inc.
We have evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure. See Note
12.Current-Year Adoption of Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-03,Interest – Imputation of Interest (Subtopic 835-30):Simplifying the Presentation of Debt Issuance Costs(ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for fiscal years beginning after December 15, 2015. We adopted ASU 2015-03 effective January 1, 2016, retrospectively. Adoption resulted in a $6.0 million decrease in total current assets, a $19.2 million decrease in other long-lived assets, and a $25.2 million decrease in long-term debt in our Consolidated Balance Sheet as of December 31, 2015 compared to the prior period presentation. Adoption had no impact on our results of operations.
16.
Pending Adoption of Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (ASU 2014-09), which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments.
We plan to adopt ASU 2014-09
will be effective for us beginningon January 1, 2018,
and allows for both retrospective andusing the modified retrospective
methodsmethod of adoption.
Early adoption beginning January 1, 2017 is permitted. We are continuing the process of determining the method and timing of adoption and assessing the impact of ASU 2014-09 on our Consolidated Financial Statements. Our
overall, initial assessment indicates that the
overall impact of adopting ASU 2014-09
is expectedon our consolidated financial statements will not be material. We do not expect significant changes in the timing or method of revenue recognition for any of our material revenue streams. We are currently completing detailed contract reviews to
be minimal. Anydetermine if any adjustments are necessary to our existing accounting policies and to support our overall, initial assessment. We believe the most significant impact
is expected toof adopting ASU 2014-09 will be
limited to a software product line withinon our
Broadcast segment that generates an immaterial amountdisclosures regarding revenue recognition. We will continue our evaluation of
annual revenues.-7-
ASU 2014-09, including new or emerging interpretations of the standard, through the date of adoption.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,Leases(ASU (ASU 2016-02), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard will be effective for us beginning January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
In MarchOctober 2016, the FASB issued Accounting Standards Update No. 2016-09,Improvements to Employee Share-Based Payment Accounting2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-09)2016-16), which requires entities to recognizerecognition of the income tax effectsconsequences of stock awards in the income statementan intra-entity transfer of an asset other than inventory when the awards vest or are settled. Further, ASU 2016-09 allows entities to withhold uptransfer occurs. Consequently, the standard eliminates the exception to the maximum individual statutory tax rate without classifyingrecognition of current and deferred income taxes for an intra-entity asset transfer other than for inventory until the stock awards as a liability andasset has been sold to account for forfeitures either upon occurrence or by estimating forfeitures.an outside party. The new standard will be effective for us beginning January 1, 2017.2018. Early adoption is permitted. We are evaluating the effect that ASU 2016-092016-16 will have on our consolidated financial statements and related disclosures.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which requires an entity to report the service cost component in the same line item or items as other compensation costs arising from the service rendered by their employees during the period. The other components of net benefit cost are required to be presented in the Statement of Operations separately from the service cost component after Operating Income. Additionally, only the service cost component will be eligible for capitalization, when applicable. The standard requires the amendments to be applied retrospectively for the presentation of the service cost component and the other cost components of net periodic pension cost and net periodic OPEB cost in the Statement of Operations and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension and OPEB costs. The new standard will be effective for us January 1, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2017-07 will have on our consolidated financial statements and related disclosures.
Thinklogical Holdings, LLC
We acquired 100% of the outstanding ownership interest in Thinklogical Holdings, LLC (Thinklogical) on May 31, 2017 for cash of $171.3 million. Thinklogical designs, manufactures, and markets high-bandwidth fiber matrix switches, video, and keyboard/video/mouse extender solutions, camera extenders, and console management solutions. Thinklogical is headquartered in Connecticut. The results of Thinklogical have been included in our Consolidated Financial Statements from May 31, 2017, and are reported within the Broadcast Solutions segment. The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed as of May 31, 2017 (in thousands):
|
| | | | |
Cash | | $ | 5,327 |
|
Receivables | | 4,355 |
|
Inventory | | 17,291 |
|
Prepaid and other current assets | | 405 |
|
Property, plant, and equipment | | 4,289 |
|
Intangible assets | | 86,250 |
|
Goodwill | | 57,513 |
|
Total assets acquired | | $ | 175,430 |
|
| | |
Accounts payable | | $ | 1,231 |
|
Accrued liabilities | | 1,353 |
|
Deferred revenue | | 1,574 |
|
Total liabilities assumed | | $ | 4,158 |
|
| | |
Net assets | | $ | 171,272 |
|
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.
The fair value of acquired receivables is $4.4 million, which is equivalent to its gross contractual amount.
For purposes of the above allocation, we based our estimate of the fair value for the acquired inventory, intangible assets, and deferred revenue on a preliminary valuation study performed by a third party valuation firm. We have estimated a fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. We used various valuation methods including discounted cash flows to estimate the fair value of the identifiable intangible assets and deferred revenue (Level 3 valuation).
Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the Thinklogical acquisition primarily consist of utilizing Belden's fiber and connectivity with Thinklogical's connections between matrix switch, control systems, transmitters and source to expand our product portfolio across our segments to both existing and new customers. Our tax basis in the acquired goodwill is $57.5 million. The goodwill balance we recorded is deductible for tax purposes over a period of 15 years up to the amount of the tax basis. The intangible assets related to the acquisition consisted of the following:
|
| | | | | | |
| | Fair Value | | Amortization Period |
| | (In thousands) | | (In years) |
Intangible assets subject to amortization: | | | | |
Developed technologies | | $ | 60,000 |
| | 5.0 |
Customer relationships | | 20,000 |
| | 15.0 |
Trademarks | | 3,750 |
| | 10.0 |
Sales backlog | | 2,500 |
| | 0.3 |
Total intangible assets subject to amortization | | $ | 86,250 |
| | |
| | | | |
Intangible assets not subject to amortization: | | | | |
Goodwill | | $ | 57,513 |
| | n/a |
Total intangible assets not subject to amortization | | $ | 57,513 |
| | |
| | | | |
Total intangible assets | | $ | 143,763 |
| | |
Weighted average amortization period | | | | 7.4 |
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the customer relationship intangible asset was based on our forecasts of customer turnover. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period of consumption of the intangible asset. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship.
Our consolidated revenues and consolidated income before taxes for the three and six months ended July 2, 2017 included $10.2 million of revenues and $1.1 million of income before taxes from Thinklogical.
The following table illustrates the unaudited pro forma effect on operating results as if the Thinklogical acquisition had been completed as of January 1, 2016.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | | |
| | (In thousands, except per share data) |
| | (Unaudited) |
Revenues | | $ | 615,109 |
| | $ | 608,517 |
| | $ | 1,170,745 |
| | $ | 1,155,428 |
|
Net income attributable to Belden common stockholders | | 28,250 |
| | 38,194 |
| | 41,130 |
| | 47,520 |
|
Diluted income per share attributable to Belden common stockholders | | $ | 0.66 |
| | $ | 0.90 |
| | $ | 0.96 |
| | $ | 1.12 |
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisitions on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
We acquired 100% of the shares of M2FX Limited (M2FX) on January 7, 2016 for a preliminary purchase price of $23.2$19.0 million. Of the total purchase price, $7.6 million has been preliminarily deferred as estimated earn-out consideration. The estimated earn-out is scheduled to be paid in early 2017, if certain financial targets are achieved. We determined the estimated fair value of the earn-out with the assistance of a third party valuation specialist using a probability weighted discounted cash flow model. M2FX is a manufacturer of fiber optic cable and fiber protective solutions for broadband access and telecommunications networks. M2FX is located in the United Kingdom. The results of M2FX have been included in our Consolidated Financial Statements from January 7, 2016, and are reported within the Broadcast Solutions segment. The M2FX acquisition was not material to our financial position or results of operations.
Note 3: Assets Held for Sale
We classify assets and liabilities as held for sale (disposal group) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. We also consider whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When we classify a disposal group as held for sale, we test for impairment. An impairment charge is recognized when the carrying value of the disposal group exceeds the estimated fair value, less costs to sell. We also cease depreciation and amortization for assets classified as held for sale.
During the fourth quarter of 2016, we committed to a plan to sell our MCS business and Hirschmann JV and determined that we met all of the criteria to classify the assets and liabilities of these businesses as held for sale. The MCS business is part of the Industrial Solutions segment and the Hirschmann JV is an equity method investment that is not included in an operating segment. The MCS business operates in Germany and the United States, and the Hirschmann JV is an equity method investment located in China. During the fourth quarter of 2016, we reached an agreement in principal to sell this disposal group for a total sales price of $39 million. The carrying value of the disposal group exceeded the fair value less costs to sell, which we determined based on the expected sales price, by $23.9 million. Therefore, we recognized an impairment charge equal to this amount in the fourth quarter of 2016. During the first quarter of 2017, we signed a definitive sales agreement for a purchase price of $39 million, and we expect the sale to be completed in 2017. The following table provides the major classes of assets and liabilities classified as held for sale as of July 2, 2017 and December 31, 2016. In addition, the disposal group had $8.9 million and $15.7 million of accumulated other comprehensive losses at July 2, 2017 and December 31, 2016, respectively.
|
| | | | | | | |
| July 2, 2017 | | December 31, 2016 |
| |
| (In thousands) |
Receivables, net | $ | 4,881 |
| | $ | 4,551 |
|
Inventories, net | 3,902 |
| | 2,848 |
|
Other current assets | 1,190 |
| | 1,131 |
|
Property, plant, and equipment | 2,195 |
| | 1,946 |
|
Intangible assets | 4,534 |
| | 4,405 |
|
Goodwill | 5,477 |
| | 5,477 |
|
Other long-lived assets | 32,495 |
| | 26,766 |
|
Total assets of disposal group | 54,674 |
| | 47,124 |
|
Impairment of assets held for sale | (23,931 | ) | | (23,931 | ) |
Total assets held for sale | $ | 30,743 |
| | $ | 23,193 |
|
Accrued liabilities | $ | 1,409 |
| | $ | 1,288 |
|
Postretirement benefits | 394 |
| | 448 |
|
Total liabilities held for sale | $ | 1,803 |
| | $ | 1,736 |
|
Note
3:4: Operating Segments
We are organized around
fivefour global business platforms: Broadcast
Solutions, Enterprise
Connectivity,Solutions, Industrial
Connectivity, Industrial IT,Solutions, and Network
Security.Solutions. Each of the global business platforms represents a reportable segment.
To
capitalize onleverage the
adoption of IP technologyCompany's strengths in networking, IoT, and
accelerate our penetration of the commercial audio-video market, we transferred responsibility of audio-video cable and connectors from our Broadcast platform to our Enterprise Connectivity platformcybersecurity technologies, effective January 1,
2016.2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments. The formation of this new segment is a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications. We have revised the prior period segment information to conform to the change in the composition of these reportable segments. This
transferchange had no impact to our reporting units for purposes of goodwill impairment testing.
Beginning in 2017, sales of certain audio-visual cable that had previously been reported in our Broadcast Solutions segment are now reported in our Enterprise Solutions segment. As the annual revenues associated with this product line are not material, we have not revised the prior period segment information.
The key measures of segment profit or loss reviewed by our chief operating decision maker are Segment Revenues and Segment EBITDA. Segment Revenues represent non-affiliate revenues and include revenues that would have otherwise been recorded by acquired businesses as independent entities but were not recognized in our Consolidated Statements of Operations due to the effects of purchase accounting and the associated write-down of acquired deferred revenue to fair value. Segment EBITDA excludes certain items, including depreciation expense; amortization of intangibles; asset impairment; severance, restructuring, and acquisition integration costs; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value; and other costs. We allocate corporate expenses to the segments for purposes of measuring Segment EBITDA. Corporate expenses are allocated on the basis of each segment’s relative EBITDA prior to the allocation.
-8-
Our measure of segment assets does not include cash, goodwill, intangible assets, deferred tax assets, or corporate assets. All goodwill is allocated to reporting units of our segments for purposes of impairment testing.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Broadcast Solutions | | | Enterprise Connectivity Solutions | | | Industrial Connectivity Solutions | | | Industrial IT Solutions | | | Network Security Solutions | | | Total Segments | |
| | (In thousands) | |
As of and for the three months ended July 3, 2016 | | | | | | | | | | | | | | | | | | |
Segment revenues | | $ | 193,521 | | | $ | 160,401 | | | $ | 147,808 | | | $ | 62,510 | | | $ | 39,141 | | | $ | 603,381 | |
Affiliate revenues | | | 173 | | | | 1,328 | | | | 214 | | | | 4 | | | | - | | | | 1,719 | |
Segment EBITDA | | | 29,505 | | | | 29,575 | | | | 27,064 | | | | 12,676 | | | | 9,515 | | | | 108,335 | |
| | | | | | |
Depreciation expense | | | 4,061 | | | | 3,429 | | | | 2,709 | | | | 660 | | | | 1,128 | | | | 11,987 | |
Amortization expense | | | 13,420 | | | | 432 | | | | 601 | | | | 1,506 | | | | 10,304 | | | | 26,263 | |
Severance, restructuring, and acquisition integration costs | | | 1,319 | | | | 1,207 | | | | 2,371 | | | | 943 | | | | 29 | | | | 5,869 | |
Deferred gross profit adjustments | | | 494 | | | | - | | | | - | | | | - | | | | 1,256 | | | | 1,750 | |
Segment assets | | | 329,250 | | | | 253,424 | | | | 255,250 | | | | 65,603 | | | | 41,573 | | | | 945,100 | |
| | | | | | |
As of and for the three months ended June 28, 2015 | | | | | | | | | | | | | | | | | | |
Segment revenues | | $ | 174,923 | | | $ | 161,827 | | | $ | 160,875 | | | $ | 61,270 | | | $ | 39,618 | | | $ | 598,513 | |
Affiliate revenues | | | - | | | | 1,708 | | | | 408 | | | | 10 | | | | - | | | | 2,126 | |
Segment EBITDA | | | 22,878 | | | | 29,792 | | | | 28,680 | | | | 10,178 | | | | 8,772 | | | | 100,300 | |
| | | | | | |
Depreciation expense | | | 4,140 | | | | 3,180 | | | | 2,869 | | | | 584 | | | | 919 | | | | 11,692 | |
Amortization expense | | | 12,595 | | | | 429 | | | | 807 | | | | 1,479 | | | | 10,607 | | | | 25,917 | |
Severance, restructuring, and acquisition integration costs | | | 3,283 | | | | 83 | | | | 1,163 | | | | - | | | | 378 | | | | 4,907 | |
Deferred gross profit adjustments | | | (924) | | | | - | | | | - | | | | - | | | | 14,364 | | | | 13,440 | |
Segment assets | | | 352,848 | | | | 279,360 | | | | 267,448 | | | | 63,599 | | | | 42,241 | | | | 1,005,496 | |
| | | | | | |
As of and for the six months ended July 3, 2016 | | | | | | | | | | | | | | | | | | |
Segment revenues | | $ | 364,793 | | | $ | 296,293 | | | $ | 288,899 | | | $ | 116,392 | | | $ | 80,804 | | | $ | 1,147,181 | |
Affiliate revenues | | | 597 | | | | 3,027 | | | | 396 | | | | 32 | | | | - | | | | 4,052 | |
Segment EBITDA | | | 52,772 | | | | 53,311 | | | | 50,051 | | | | 21,285 | | | | 20,982 | | | | 198,401 | |
| | | | | | |
Depreciation expense | | | 8,023 | | | | 6,818 | | | | 5,427 | | | | 1,184 | | | | 2,198 | | | | 23,650 | |
Amortization expense | | | 26,351 | | | | 861 | | | | 1,192 | | | | 3,016 | | | | 20,375 | | | | 51,795 | |
Severance, restructuring, and acquisition integration costs | | | 5,697 | | | | 1,707 | | | | 3,236 | | | | 3,608 | | | | 29 | | | | 14,277 | |
Purchase accounting effects of acquisitions | | | 195 | | | | - | | | | - | | | | - | | | | - | | | | 195 | |
Deferred gross profit adjustments | | | 1,108 | | | | - | | | | - | | | | - | | | | 2,945 | | | | 4,053 | |
Segment assets | | | 329,250 | | | | 253,424 | | | | 255,250 | | | | 65,603 | | | | 41,573 | | | | 945,100 | |
| | | | | | |
As of and for the six months ended June 28, 2015 | | | | | | | | | | | | | | | | | | |
Segment revenues | | $ | 351,423 | | | $ | 303,608 | | | $ | 313,847 | | | $ | 122,343 | | | $ | 76,743 | | | $ | 1,167,964 | |
Affiliate revenues | | | - | | | | 3,680 | | | | 731 | | | | 31 | | | | 8 | | | | 4,450 | |
Segment EBITDA | | | 46,005 | | | | 49,801 | | | | 52,853 | | | | 21,265 | | | | 18,673 | | | | 188,597 | |
| | | | | | |
Depreciation expense | | | 8,113 | | | | 6,394 | | | | 5,720 | | | | 1,143 | | | | 1,863 | | | | 23,233 | |
Amortization expense | | | 25,021 | | | | 861 | | | | 1,630 | | | | 2,889 | | | | 22,020 | | | | 52,421 | |
Severance, restructuring, and acquisition integration costs | | | 14,810 | | | | 651 | | | | 2,936 | | | | (52) | | | | 1,045 | | | | 19,390 | |
Purchase accounting effects of acquisitions | | | - | | | | - | | | | 267 | | | | - | | | | 9,155 | | | | 9,422 | |
Deferred gross profit adjustments | | | 2,370 | | | | - | | | | - | | | | - | | | | 32,728 | | | | 35,098 | |
Segment assets | | | 352,848 | | | | 279,360 | | | | 267,448 | | | | 63,599 | | | | 42,241 | | | | 1,005,496 | |
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|
| | | | | | | | | | | | | | | | | | | | |
| | Broadcast Solutions | | Enterprise Solutions | | Industrial Solutions | | Network Solutions | | Total Segments |
| | | | | | | | | | |
| | (In thousands) |
As of and for the three months ended July 2, 2017 | | | | | | | | | | |
Segment revenues | | $ | 188,071 |
| | $ | 160,733 |
| | $ | 159,255 |
| | $ | 102,574 |
| | $ | 610,633 |
|
Affiliate revenues | | 94 |
| | 1,545 |
| | 275 |
| | 32 |
| | 1,946 |
|
Segment EBITDA | | 29,610 |
| | 26,801 |
| | 31,036 |
| | 22,780 |
| | 110,227 |
|
Depreciation expense | | 4,058 |
| | 2,695 |
| | 3,168 |
| | 1,607 |
| | 11,528 |
|
Amortization expense | | 13,453 |
| | 429 |
| | 640 |
| | 12,591 |
| | 27,113 |
|
Severance, restructuring, and acquisition integration costs | | 970 |
| | 8,141 |
| | 346 |
| | 103 |
| | 9,560 |
|
Purchase accounting effects of acquisitions | | 1,167 |
| | — |
| | — |
| | — |
| | 1,167 |
|
Segment assets | | 359,160 |
| | 275,770 |
| | 282,068 |
| | 105,070 |
| | 1,022,068 |
|
As of and for the three months ended July 3, 2016 | | | | | | | | | | |
Segment revenues | | $ | 193,521 |
| | $ | 160,401 |
| | $ | 147,808 |
| | $ | 101,651 |
| | $ | 603,381 |
|
Affiliate revenues | | 173 |
| | 1,328 |
| | 214 |
| | 4 |
| | 1,719 |
|
Segment EBITDA | | 29,505 |
| | 29,575 |
| | 27,064 |
| | 22,191 |
| | 108,335 |
|
Depreciation expense | | 4,061 |
| | 3,429 |
| | 2,709 |
| | 1,788 |
| | 11,987 |
|
Amortization expense | | 13,420 |
| | 432 |
| | 601 |
| | 11,810 |
| | 26,263 |
|
Severance, restructuring, and acquisition integration costs | | 1,319 |
| | 1,207 |
| | 2,371 |
| | 972 |
| | 5,869 |
|
Deferred gross profit adjustments | | 494 |
| | — |
| | — |
| | 1,256 |
| | 1,750 |
|
Segment assets | | 329,250 |
| | 253,424 |
| | 255,250 |
| | 107,176 |
| | 945,100 |
|
As of and for the six months ended July 2, 2017 | | | | | | | | | | |
Segment revenues | | $ | 356,667 |
| | $ | 306,415 |
| | $ | 305,436 |
| | $ | 193,496 |
| | $ | 1,162,014 |
|
Affiliate revenues | | 195 |
| | 4,103 |
| | 662 |
| | 92 |
| | 5,052 |
|
Segment EBITDA | | 55,010 |
| | 50,901 |
| | 56,769 |
| | 40,657 |
| | 203,337 |
|
Depreciation expense | | 8,007 |
| | 5,294 |
| | 6,374 |
| | 3,236 |
| | 22,911 |
|
Amortization expense | | 23,468 |
| | 853 |
| | 1,282 |
| | 25,179 |
| | 50,782 |
|
Severance, restructuring, and acquisition integration costs | | 1,378 |
| | 13,014 |
| | 1,467 |
| | 301 |
| | 16,160 |
|
Purchase accounting effects of acquisitions | | 1,167 |
| | — |
| | — |
| | — |
| | 1,167 |
|
Segment assets | | 359,160 |
| | 275,770 |
| | 282,068 |
| | 105,070 |
| | 1,022,068 |
|
As of and for the six months ended July 3, 2016 | | | | | | | | | | |
Segment revenues | | $ | 364,793 |
| | $ | 296,293 |
| | $ | 288,899 |
| | $ | 197,196 |
| | $ | 1,147,181 |
|
Affiliate revenues | | 597 |
| | 3,027 |
| | 396 |
| | 32 |
| | 4,052 |
|
Segment EBITDA | | 52,772 |
| | 53,311 |
| | 50,051 |
| | 42,267 |
| | 198,401 |
|
Depreciation expense | | 8,023 |
| | 6,818 |
| | 5,427 |
| | 3,382 |
| | 23,650 |
|
Amortization expense | | 26,351 |
| | 861 |
| | 1,192 |
| | 23,391 |
| | 51,795 |
|
Severance, restructuring, and acquisition integration costs | | 5,697 |
| | 1,707 |
| | 3,236 |
| | 3,637 |
| | 14,277 |
|
Purchase accounting effects of acquisitions | | 195 |
| | — |
| | — |
| | — |
| | 195 |
|
Deferred gross profit adjustments | | 1,108 |
| | — |
| | — |
| | 2,945 |
| | 4,053 |
|
Segment assets | | 329,250 |
| | 253,424 |
| | 255,250 |
| | 107,176 |
| | 945,100 |
|
The following table is a reconciliation of the total of the reportable segments’ Revenues and EBITDA to consolidated revenues and consolidated income
from continuing operations before taxes, respectively.
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | | | (In thousands) | |
| | | | |
Total Segment Revenues | | $ | 603,381 | | | $ | 598,513 | | | $ | 1,147,181 | | | $ | 1,167,964 | |
Deferred revenue adjustments (1) | | | (1,750) | | | | (12,758) | | | | (4,053) | | | | (35,252) | |
| | | | | | | | | | | | | | | | |
Consolidated Revenues | | $ | 601,631 | | | $ | 585,755 | | | $ | 1,143,128 | | | $ | 1,132,712 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total Segment EBITDA | | $ | 108,335 | | | $ | 100,300 | | | $ | 198,401 | | | $ | 188,597 | |
Amortization of intangibles | | | (26,263) | | | | (25,917) | | | | (51,795) | | | | (52,421) | |
Deferred gross profit adjustments (1) | | | (1,750) | | | | (13,440) | | | | (4,053) | | | | (35,098) | |
Severance, restructuring, and acquisition integration costs (2) | | | (5,869) | | | | (4,907) | | | | (14,277) | | | | (19,390) | |
Depreciation expense | | | (11,987) | | | | (11,692) | | | | (23,650) | | | | (23,233) | |
Purchase accounting effects related to acquisitions (3) | | | - | | | | - | | | | (195) | | | | (9,422) | |
Income from equity method investment | | | 661 | | | | 343 | | | | 491 | | | | 1,111 | |
Eliminations | | | (886) | | | | (544) | | | | (1,717) | | | | (1,103) | |
| | | | | | | | | | | | | | | | |
Consolidated operating income | | | 62,241 | | | | 44,143 | | | | 103,205 | | | | 49,041 | |
Interest expense, net | | | (24,049) | | | | (24,769) | | | | (48,445) | | | | (48,615) | |
| | | | | | | | | | | | | | | | |
| | | | |
Consolidated income from continuing operations before taxes | | $ | 38,192 | | | $ | 19,374 | | | $ | 54,760 | | | $ | 426 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | |
| (In thousands) |
Total Segment Revenues | $ | 610,633 |
| | $ | 603,381 |
| | $ | 1,162,014 |
| | $ | 1,147,181 |
|
Deferred revenue adjustments (1) | — |
| | (1,750 | ) | | — |
| | (4,053 | ) |
Consolidated Revenues | $ | 610,633 |
| | $ | 601,631 |
| | $ | 1,162,014 |
| | $ | 1,143,128 |
|
| | | | | | | |
Total Segment EBITDA | $ | 110,227 |
| | $ | 108,335 |
| | $ | 203,337 |
| | $ | 198,401 |
|
Amortization of intangibles | (27,113 | ) | | (26,263 | ) | | (50,782 | ) | | (51,795 | ) |
Depreciation expense | (11,528 | ) | | (11,987 | ) | | (22,911 | ) | | (23,650 | ) |
Severance, restructuring, and acquisition integration costs (2) | (9,560 | ) | | (5,869 | ) | | (16,160 | ) | | (14,277 | ) |
Purchase accounting effects related to acquisitions (3) | (1,167 | ) | | — |
| | (1,167 | ) | | (195 | ) |
Deferred gross profit adjustments (1) | — |
| | (1,750 | ) | | — |
| | (4,053 | ) |
Income from equity method investment | 2,277 |
| | 661 |
| | 3,284 |
| | 491 |
|
Eliminations | (655 | ) | | (886 | ) | | (1,783 | ) | | (1,717 | ) |
Consolidated operating income | 62,481 |
| | 62,241 |
| | 113,818 |
| | 103,205 |
|
Interest expense, net | (23,533 | ) | | (24,049 | ) | | (47,039 | ) | | (48,445 | ) |
Loss on debt extinguishment | (847 | ) | | — |
| | (847 | ) | | — |
|
Consolidated income before taxes | $ | 38,101 |
| | $ | 38,192 |
| | $ | 65,932 |
| | $ | 54,760 |
|
(1) For
both the three and six months ended July 3, 2016
and June 28, 2015, both, our
segment results include revenues that would have been recorded by acquired businesses had they remained as independent entities. Our consolidated
results do not include these revenues
and gross profit were negatively impacted bydue to the
reductionpurchase accounting effect of
the acquiredrecording deferred revenue
balance toat fair
value associated with our 2015 acquisition of Tripwire.value.
(2) See Note 7,8, Severance, Restructuring, and Acquisition Integration Activities,for details. (3) For the three and six months ended July 2, 2017 and July 3, 2016, we recognized $0.2 million of cost of sales related tofor the adjustment of acquired inventory to fair value related to our acquisition of M2FX. For the six months ended June 28, 2015, we recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards associated with our acquisition of Tripwire. In addition, we recognized $0.3 million of cost of sales related to the adjustment of acquired inventory to fair value related to our acquisition of Coast.Thinklogical and M2FX acquisitions, respectively.
Note
4:5: Income per Share
The following table presents the basis for the income per share computations:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | |
Numerator: | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 41,750 | | | $ | 21,677 | | | $ | 58,175 | | | $ | 2,041 | |
Less: Net loss attributable to noncontrolling interest | | | (99) | | | | - | | | | (198) | | | | - | |
| | | | | | | | | | | | | | | | |
Income from continuing operations attributable to Belden stockholders | | | 41,849 | | | | 21,677 | | | | 58,373 | | | | 2,041 | |
Loss from disposal of discontinued operations, net of tax, attributable to Belden stockholders | | | - | | | | (86) | | | | - | | | | (86) | |
| | | | | | | | | | | | | | | | |
Net income attributable to Belden stockholders | | $ | 41,849 | | | $ | 21,591 | | | $ | 58,373 | | | $ | 1,955 | |
| | | | | | | | | | | | | | | | |
| | | | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average shares outstanding, basic | | | 42,085 | | | | 42,655 | | | | 42,046 | | | | 42,596 | |
Effect of dilutive common stock equivalents | | | 463 | | | | 578 | | | | 447 | | | | 628 | |
| | | | | | | | | | | | | | | | |
| | | | |
Weighted average shares outstanding, diluted | | | 42,548 | | | | 43,233 | | | | 42,493 | | | | 43,224 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | |
| (In Thousands) |
Numerator: | | | | | | | |
Net income | $ | 35,891 |
| | $ | 41,933 |
| | $ | 61,472 |
| | $ | 58,291 |
|
Less: Net loss attributable to noncontrolling interest | (86 | ) | | (99 | ) | | (192 | ) | | (198 | ) |
Less: Preferred stock dividends | 8,733 |
| | — |
| | 17,466 |
| | — |
|
Net income attributable to Belden common stockholders | $ | 27,244 |
| | $ | 42,032 |
| | $ | 44,198 |
| | $ | 58,489 |
|
Denominator: | | | | | | | |
Weighted average shares outstanding, basic | 42,283 |
| | 42,085 |
| | 42,249 |
| | 42,046 |
|
Effect of dilutive common stock equivalents | 549 |
| | 448 |
| | 504 |
| | 413 |
|
Weighted average shares outstanding, diluted | 42,832 |
| | 42,533 |
| | 42,753 |
| | 42,459 |
|
For both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include outstanding equity awards of 0.4 million because to do so would have been anti-dilutive. In addition, for both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include outstanding equity awards of 0.2 million because the related performance conditions have not been satisfied. Furthermore, for both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include the impact of preferred shares that are convertible into 6.9 million common shares because deducting the preferred stock dividends from net income was more dilutive.
For the three and six months ended July 3, 2016, diluted weighted average shares outstanding do not include outstanding equity awards of 0.7 million and 0.60.8 million, respectively, because to do so would have been anti-dilutive. ForIn addition, for both the three
and six months ended
June 28, 2015,July 3, 2016, diluted weighted average shares outstanding do not include outstanding equity awards of
0.30.1 million
and 0.3 million, respectively, because
to do so wouldthe related performance conditions have
not been
anti-dilutive.satisfied.
For purposes of calculating basic earnings per share, unvested restricted stock units are not included in the calculation of basic weighted average shares outstanding until all necessary conditions have been satisfied and issuance of the shares underlying the restricted stock units is no longer contingent. Necessary conditions are not satisfied until the vesting date, at which time holders of our restricted stock units receive shares of our common stock.
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For purposes of calculating diluted earnings per share, unvested restricted stock units are included to the extent that they are dilutive. In determining whether unvested restricted stock units are dilutive, each issuance of restricted stock units is considered separately.
Once a restricted stock unit has vested, it is included in the calculation of both basic and diluted weighted average shares outstanding.
The major classes of inventories were as follows:
| | | | | | | | |
| | July 3, 2016 | | | December 31, 2015 | |
| | (In thousands) | |
| | |
Raw materials | | $ | 93,823 | | | $ | 92,929 | |
Work-in-process | | | 31,304 | | | | 27,730 | |
Finished goods | | | 97,567 | | | | 97,814 | |
| | | | | | | | |
Gross inventories | | | 222,694 | | | | 218,473 | |
Excess and obsolete reserves | | | (24,069) | | | | (22,531) | |
| | | | | | | | |
Net inventories | | $ | 198,625 | | | $ | 195,942 | |
| | | | | | | | |
|
| | | | | | | |
| July 2, 2017 | | December 31, 2016 |
| | | |
| (In thousands) |
Raw materials | $ | 115,637 |
| | $ | 90,019 |
|
Work-in-process | 40,310 |
| | 25,166 |
|
Finished goods | 123,993 |
| | 99,784 |
|
Gross inventories | 279,940 |
| | 214,969 |
|
Excess and obsolete reserves | (27,406 | ) | | (24,561 | ) |
Net inventories | $ | 252,534 |
| | $ | 190,408 |
|
Note
6:7: Long-Lived Assets
Depreciation and Amortization Expense
We recognized depreciation expense of $11.5 million and $22.9 million in the three and six months ended July 2, 2017, respectively. We recognized depreciation expense of $12.0 million and $23.7 million in the three and six months ended July 3, 2016, respectively.
In connection with the segment change discussed in Note 4, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of 10 years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of $0.8 million and $1.6 million for the three and six months ended July 2, 2017, respectively. As of July 2, 2017, the net book value of the Tripwire trademark was $29.4 million.
We recognized
depreciationamortization expense
related to our intangible assets of
$11.7$27.1 million and
$23.2$50.8 million in the three and six months ended
June 28, 2015,July 2, 2017, respectively.
We recognized amortization expense related to our intangible assets of $26.3 million and $51.8 million in the three and six months ended July 3, 2016, respectively. We recognized amortization expense related to our intangible assets of $25.9 million and $52.4 million in the three and six months ended June 28, 2015, respectively.
Note
7:8: Severance, Restructuring, and Acquisition Integration Activities
Industrial
and Network Solutions Restructuring
ProgramProgram: 2015-2016
Both our Industrial ConnectivitySolutions and Industrial ITNetwork Solutions segments havehad been negatively impacted by a decline in sales volume. Globalvolume in 2015. At such time, global demand for industrial products hashad been negatively impacted by the strengthened U.S. dollar and lower energy prices. OurAs a result, our customers have reduced their capital spending in response to these conditions, and we expect these conditions to continue to negatively impact our industrial segments’ sales volume.spending. In response to these industrial market conditions, we began to execute a restructuring program in the fourth fiscal quarter of 2015 to reduce our cost structure. We recognized $2.4 million and $5.8 million of severance and other restructuring costs for this program duringthe three and six months ended July 3, 2016, respectively. Most of these costs were incurred by our Network Solutions segment. We expect todid not incur approximately $2 million ofany additional severance and other restructuring costs for this program the majorityin 2017. To date, we have incurred a total of which will be incurred$13.0 million in the third quarter of 2016.severance and other restructuring costs for this program. We expect the restructuring program to generate approximately $18 million of savings on an annualized basis, whichand we began to realize in the first quarter of 2016.are substantially realizing such benefits.
Industrial Manufacturing Footprint
ProgramProgram: 2016 - 2017
In
further response to the industrial market conditions described above, in the first quarter of 2016, we began a program to
further consolidate our manufacturing footprint. The manufacturing consolidation is expected to be completed
by the end of 2017.in 2018. We recognized $2.0 million and $2.5 million of severance and other
-11-
restructuring costs for this program during the three and six months ended July 3, 2016, respectively. We recognized $8.2 million and $13.9 million of severance and other restructuring costs for this program during the three and six months ended July 2, 2017, respectively. The costs were incurred by the Enterprise Solutions and Industrial ConnectivitySolutions segments, as the manufacturing locations involved in the program serve both platforms. To date, we have incurred a total of $31.7 million in severance and other restructuring costs for this program. We expect to incur approximately $16 million and $15$11 million of additional severance and other restructuring costs for this program in 20162017 and 2017, respectively.2018. We expect the program to generate approximately $10$13 million of savings on an annualized basis, beginning in the second half of 2017.
Grass Valley Restructuring
ProgramProgram: 2015-2016
Our Broadcast Solutions segment’s Grass Valley brand was negatively impacted by a decline in global demand of broadcast technology infrastructure products.products beginning in 2015. Outside of the U.S., demand for these products was impacted by the relative price increase of products due to the strengthened U.S. dollar as well as the impact of weaker economic conditions which have resulted in lower capital spending. Within the U.S., demand for these products was impacted by deferred capital spending. We believe broadcast customers have deferred their capital spending as they navigatenavigated through a number of important industry transitions and a changing media landscape. In response to these broadcast market conditions, we began to execute a restructuring program beginning in the third fiscal quarter of 2015 to further reduce our cost structure. We recognized $0.9 million and $5.0 million of severance and other restructuring costs for this program duringthe three and six months ended July 3, 2016, respectively. We expect todid not incur approximately $1 million ofany additional severance and other restructuring costs for this program the majorityin 2017. To date, we have incurred a total of which will be incurred$34.1 million in the third quarter of 2016.severance and other restructuring costs for this program. We expect the restructuring program to generate approximately $30 million of savings on an annualized basis, whichand we began to realize in the fourth quarter of 2015.Productivity Improvement Program and Acquisition Integration
In 2014, we began a productivity improvement program and the integration of our acquisition of Grass Valley. The productivity improvement program focused on improving the productivity of our sales, marketing, finance, and human resources functions relative to our peers. The majority of the costs for the productivity improvement program related to the Industrial Connectivity, Enterprise, and Industrial IT segments. The restructuring and integration activities related to our acquisition of Grass Valley focused on achieving desired cost savings by consolidating existing and acquired operating facilities and other support functions. Weare substantially completed the productivity improvement program and the acquisition integration activities in 2015. In the three and six months ended June 28, 2015, we recorded severance, restructuring, and integration costs of $4.9 million and $19.4 million, respectively, related to these two significant programs, as well as other cost reduction actions and the integration of our acquisitions of ProSoft, Coast, and Tripwire. In the three and six months ended July 3, 2016, we recognized $0.6 million and $1.0 million of costs, respectively, primarily related to our 2016 acquisition of M2FX.
-12-
realizing such benefits.
The following table summarizes the costs by segment of the various programs described
above: | | | | | | | | | | | | |
Three Months Ended July 3, 2016 | | Severance | | | Other Restructuring and Integration Costs | | | Total Costs | |
| | (In thousands) | |
| | | |
Broadcast Solutions | | $ | (109) | | | $ | 1,428 | | | $ | 1,319 | |
Enterprise Connectivity Solutions | | | 71 | | | | 1,136 | | | | 1,207 | |
Industrial Connectivity Solutions | | | 1,180 | | | | 1,191 | | | | 2,371 | |
Industrial IT Solutions | | | 309 | | | | 634 | | | | 943 | |
Network Security Solutions | | | - | | | | 29 | | | | 29 | |
| | | |
| | | | | | | | | | | | |
Total | | $ | 1,451 | | | $ | 4,418 | | | $ | 5,869 | |
| | | | | | | | | | | | |
| | | |
Three Months Ended June 28, 2015 | | | | | | | | | |
Broadcast Solutions | | $ | (1,590) | | | $ | 4,873 | | | $ | 3,283 | |
Enterprise Connectivity Solutions | | | 22 | | | | 61 | | | | 83 | |
Industrial Connectivity Solutions | | | 526 | | | | 637 | | | | 1,163 | |
Industrial IT Solutions | | | - | | | | - | | | | - | |
Network Security Solutions | | | - | | | | 378 | | | | 378 | |
| | | |
| | | | | | | | | | | | |
Total | | $ | (1,042) | | | $ | 5,949 | | | $ | 4,907 | |
| | | | | | | | | | | | |
| | | |
Six Months Ended July 3, 2016 | | | | | | | | | |
Broadcast Solutions | | $ | (751) | | | $ | 6,448 | | | $ | 5,697 | |
Enterprise Connectivity Solutions | | | 76 | | | | 1,631 | | | | 1,707 | |
Industrial Connectivity Solutions | | | 1,777 | | | | 1,459 | | | | 3,236 | |
Industrial IT Solutions | | | 2,631 | | | | 977 | | | | 3,608 | |
Network Security Solutions | | | - | | | | 29 | | | | 29 | |
| | | |
| | | | | | | | | | | | |
Total | | $ | 3,733 | | | $ | 10,544 | | | $ | 14,277 | |
| | | | | | | | | | | | |
| | | |
Six Months Ended June 28, 2015 | | | | | | | | | |
Broadcast Solutions | | $ | 713 | | | $ | 14,097 | | | $ | 14,810 | |
Enterprise Connectivity Solutions | | | 72 | | | | 579 | | | | 651 | |
Industrial Connectivity Solutions | | | 967 | | | | 1,969 | | | | 2,936 | |
Industrial IT Solutions | | | (740) | | | | 688 | | | | (52) | |
Network Security Solutions | | | - | | | | 1,045 | | | | 1,045 | |
| | | |
| | | | | | | | | | | | |
Total | | $ | 1,012 | | | $ | 18,378 | | | $ | 19,390 | |
| | | | | | | | | | | | |
above as well as other immaterial programs and acquisition integration activities:
|
| | | | | | | | | | | | |
| | Severance | | Other Restructuring and Integration Costs | | Total Costs |
| | | | | | |
Three Months Ended July 2, 2017 | | (In thousands) |
Broadcast Solutions | | $ | — |
| | $ | 970 |
| | $ | 970 |
|
Enterprise Solutions | | 1,275 |
| | 6,866 |
| | 8,141 |
|
Industrial Solutions | | 153 |
| | 193 |
| | 346 |
|
Network Solutions | | — |
| | 103 |
| | 103 |
|
Total | | $ | 1,428 |
| | $ | 8,132 |
| | $ | 9,560 |
|
Three Months Ended July 3, 2016 | | | | | | |
Broadcast Solutions | | $ | (109 | ) | | $ | 1,428 |
| | $ | 1,319 |
|
Enterprise Solutions | | 71 |
| | 1,136 |
| | 1,207 |
|
Industrial Solutions | | 1,180 |
| | 1,191 |
| | 2,371 |
|
Network Solutions | | 309 |
| | 663 |
| | 972 |
|
Total | | $ | 1,451 |
| | $ | 4,418 |
| | $ | 5,869 |
|
Six Months Ended July 2, 2017 | | | | | | |
Broadcast Solutions | | $ | 49 |
| | $ | 1,329 |
| | $ | 1,378 |
|
Enterprise Solutions | | 2,127 |
| | 10,887 |
| | 13,014 |
|
Industrial Solutions | | 153 |
| | 1,314 |
| | 1,467 |
|
Network Solutions | | — |
| | 301 |
| | 301 |
|
Total | | $ | 2,329 |
| | $ | 13,831 |
| | $ | 16,160 |
|
Six Months Ended July 3, 2016 | | | | | | |
Broadcast Solutions | | $ | (751 | ) | | $ | 6,448 |
| | $ | 5,697 |
|
Enterprise Solutions | | 76 |
| | 1,631 |
| | 1,707 |
|
Industrial Solutions | | 1,777 |
| | 1,459 |
| | 3,236 |
|
Network Solutions | | 2,631 |
| | 1,006 |
| | 3,637 |
|
Total | | $ | 3,733 |
| | $ | 10,544 |
| | $ | 14,277 |
|
Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended July 2, 2017, $8.2 million and $1.4 million were included in cost of sales and selling, general and administrative expenses, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended July 3, 2016, $1.8 million, $3.6 million, and $0.5 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.
Of the total severance, restructuring, and acquisition integration costs recognized in the
threesix months ended
June 28, 2015, $1.8 million, $2.7July 2, 2017, $14.1 million and
$0.4$2.1 million were included in cost of
sales;sales and selling, general and administrative
expenses; and research and development,expenses, respectively.
Of the total severance, restructuring, and acquisition integration costs recognized in the six months ended July 3, 2016, $3.9 million, $9.7 million, and $0.7 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring,
-13-
and acquisition integration costs recognized in the six months ended June 28, 2015, $3.2 million, $14.5 million, and $1.7 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.
The other restructuring and integration costs primarily consisted of
integrating manufacturing operations, such as equipment
transfer,transfers, costs to consolidate operating and support facilities, retention bonuses, relocation, travel, legal, and other costs. The majority of the other
cash restructuring and integration costs related to these actions were paid as incurred or are payable within the next 60 days.
We continue to review our business strategies and evaluate potential new restructuring actions. This could result in additional restructuring costs in future periods.
Accrued Severance
The table below sets forth the
There were no significant severance
activity that occurred for twoaccrual balances as of
the programs described above. The balances are included in accrued liabilities. | | | | | | | | |
| | Grass Valley Restructuring | | | Industrial Restructuring | |
| | (In thousands) | |
| | |
Balance at December 31, 2015 | | $ | 12,076 | | | $ | 2,947 | |
| | |
New charges | | | 886 | | | | 2,919 | |
Cash payments | | | (4,404) | | | | (1,967) | |
Foreign currency translation | | | 167 | | | | 94 | |
Other adjustments | | | (1,528) | | | | - | |
| | | | | | | | |
| | |
Balance at April 3, 2016 | | $ | 7,197 | | | $ | 3,993 | |
| | |
New charges | | | 251 | | | | 1,489 | |
Cash payments | | | (3,356) | | | | (1,685) | |
Foreign currency translation | | | (13) | | | | (42) | |
Other adjustments | | | (360) | | | | - | |
| | | | | | | | |
| | |
Balance at July 3, 2016 | | $ | 3,719 | | | $ | 3,755 | |
| | | | | | | | |
The other adjustments were the result of changes in estimates. We experienced higher than expected voluntary turnover, and as a result, certain approved severance actions were not taken. We expect the majority of the liabilities for these programs to be paid during the second half ofJuly 2, 2017 or December 31, 2016.
-14-
Note
8:9: Long-Term Debt and Other Borrowing Arrangements
The carrying values of our long-term debt
and other borrowing arrangements were as follows:
| | | | | | | | |
| | July 3, 2016 | | | December 31, 2015 | |
| | (In thousands) | |
| | |
Revolving credit agreement due 2018 | | $ | - | | | $ | 50,000 | |
| | |
Variable rate term loan due 2020 | | | 242,754 | | | | 243,965 | |
| | |
Senior subordinated notes: | | | | | | | | |
5.25% Senior subordinated notes due 2024 | | | 200,000 | | | | 200,000 | |
5.50% Senior subordinated notes due 2023 | | | 559,709 | | | | 553,835 | |
5.50% Senior subordinated notes due 2022 | | | 700,000 | | | | 700,000 | |
9.25% Senior subordinated notes due 2019 | | | 5,221 | | | | 5,221 | |
| | | | | | | | |
Total senior subordinated notes | | | 1,464,930 | | | | 1,459,056 | |
| | | | | | | | |
| | |
Total gross debt and other borrowing arrangements | | | 1,707,684 | | | | 1,753,021 | |
Less unamortized debt issuance costs | | | (23,318) | | | | (25,239) | |
| | | | | | | | |
Total net debt and other borrowing arrangements | | | 1,684,366 | | | | 1,727,782 | |
Less current maturities of Term Loan | | | (2,500) | | | | (2,500) | |
| | | | | | | | |
| | |
Long-term debt | | $ | 1,681,866 | | | $ | 1,725,282 | |
| | | | | | | | |
|
| | | | | | | |
| July 2, 2017 | | December 31, 2016 |
| | | |
| (In thousands) |
Revolving credit agreement due 2022 | $ | — |
| | $ | — |
|
Senior subordinated notes: | | | |
4.125% Senior subordinated notes due 2026 | 227,120 |
| | 209,081 |
|
5.25% Senior subordinated notes due 2024 | 200,000 |
| | 200,000 |
|
5.50% Senior subordinated notes due 2023 | 573,722 |
| | 529,146 |
|
5.50% Senior subordinated notes due 2022 | 700,000 |
| | 700,000 |
|
9.25% Senior subordinated notes due 2019 | — |
| | 5,221 |
|
Total senior subordinated notes | 1,700,842 |
| | 1,643,448 |
|
Less unamortized debt issuance costs | (21,460 | ) | | (23,287 | ) |
Long-term debt | $ | 1,679,382 |
| | $ | 1,620,161 |
|
Revolving Credit Agreement due
2018Our revolving credit agreement2022
On May 16, 2017, we entered into an Amended and Restated Credit Agreement (the Revolver) to amend and restate our prior Revolving Credit Agreement. The Revolver provides a
$400$400.0 million multi-currency asset-based revolving credit
facility (the Revolver).facility. The borrowing base under the Revolver includes eligible accounts receivable; inventory; and property, plant and equipment of certain of our subsidiaries in the U.S., Canada, Germany,
the Netherlands, and the
UK. In January 2015, we borrowed $200.0 million under the Revolver in order to fund a portion of the purchase price for the acquisition of Tripwire. During the fourth quarter of 2015 and first quarter of 2016, we repaid $150.0 million and $50.0 million, respectively,Netherlands. The maturity date of the Revolver
borrowings. As of July 3, 2016, we had no borrowings outstanding on our revolver, and our available borrowing capacity was $293.7 million. The Revolver matures in 2018.has been extended to May 16, 2022. Interest on outstanding borrowings is variable, based upon LIBOR or other similar indices in foreign jurisdictions, plus a spread that ranges from 1.25%
- 1.75%-1.75%, depending upon our leverage position. We pay a commitment fee on our available borrowing capacity of
0.375%0.25%. In the event we borrow more than 90% of our borrowing base, we are subject to a fixed charge coverage ratio covenant.
Variable Rate Term Loan We recognized a $0.8 million loss on debt extinguishment for unamortized debt issuance costs related to creditors no longer participating in the new Revolver. In connection with executing the Revolver, we paid $2.0 million of fees to creditors and third parties that we will amortize over the remaining term of the Revolver. As of July 2, 2017, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $288.7 million.
Senior Subordinated Notes
We have outstanding €200.0 million aggregate principal amount of 4.125% senior subordinated notes due
2020In 2013, we borrowed $250.0 million under a Term Loan Credit Agreement2026 (the Term Loan)2026 Notes). The Term Loan is secured on a second lien basis bycarrying value of the assets securing the Revolving Credit Agreement due 2018 discussed above and on a first lien basis by the stock of certain of our subsidiaries. The borrowings under the Term Loan are scheduled to mature in 2020 and require quarterly amortization payments of approximately $0.6 million. Interest under the Term Loan is variable, based upon the three-month LIBOR plus an applicable spread. The interest rate2026 Notes as of July 3, 2016 was 3.41%.
Senior Subordinated2, 2017 is $227.1 million. The 2026 Notes
are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2026 Notes rank equal in right of payment with our senior subordinated
notes due 2024, 2023, and 2022 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
We have outstanding $200.0 million aggregate principal amount of 5.25% senior subordinated notes due 2024 (the 2024 Notes). The 2024 Notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The 2024 Notes rank equal in right of payment with our senior subordinated notes due
2026, 2023,
2022, and
20192022 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our
Term Loan and Revolver. Interest is payable semiannually on January 15 and July 15 of each year.
-15-
We have outstanding €500.0 million aggregate principal amount of 5.5% senior subordinated notes due 2023 (the 2023 Notes). The carrying value of the 2023 Notes as of July
3, 20162, 2017 is
$559.7$573.7 million. The 2023 Notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The notes rank equal in right of payment with our senior subordinated notes due
2026, 2024,
2022, and
20192022 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our
Term Loan and Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
We have outstanding $700.0 million aggregate principal amount of 5.5% senior subordinated notes due 2022 (the 2022 Notes). The 2022 Notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The 2022 Notes rank equal in right of payment with our senior subordinated notes due
2026, 2024,
2023, and
2019,2023 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our
Term Loan and Revolver. Interest is payable
semiannually on March 1 and September 1 of each year.
In July 2017, we repurchased a portion of the 2022 Notes outstanding and announced our intention to repurchase the remaining 2022 Notes outstanding. See Note 16.
We
havehad outstanding $5.2 million aggregate principal amount of
our9.25% senior subordinated notes due 2019 (the 2019 Notes).
The 2019 Notes have a coupon interest rateOn June 15, 2017, we repaid all of
9.25% and an effective interest rate of 9.75%. The interest on the 2019 Notes
is payable semiannuallyoutstanding, plus accrued interest, and recognized an immaterial loss on
June 15 and December 15. The 2019 notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The notes rank equal in right of payment with our senior subordinated notes due 2024, 2023, and 2022, and with any future senior subordinated debt
and are subordinatedextinguishment related to
all of our seniorunamortized debt
and the senior debt of our subsidiary guarantors, including our Term Loan and Revolver.issuance costs.
Fair Value of Long-Term Debt
The fair value of our senior subordinated notes as of July 3, 20162, 2017 was approximately $1,478.6$1,768.8 million based on quoted prices of the debt instruments in inactive markets (Level 2 valuation). This amount represents the fair values of our senior subordinated notes with a carrying value of $1,464.9$1,700.8 million as of July 3, 2016.2, 2017.
Note 10: Net Investment Hedge
In 2016, we issued €200.0 million senior subordinated notes due 2026. The notes were issued by Belden Inc., a USD functional currency ledger. We
believehave designated this foreign denominated debt as a net investment hedge on the
fair valueforeign currency risk of our
Term Loan approximates book value.net investment in our euro foreign operations. The objective of the hedge is to protect the net investment in the foreign operation against adverse changes in exchange rates. The transaction gain or loss is reported in the cumulative translation adjustment section of other comprehensive income. The amount of the cumulative translation adjustment at July 2, 2017 was $5.1 million.
We recognized income tax expense of $2.2 million and $4.5 million for the three and six months ended July 2, 2017, respectively, representing effective tax rates of 5.8% and 6.8%, respectively. The effective tax rates were impacted by the following significant factors:
We recognized an income tax benefit of $4.1 million and $7.5 million in the three and six months ended July 2, 2017, respectively, as a result of generating tax credits, primarily from the implementation of a foreign tax credit planning strategy.
Foreign tax rate differences reduced our income tax expense by approximately $4.1 million and $7.0 million in the three and six months ended July 2, 2017, respectively. The statutory tax rates associated with our foreign earnings generally are lower than the statutory U.S. tax rate of 35%. This had the greatest impact on our income before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively.
We also recognized an income tax benefit of $4.5 million and $5.3 million in the three and six months ended July 2, 2017, respectively, related to non-taxable currency translation gains.
We recognized income tax benefits of
$3.6$3.7 million and
$3.4$3.5 million for the three and six months ended July 3, 2016, respectively, representing effective tax rates of
(9.3%)(9.8)% and
(6.2%)(6.4)%, respectively. The effective tax rates were impacted by the following significant factors:
● | We recognized an $8.1 million tax benefit in both the three and six months ended July 3, 2016 as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
| |
● | We also recognized a $7.0 million tax benefit in both the three and six months ended July 3, 2016 for the reduction of deferred tax liabilities related to a previously completed acquisition. As part of an implemented tax planning strategy, we successfully secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the $7.0 million tax benefit.
| |
● | In the six months ended July 3, 2016, we recognized a $3.8 million tax benefit as a result of reducing a deferred tax valuation allowance related to net operating loss carryforwards in a foreign jurisdiction. Based on certain restructuring transactions in the six months ended July 3, 2016, the net operating loss carryforwards are expected to be realizable.
| |
We recognized an $8.1 million tax benefit in both the three and six months ended July 3, 2016 as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
We also recognized a $7.0 million tax benefit in both the three and six months ended July 3, 2016 for the reduction of deferred tax liabilities related to a previously completed acquisition. As part of an implemented tax planning strategy, we successfully secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the $7.0 million tax benefit.
In the six months ended July 3, 2016, we recognized a $3.8 million tax benefit as a result of reducing a deferred tax valuation allowance related to net operating loss carryforwards in a foreign jurisdiction. Based on certain restructuring transactions in the six months ended July 3, 2016, the net operating loss carryforwards are expected to be realizable.
The tax benefits described above for the three and six months ended July 3, 2016 were partially offset by a $2.7 million tax expense to record a liability for uncertain tax positions in one of our foreign jurisdictions.
-16-
We recognized income tax benefits of $2.3 million and $1.6 million for the three and six months ended June 28, 2015, respectively, representing effective tax rates of (11.9%) and (379.1%), respectively. A significant factor impacting the income tax benefit for the six months ended June 28, 2015 was the recognition of a $1.5 million tax benefit as a result of reducing a deferred tax asset valuation allowance related to a capital loss carryforward. Based on transactions in the six months ended June 28, 2015, the capital loss carryforward became fully realizable. In addition, our effective tax rate in 2015 benefited from a tax planning strategy that allowed us to recognize a significant balance of foreign tax credits related to one of our foreign jurisdictions.
Note
10:12: Pension and Other Postretirement Obligations
The following table provides the components of net periodic benefit costs for our pension and other postretirement benefit plans:
| | | | | | | | | | | | | | | | |
| | Pension Obligations | | | Other Postretirement Obligations | |
Three Months Ended | | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | |
| | | | |
Service cost | | $ | 1,426 | | | $ | 1,443 | | | $ | 16 | | | $ | 16 | |
Interest cost | | | 2,424 | | | | 2,207 | | | | 480 | | | | 399 | |
Expected return on plan assets | | | (3,216) | | | | (3,159) | | | | - | | | | - | |
Amortization of prior service credit | | | (9) | | | | (15) | | | | (11) | | | | (25) | |
Actuarial losses | | | 709 | | | | 1,288 | | | | 149 | | | | 123 | |
| | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 1,334 | | | $ | 1,764 | | | $ | 634 | | | $ | 513 | |
| | | | | | | | | | | | | | | | |
| | | | |
Six Months Ended | | | | | | | | | | | | |
Service cost | | $ | 2,835 | | | $ | 3,227 | | | $ | 29 | | | $ | 32 | |
Interest cost | | | 4,819 | | | | 4,747 | | | | 847 | | | | 802 | |
Expected return on plan assets | | | (6,408) | | | | (6,313) | | | | - | | | | - | |
Amortization of prior service credit | | | (18) | | | | (26) | | | | (22) | | | | (50) | |
Actuarial losses | | | 1,407 | | | | 2,574 | | | | 231 | | | | 252 | |
| | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 2,635 | | | $ | 4,209 | | | $ | 1,085 | | | $ | 1,036 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Pension Obligations | | Other Postretirement Obligations |
Three Months Ended | | July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | | |
| | (In thousands) |
Service cost | | $ | 1,251 |
| | $ | 1,426 |
| | $ | 13 |
| | $ | 16 |
|
Interest cost | | 1,874 |
| | 2,424 |
| | 329 |
| | 480 |
|
Expected return on plan assets | | (2,567 | ) | | (3,216 | ) | | — |
| | — |
|
Amortization of prior service credit | | (9 | ) | | (9 | ) | | — |
| | (11 | ) |
Actuarial losses | | 645 |
| | 709 |
| | 23 |
| | 149 |
|
Net periodic benefit cost | | $ | 1,194 |
| | $ | 1,334 |
| | $ | 365 |
| | $ | 634 |
|
Six Months Ended | | | | | | | | |
Service cost | | $ | 2,343 |
| | $ | 2,835 |
| | $ | 27 |
| | $ | 29 |
|
Interest cost | | 3,569 |
| | 4,819 |
| | 656 |
| | 847 |
|
Expected return on plan assets | | (4,928 | ) | | (6,408 | ) | | — |
| | — |
|
Amortization of prior service credit | | (20 | ) | | (18 | ) | | — |
| | (22 | ) |
Actuarial losses | | 1,233 |
| | 1,407 |
| | 45 |
| | 231 |
|
Net periodic benefit cost | | $ | 2,197 |
| | $ | 2,635 |
| | $ | 728 |
| | $ | 1,085 |
|
Note
11:13: Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
The following table summarizes total comprehensive income:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | |
Net income | | $ | 41,750 | | | $ | 21,591 | | | $ | 58,175 | | | $ | 1,955 | |
Foreign currency translation income (loss), net of $0.3 million, $0.4 million, $1.9 million, and $2.1 million tax, respectively | | | 1,094 | | | | (2,872) | | | | (1,093) | | | | 10,193 | |
Adjustments to pension and postretirement liability, net of $0.3 million, $0.5 million, $0.6 million, and $1.1 million tax, respectively | | | 515 | | | | 843 | | | | 982 | | | | 1,691 | |
| | | | | | | | | | | | | | | | |
Total comprehensive income | | $ | 43,359 | | | $ | 19,562 | | | $ | 58,064 | | | $ | 13,839 | |
| | | | | | | | | | | | | | | | |
Less: Comprehensive loss attributable to noncontrolling interest | | | (126) | | | | - | | | | (227) | | | | - | |
| | | | | | | | | | | | | | | | |
Comprehensive income attributable to Belden stockholders | | $ | 43,485 | | | $ | 19,562 | | | $ | 58,291 | | | $ | 13,839 | |
| | | | | | | | | | | | | | | | |
-17-
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | |
| (In thousands) |
Net income | $ | 35,891 |
| | $ | 41,933 |
| | $ | 61,472 |
| | $ | 58,291 |
|
Foreign currency translation loss, net of $0.5 million, $0.3 million, $0.4 million, and $1.9 million tax, respectively | (17,107 | ) | | 1,094 |
| | (26,943 | ) | | (1,093 | ) |
Adjustments to pension and postretirement liability, net of $0.3 million, $0.3 million, $0.5 million, and $0.6 million tax, respectively | 406 |
| | 515 |
| | 774 |
| | 982 |
|
Total comprehensive income | 19,190 |
| | 43,542 |
| | 35,303 |
| | 58,180 |
|
Less: Comprehensive loss attributable to noncontrolling interest | (77 | ) | | (126 | ) | | (240 | ) | | (227 | ) |
Comprehensive income attributable to Belden | $ | 19,267 |
| | $ | 43,668 |
| | $ | 35,543 |
| | $ | 58,407 |
|
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are as follows:
| | | | | | | | | | | | |
| | Foreign Currency Translation Component | | | Pension and Other Postretirement Benefit Plans | | | Accumulated Other Comprehensive Income (Loss) | |
| | (In thousands) | |
| | | |
Balance at December 31, 2015 | | $ | (23,411) | | | $ | (35,576) | | | $ | (58,987) | |
Other comprehensive loss attributable to Belden stockholders before reclassifications | | | (1,064) | | | | - | | | | (1,064) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | - | | | | 982 | | | | 982 | |
| | | | | | | | | | | | |
Net current period other comprehensive loss attributable to Belden stockholders | | | (1,064) | | | | 982 | | | | (82) | |
| | | | | | | | | | | | |
Balance at July 3, 2016 | | $ | (24,475) | | | $ | (34,594) | | | $ | (59,069) | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Foreign Currency Translation Component | | Pension and Other Postretirement Benefit Plans | | Accumulated Other Comprehensive Income (Loss) |
| | | | | |
| (In thousands) |
Balance at December 31, 2016 | $ | (4,661 | ) | | $ | (34,406 | ) | | $ | (39,067 | ) |
Other comprehensive loss attributable to Belden before reclassifications | (26,895 | ) | | — |
| | (26,895 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 774 |
| | 774 |
|
Net current period other comprehensive loss attributable to Belden | (26,895 | ) | | 774 |
| | (26,121 | ) |
Balance at July 2, 2017 | $ | (31,556 | ) | | $ | (33,632 | ) | | $ | (65,188 | ) |
The following table summarizes the effects of reclassifications from accumulated other comprehensive income (loss) for the six months ended July
3, 2016: | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | | Affected Line Item in the Consolidated Statements of Operations and Comprehensive Income | |
| | (In thousands) | | | | |
Amortization of pension and other postretirement benefit plan items: | | | | | | | | |
Actuarial losses | | $ | 1,638 | | | | (1) | |
Prior service credit | | | (40) | | | | (1) | |
| | | | | | | | |
Total before tax | | | 1,598 | | | | | |
Tax benefit | | | (616) | | | | | |
| | | | | | | | |
Net of tax | | $ | 982 | | | | | |
| | | | | | | | |
2, 2017:
|
| | | | | |
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Consolidated Statements of Operations and Comprehensive Income |
| | | |
| (In thousands) | | |
Amortization of pension and other postretirement benefit plan items: | | | |
Actuarial losses | $ | 1,278 |
| | (1) |
Prior service credit | (20 | ) | | (1) |
Total before tax | 1,258 |
| | |
Tax benefit | (484 | ) | | |
Total net of tax | $ | 774 |
| | |
(1) The amortization of these accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit costs (see Note 10)12).
Note 14: Preferred Stock
On July 26, 2016, we issued 5.2 million depositary shares, each of which represents 1/100th interest in a share of 6.75% Series B Mandatory Convertible Preferred Stock (the Preferred Stock), for an offering price of $100 per depositary share. Holders of the Preferred Stock may elect to convert their shares into common stock at any time prior to the mandatory conversion date. Unless earlier converted, each share of Preferred Stock will automatically convert into common stock on or around July 15, 2019 into between 120.46 and 132.50 shares of Belden common stock, subject to customary anti-dilution adjustments. This represents a
range of 6.2 million to 6.9 million shares of Belden common stock to be issued upon conversion. The number of shares of Belden common stock issuable upon the mandatory conversion of the Preferred Stock will be determined based upon the volume-weighted average price of Belden’s common stock over the 20 day trading period beginning on, and including, the 22nd scheduled trading day prior to July 15, 2019. The net proceeds from this offering were approximately $501 million. The net proceeds are for general corporate purposes. With respect to dividend and liquidation rights, the Preferred Stock ranks senior to our common stock and junior to all of our existing and future indebtedness. During the three and six months ended July 2, 2017, the Preferred Stock accrued $8.7 million and $17.5 million of dividends, respectively.
Note 15: Share Repurchases
On May 25, 2017, our Board of Directors authorized a new share repurchase program, which allows us to purchase up to $200.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. This program is funded by cash on hand and cash flows from operating activities. The program does not have an expiration date and may be suspended at any time at the discretion of the Company. We have not repurchased any shares under this program as of July 2, 2017.
Note
12:16: Subsequent Events
On July
26, 2016,6, 2017, we
completed an offeringissued €450.0 million ($509.5 million at issuance) aggregate principal amount of
5.2 million depositary shares, each3.375% Senior Subordinated Notes due 2027 (the 2027 Notes). The 2027 Notes rank equal in right of
which represents 1/100th interestpayment with our senior subordinated notes due 2026, 2024, 2023, and 2022 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest on the 2027 Notes accrues at a rate of 3.375% per annum and is payable semi-annually in
a share of 6.75% Series B Mandatory Convertible Preferred Stock (the Preferred Stock), for an offering price of $100 per depositary share. Unless earlier converted, each share of Preferred Stock will automatically convert into common stockarrears on
or aroundJanuary 15 and July 15
2019 into between 120.46 and 132.50 shares of
Belden common stock, subject to customary anti-dilution adjustments. This represents a range of 6.2 million - 6.9 million shares of Belden common stock to be issued upon conversion. The number of shares of Belden common stock issuable upon the mandatory conversion of the Preferred Stock will be determined based upon the volume-weighted average price of Belden’s common stock over the 20 day trading periodeach year, beginning on
and including,January 15, 2018. We used the
22nd scheduled trading day prior to July 15, 2019. The net proceeds
fromof this offering
and cash on hand to repurchase $581.3 million of our outstanding $700.0 million 5.5% senior subordinated notes due 2022 that were
approximately $502 million. Wetendered pursuant to a tender offer. On July 6, 2017, we also announced that we intend to
userepurchase the
proceeds for general corporate purposes.-18-
remaining $118.7 million of our outstanding $700.0 million notes due 2022. We expect to incur a loss on debt extinguishment in excess of $25 million related to the repurchase of our outstanding $700.0 million notes due 2022.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Belden Inc. (the Company, us, we, or our) is
an innovativea signal transmission solutions company built around
fivefour global business platforms – Broadcast Solutions, Enterprise
Connectivity Solutions, Industrial
Connectivity Solutions, Industrial IT Solutions, and Network
Security Solutions. Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.
We strive for operational excellence through the execution of our Belden Business System, which includes three areas of focus: Lean enterprise initiatives, our Market Delivery System, and our Talent Management System. Through operational excellence we generate significant free cash flow on an annual basis. We utilize the cash flow generated by our business to fuel our continued transformation and generate shareholder value. We believe our business system, balance across markets and geographies, systematic go-to-market approach, extensive portfolio of innovative solutions, commitment to Lean principles, and improving margins present a unique value proposition for shareholders.
We use a set of tools and processes that are designed to continuously improve business performance in the critical areas of quality, delivery, cost, and innovation. We consider revenue growth, Adjusted EBITDA margin, free cash flows, and return on invested capital to be our key operating performance indicators. We also seek to acquire businesses that we believe can help us achieve these objectives.
The extent to which appropriate acquisitions are made and integrated can affect our overall growth, operating results, financial condition, and cash flows.
The following trends and events during
20162017 have had varying effects on our financial condition, results of operations, and cash flows.
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the
euro,Euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, and Brazilian real. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted.
Approximately 47% of our consolidated revenues are international.
In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location.
Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. Importantly, however, there is no exact measure of the effect of changing commodity
-19-
prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates.
Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold the products they bought from us in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of products they boughtbuy from us and hold in their inventory, it impacts our revenues. Comparisons of our results between periods can be impacted by changes in the levels of channel inventory. We use information provided to us by our channel partners
and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory. As such, all references to the effect of channel inventory changes are estimates.
Market Growth and Market Share
The
broadcast, enterprise, industrial, and network security markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players.
Based on available data for our served markets, we estimate that our market shares range from approximately 5% - 20%. A substantial acquisition in one of our served markets would be necessary to meaningfully change our estimated market share percentage. We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period. We expect that our unit sales volume will increase or decrease consistently with the market growth rate. Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate. To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.
To
capitalize onleverage the
adoption of IP technologyCompany's strengths in networking, IoT, and
accelerate our penetration of the commercial audio-video market, we transferred responsibility of audio-video cable and connectors from our Broadcast platform to our Enterprise Connectivity platformcybersecurity technologies, effective January 1,
2016.2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments. The formation is a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications. We have revised the prior period segment information to conform to the change in the composition of these reportable segments.
In connection with this change, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of 10 years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of $0.8 million and $1.6 million for the three and six months ended July 2, 2017, respectively. As of July 2, 2017, the net book value of the Tripwire trademark was $29.4 million. See Note 4.
We completed the
acquisitionsacquisition of
M2FX Limited (M2FX)Thinklogical Holdings, LLC (Thinklogical) on
January 7, 2016 and Tripwire Inc. (Tripwire) on January 2, 2015.May 31, 2017. The results of
M2FX and TripwireThinklogical have been included in our Consolidated Financial Statements from
their respectivethe acquisition
datesdate and are reported in the Broadcast
and Network Security segments, respectively.Long-Term Debt
During the first quarter ofSolutions segment. See Note 2.
Industrial Manufacturing Footprint Program
In 2016, we
repaid $50.0 million of the Revolver borrowings. As of July 3, 2016, we had no borrowings outstanding onbegan a program to consolidate our
revolver, and our available borrowing capacity was $293.7 million.-20-
Productivity Improvement Programs
Industrial Restructuring Program
Both our Industrial Connectivity and Industrial IT segments have been negatively impacted by a declinemanufacturing footprint. The manufacturing consolidation is expected to be completed in sales volume. Global demand for industrial products has been negatively impacted by the strengthened U.S. dollar and lower energy prices. Our customers have reduced capital spending in response to these conditions, and we expect these conditions to continue to negatively impact our industrial segments’ sales volume. In response to these industrial market conditions, we began to execute a restructuring program in the fourth quarter of 2015 to reduce our cost structure.2018. We recognized $2.4$8.2 million and $5.8$13.9 million of severance and other restructuring costs for this program during the three and six months ended July 3, 2016, respectively. We expect to incur approximately $2 million of additional severance and other restructuring costs for this program, the majority of which will be incurred in the third quarter of 2016. We expect the restructuring program to generate approximately $18 million of savings on an annualized basis, which we began to realize in the first quarter of 2016.
Industrial Manufacturing Footprint Program
In further response to the industrial market conditions described above, in the first quarter of 2016 we began a program to further consolidate our manufacturing footprint. The manufacturing consolidation is expected to be completed by the end of2, 2017. We recognized $2.0 million and $2.5 million of severance and other restructuring costs for this program during the three and six months ended July 3, 2016, respectively. The costs were incurred by the Enterprise Solutions and Industrial ConnectivitySolutions segments, as the manufacturing locations involved in the program serve both platforms. We expect to incur approximately $16 million and $15$11 million of additional severance and other restructuring costs for this program in 20162017 and 2017, respectively.2018. We expect the program to generate approximately $10$13 million of savings on an annualized basis, beginning in the second half of 2017.
Grass Valley Restructuring Program
Our Broadcast segment’s Grass Valley brand was negatively impacted by See Note 8.
Long-term Debt
On May 16, 2017, we entered into an Amended and Restated Credit Agreement (the Revolver) to amend and restate our prior Revolving Credit Agreement. The Revolver provides a decline$400.0 million multi-currency asset-based revolving credit facility. We recognized a $0.8 million loss on debt extinguishment for unamortized debt issuance costs related to creditors no longer participating in global demandthe new Revolver. In connection with executing the Revolver, we paid $2.0 million of broadcast technology infrastructure products. Outsidefees to creditors and third parties that we will amortize over the remaining term of the U.S., demand for these productsRevolver. As of July 2, 2017, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was impacted by$288.7 million. Additionally, on June 15, 2017, we repaid all of the relative price increaseoutstanding $5.2 million aggregate principal amount of products9.25% senior subordinated notes due 2019, plus accrued interest, and recognized an immaterial loss on debt extinguishment related to unamortized debt issuance costs. See Note 9.
Subsequent Events
On July 6, 2017, we issued €450.0 million ($509.5 million at issuance) aggregate principal amount of 3.375% Senior Subordinated Notes due 2027. We used the
strengthened U.S. dollar as well as the impactnet proceeds of
weaker economic conditions which have resulted in lower capital spending. Within the U.S., demand for these products was impacted by deferred capital spending. We believe broadcast customers have deferred their capital spending as they navigate through a number of important industry transitionsthis offering and
a changing media landscape. In responsecash on hand to
these broadcast market conditions, we began to execute a restructuring program beginning in the third quarter of 2015 to further reduce our cost structure. We recognized $0.9 million and $5.0repurchase $581.3 million of
severance and other restructuring costs for this program duringour outstanding $700.0 million 5.5% senior subordinated notes due 2022 that were tendered pursuant to a tender offer. On July 6, 2017, we also announced that we intend to repurchase the
three and six months ended July 3, 2016, respectively.remaining $118.7 million of our outstanding $700.0 million notes due 2022. We expect to incur
approximately $1a loss on debt extinguishment in excess of $25 million
of additional severance and other restructuring costs for this program, the majority of which will be incurred in the third quarter of 2016. We expect the restructuring program to generate approximately $30 million of savings on an annualized basis, which we began to realize in the fourth quarter of 2015.Productivity Improvement Program and Acquisition Integration
In 2014, we began a productivity improvement program and the integration of our acquisition of Grass Valley. The productivity improvement program focused on improving the productivity of our sales, marketing, finance, and human resources functions relative to our peers. The majority of the costs for the productivity improvement program related to the Industrial Connectivity, Enterprise, and Industrial IT segments. The restructuring and integration activities related to our acquisition of Grass Valley focused on achieving desired cost savings by consolidating existing and acquired operating facilities and other support functions. We substantially completed the productivity improvement program and the acquisition integration activities in 2015. In the three and six months ended June 28, 2015, we recorded severance, restructuring, and integration costs of $4.9 million and $19.4 million, respectively, related to these two significant programs, as well as other cost reduction actions and the integrationrepurchase of our acquisitions of ProSoft, Coast, and Tripwire. In the three and six months ended July 3, 2016, we recognized $0.6outstanding $700.0 million and $1.0 million of costs, respectively, primarily related to our 2016 acquisition of M2FX.
-21-
United Kingdom Referendum
The United Kingdom’s (the UK’s) June 2016 vote in favor of exiting the European Union (the EU) adversely impacted global markets, including currencies, and resulted in a sharp decline in the value of the British pound, as compared to the U.S. dollar and other currencies. Volatility in exchange rates is expected to continue in the short term as the UK negotiates its exit from the EU. A weaker British pound compared to the U.S. dollar during a reporting period causes local currency results of our UK operations to be translated into fewer U.S. dollars. For the six months ended July 3, 2016, approximately 3% of our revenues were to customers located in the UK. In the longer term, any impact on our results of operations from the potential exit of the UK from the EU will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations between the UK and the EU.
Subsequent Event
On July 26, 2016, we completed an offering of 5.2 million depositary shares, each of which represents 1/100th interest in a share of 6.75% Series B Mandatory Convertible Preferred Stock (the Preferred Stock). The net proceeds from this offering were approximately $502 million. We intend to use the proceeds for general corporate purposes.
notes due 2022.
See Note 16.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors.
Critical Accounting Policies
During the six months ended July
3, 2016:● | We did not change any of our existing critical accounting policies from those listed in our 2015 Annual Report onForm 10-K;
|
● | No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and
|
● | There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed.
|
2, 2017:
We did not change any of our existing critical accounting policies from those listed in our 2016 Annual Report on Form 10-K;
No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and
There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed, except for the change in the Tripwire trademark discussed above.
Consolidated Income
from Continuing Operations before Taxes
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Revenues | | $ | 601,631 | | | $ | 585,755 | | | | 2.7% | | | $ | 1,143,128 | | | $ | 1,132,712 | | | | 0.9% | |
Gross profit | | | 248,213 | | | | 234,276 | | | | 5.9% | | | | 473,248 | | | | 441,925 | | | | 7.1% | |
Selling, general and administrative expenses | | | 123,057 | | | | 127,584 | | | | -3.5% | | | | 245,463 | | | | 267,632 | | | | -8.3% | |
Research and development | | | 36,652 | | | | 36,632 | | | | 0.1% | | | | 72,785 | | | | 72,831 | | | | -0.1% | |
Amortization of intangibles | | | 26,263 | | | | 25,917 | | | | 1.3% | | | | 51,795 | | | | 52,421 | | | | -1.2% | |
Operating income | | | 62,241 | | | | 44,143 | | | | 41.0% | | | | 103,205 | | | | 49,041 | | | | 110.4% | |
Interest expense, net | | | 24,049 | | | | 24,769 | | | | -2.9% | | | | 48,445 | | | | 48,615 | | | | -0.3% | |
Income from continuing operations before taxes | | | 38,192 | | | | 19,374 | | | | 97.1% | | | | 54,760 | | | | 426 | | | | 12754.5% | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Revenues | $ | 610,633 |
| | $ | 601,631 |
| | 1.5 | % | | $ | 1,162,014 |
| | $ | 1,143,128 |
| | 1.7 | % |
Gross profit | 242,509 |
| | 248,213 |
| | (2.3 | )% | | 464,623 |
| | 473,248 |
| | (1.8 | )% |
Selling, general and administrative expenses | (117,771 | ) | | (123,057 | ) | | (4.3 | )% | | (230,357 | ) | | (245,463 | ) | | (6.2 | )% |
Research and development | (35,144 | ) | | (36,652 | ) | | (4.1 | )% | | (69,666 | ) | | (72,785 | ) | | (4.3 | )% |
Amortization of intangibles | (27,113 | ) | | (26,263 | ) | | 3.2 | % | | (50,782 | ) | | (51,795 | ) | | (2.0 | )% |
Operating income | 62,481 |
| | 62,241 |
| | 0.4 | % | | 113,818 |
| | 103,205 |
| | 10.3 | % |
Interest expense, net | (23,533 | ) | | (24,049 | ) | | (2.1 | )% | | (47,039 | ) | | (48,445 | ) | | (2.9 | )% |
Loss on debt extinguishment | (847 | ) | | — |
| | 100.0 | % | | (847 | ) | | — |
| | 100.0 | % |
Income before taxes | 38,101 |
| | 38,192 |
| | (0.2 | )% | | 65,932 |
| | 54,760 |
| | 20.4 | % |
Revenues increased in the three and six months ended July
3, 20162, 2017 from the comparable
periodsperiod of
20152016 due to the following factors:
● | Increases in unit sales volume resulted in increases
•Acquisitions contributed $10.2 million to the increase in revenues of $26.7 million and $41.0 million, respectively. Volume growth was the strongest in our broadcast and enterprise markets. In our industrial markets, we continued to experience a decline in volume due to lower energy prices. |
-22-
● | Acquisitions contributed $2.1 million and $3.6 million of revenues, respectively.
|
● | Lower copper costs resulted in revenue decreases of $11.6 million and $22.0 million, respectively.
|
● | Unfavorable currency translation resulted in revenue decreases of $1.3 million and $12.2 million, respectively.
|
Gross profit increased in the three and six months ended July 3, 2016 from the comparable periods of 2015 due to the increases in sales volume noted above and improved productivity as a result of our restructuring actions. The increases in sales volume that led to increases in gross profit were most notable in our Network Security segment. The increases in gross profit from improved productivity were most notable in our Broadcast and Industrial Connectivity segments.
Selling, general and administrative expenses decreased in the three months ended July 3, 2016 from the comparable period of 2015 primarily due to improved productivity as a result of our restructuring actions. Additionally, favorable currency translation resulted in $1.0 million decrease in expense. These factors were partially offset by a $0.9 million increase in severance, restructuring and acquisition integration costs.
Selling, general and administrative expenses decreased in the six months ended July 3, 2016 from the comparable period of 2015 primarily due to $9.2 million of compensation expense that we recognized in the prior year as a result of accelerating the vesting of certain acquiree equity awards at the closing of the Tripwire acquisition. In addition, selling, general and administrative expenses decreased in the six months ended July 3, 2016 due to a decrease in severance, restructuring, and acquisition integration costs of $4.8 million. Favorable currency translation resulted in a $3.6 million decrease in expense. The remaining decrease was due to improved productivity from our restructuring actions.
Operating income increased in both the three and six months ended July 3, 20162, 2017.
•Higher copper costs contributed $8.2 million and $17.5 million, respectively, to the increase in revenues.
•Sales volume resulted in a $2.8 million decrease in revenues and a $1.6 million increase in revenues, respectively.
•Unfavorable currency translation resulted in a revenue decrease of $6.6 million and $10.4 million, respectively.
Gross profit decreased in the three and six months ended July 2, 2017 from the comparable periodsperiod of 20152016 due to an increase in severance, restructuring, and acquisition integration costs in cost of sales of $6.4 million and $10.2 million, respectively, unfavorable currency translation noted above, and unfavorable product mix. These decreases were partially offset by the impact of acquisitions and productivity resulting from our restructuring actions. Furthermore, the increase in copper costs which result in higher revenues as discussed above, has minimal impact to gross profit dollars, and as a result, weakens gross profit margins.
Selling, general and administrative expenses decreased $5.3 million and $15.1 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016. Decreases in severance, restructuring, and acquisition integration costs contributed $2.2 million and $7.6 million, respectively. Additionally, currency translation contributed $1.2 million and $1.9 million to the decrease in selling, general and administrative expense, respectively. The remaining decrease was primarily due to improved productivity from our restructuring actions.
Research and development expenses decreased $1.5 million and $3.1 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016. Currency translation contributed $0.6 million and $0.8 million, respectively, to the decrease in research and development expense. Additionally, decreases in severance, restructuring, and acquisition integration
costs contributed $0.5 million and $0.7 million, respectively. Furthermore, improved productivity from our restructuring actions contributed $0.8 million and $2.0 million, respectively, to the decline in research and development expense. These decreases were partially offset by the impact of acquisitions, which increased research and development expense by $0.4 million.
Amortization of intangibles increased $0.8 million and $1.0 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016. This is primarily due to the acquisition of Thinklogical and amortization from the Tripwire trademark, which we began amortizing in 2017. These increases were partially offset by currency translation and the intangible assets classified as held for sale for which we ceased amortizing in gross profitthe fourth quarter of 2016 (see Note 3).
Operating income increased $0.2 million and
$10.6 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016 primarily due to the decreases in selling, general and administrative expenses
discussed above. Favorable currency translation contributed $2.5 million and
$5.5 million ofresearch and development expenses, partially offset by the
decrease in gross profit and increase in
operating income, respectively.amortization expense discussed above.
Income before taxes
decreased $0.1 million and increased
$11.1 million in
both the three and six months ended July
3, 20162, 2017 from the comparable
periodsperiod of
20152016, respectively, primarily due to the
increasesfluctuations in operating income discussed
above.above, coupled with the $0.8 million loss on debt extinguishment in connection with the Amended and Restated Credit Agreement executed during the second quarter of 2017 (see Note 9).
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
Income from continuing operations before taxes | | $ | 38,192 | | | $ | 19,374 | | | | 97.1% | | | $ | 54,760 �� | | | $ | 426 | | | | 12754.5% | |
Income tax benefit | | | 3,558 | | | | 2,303 | | | | 54.5% | | | | 3,415 | | | | 1,615 | | | | 111.5% | |
Effective tax rate | | | -9.3% | | | | -11.9% | | | | | | | | -6.2% | | | | -379.1% | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Income before taxes | $ | 38,101 |
| | $ | 38,192 |
| | (0.2 | )% | | $ | 65,932 |
| | $ | 54,760 |
| | 20.4 | % |
Income tax benefit (expense) | (2,210 | ) | | 3,741 |
| | (159.1 | )% | | (4,460 | ) | | 3,531 |
| | (226.3 | )% |
Effective tax rate | 5.8 | % | | (9.8 | )% | | | | 6.8 | % | | (6.4 | )% | | |
We recognized income tax expense of $2.2 million and $4.5 million for the three and six months ended July 2, 2017, respectively, representing effective tax rates of 5.8% and 6.8%, respectively. The effective tax rates were impacted by the following significant factors:
We recognized an income tax benefit of $4.1 million and $7.5 million in the three and six months ended July 2, 2017, respectively, as a result of generating tax credits, primarily from the implementation of a foreign tax credit planning strategy.
Foreign tax rate differences reduced our income tax expense by approximately $4.1 million and $7.0 million in the three and six months ended July 2, 2017, respectively. The statutory tax rates associated with our foreign earnings generally are lower than the statutory U.S. tax rate of 35%. This had the greatest impact on our income before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively.
We also recognized an income tax benefit of $4.5 million and $5.3 million in the three and six months ended July 2, 2017, respectively, related to non-taxable currency translation gains.
We recognized income tax benefits of
$3.6$3.7 million and
$3.4$3.5 million for the three and six months ended July 3, 2016, respectively, representing effective tax rates of
(9.3%)(9.8)% and
(6.2%)(6.4)%, respectively. The effective tax rates were impacted by the following significant factors:
● | We recognized an $8.1 million tax benefit in both the three and six months ended July 3, 2016 as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
| |
● | We also recognized a $7.0 million tax benefit in both the three and six months ended July 3, 2016 for the reduction of deferred tax liabilities related to a previously completed acquisition. As part of an implemented tax planning strategy, we successfully secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the $7.0 million tax benefit.
| |
● | In the six months ended July 3, 2016, we recognized a $3.8 million tax benefit as a result of reducing a deferred tax valuation allowance related to net operating loss carryforwards in a foreign jurisdiction. Based on certain restructuring transactions in the six months ended July 3, 2016, the net operating loss carryforwards are expected to be realizable.
| |
-23-
We recognized an $8.1 million tax benefit in both the three and six months ended July 3, 2016 as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
We also recognized a $7.0 million tax benefit in both the three and six months ended July 3, 2016 for the reduction of deferred tax liabilities related to a previously completed acquisition. As part of an implemented tax planning strategy, we successfully secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the $7.0 million tax benefit.
In the six months ended July 3, 2016, we recognized a $3.8 million tax benefit as a result of reducing a deferred tax valuation allowance related to net operating loss carryforwards in a foreign jurisdiction. Based on certain restructuring transactions in the six months ended July 3, 2016, the net operating loss carryforwards are expected to be realizable.
The tax benefits described above for the three and six months ended July 3, 2016 were partially offset by a $2.7 million tax expense to record a liability for uncertain tax positions in one of our foreign jurisdictions.
We recognized income tax benefits of $2.3 million and $1.6 million for the three and six months ended June 28, 2015, respectively, representing effective tax rates of (11.9%) and (379.1%), respectively. A significant factor impacting the income tax benefit for the six months ended June 28, 2015 was the recognition of a $1.5 million tax benefit as a result of reducing a deferred tax asset valuation allowance related to a capital loss carryforward. Based on transactions in the six months ended June 28, 2015, the capital loss carryforward became fully realizable. In addition, our effective tax rate in 2015 benefited from a tax planning strategy that allowed us to recognize a significant balance of foreign tax credits related to one of our foreign jurisdictions.
Our income tax expense was also impacted by foreign tax rate differences. The statutory tax rates associated with our foreign earnings generally are lower than the statutory U.S. tax rate of 35%. This had the greatest impact on our income from continuing operations before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively. Foreign tax rate differences reduced our income tax expense by approximately $5.0 million and $0.1 million for the six months ended July 3, 2016 and June 28, 2015, respectively.
Our income tax expense and effective tax rate in future periods may be impacted by many factors, including our geographic mix of income and changes in tax laws.
Consolidated Adjusted Revenues and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Adjusted Revenues | | $ | 603,381 | | | $ | 598,513 | | | | 0.8% | | | $ | 1,147,181 | | | $ | 1,167,964 | | | | -1.8% | |
Adjusted EBITDA | | | 108,110 | | | | 100,099 | | | | 8.0% | | | | 197,175 | | | | 188,605 | | | | 4.5% | |
as a percent of adjusted revenues | | | 17.9% | | | | 16.7% | | | | | | | | 17.2% | | | | 16.1% | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Adjusted Revenues | $ | 610,633 |
| | $ | 603,381 |
| | 1.2 | % | | $ | 1,162,014 |
| | $ | 1,147,181 |
| | 1.3 | % |
Adjusted EBITDA | 111,849 |
| | 108,110 |
| | 3.5 | % | | 204,838 |
| | 197,175 |
| | 3.9 | % |
as a percent of adjusted revenues | 18.3 | % | | 17.9 | % | | | | 17.6 | % | | 17.2 | % | | |
Adjusted Revenues increased in the three
months ended July 3, 2016 and
decreased in the six months ended July
3, 20162, 2017 from the comparable
periodsperiod of
20152016 due to the following factors:
● | Increases in unit sales volume resulted in increases in revenues of $15.7 million and $9.8 million, respectively. Volume growth was the strongest in our broadcast and enterprise markets. In our industrial markets, we continued to experience a decline in volume due to lower energy prices.
|
● | The acquisition of M2FX contributed $2.1 million and $3.6 million of revenues, respectively.
|
● | Lower copper costs resulted in revenue decreases of $11.6 million and $22.0 million, respectively.
|
● | Unfavorable currency translation resulted in revenue decreases of $1.3 million and $12.2 million, respectively.
|
•Acquisitions contributed $10.2 million to the increase in revenues in both the three and six months ended July 2, 2017.
•Higher copper costs contributed $8.2 million and $17.5 million, respectively, to the increase in revenues.
•Sales volume resulted in revenue decreases of $4.6 million and $2.5 million, respectively.
•Unfavorable currency translation resulted in revenue decreases of $6.6 million and $10.4 million, respectively.
Adjusted EBITDA increased in the three and six months ended July
3, 20162, 2017 from the comparable
periodsperiod of
20152016 primarily
due to leverage on higher sales volume, as discussed above. Additionally, Adjusted EBITDA improved due to improved productivity
as a result ofresulting from our restructuring
actions. Further, favorableactions and proven Lean enterprise system. These increases were partially offset by unfavorable currency
translation resulted in increases in Adjusted EBITDA of $2.0 million and $2.8 million, respectively.translation. Accordingly,
as compared to the year ago period, EBITDA margins
expanded 40 basis points for
both the three and six months ended July
3, 2016 expanded2, 2017 to
17.9%18.3% and
17.2%17.6%, respectively.
-24-
Use of Non-GAAP Financial Information
Adjusted Revenues,
and Adjusted EBITDA,
Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment;
certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired business’business' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance
of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.
-25-
Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | | | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands, except percentages) | |
| | | | |
GAAP revenues | | $ | 601,631 | | | $ | 585,755 | | | $ | 1,143,128 | | | $ | 1,132,712 | |
Deferred revenue adjustments (1) | | | 1,750 | | | | 12,758 | | | | 4,053 | | | | 35,252 | |
| | | | | | | | | | | | | | | | |
Adjusted revenues | | $ | 603,381 | | | $ | 598,513 | | | $ | 1,147,181 | | | $ | 1,167,964 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP net income attributable to Belden stockholders | | $ | 41,849 | | | $ | 21,591 | | | $ | 58,373 | | | $ | 1,955 | |
Interest expense, net | | | 24,049 | | | | 24,769 | | | | 48,445 | | | | 48,615 | |
Loss from disposal of discontinued operations | | | - | | | | 86 | | | | - | | | | 86 | |
Noncontrolling interest | | | (99) | | | | - | | | | (198) | | | | - | |
Income tax benefit | | | (3,558) | | | | (2,303) | | | | (3,415) | | | | (1,615) | |
Amortization of intangible assets | | | 26,263 | | | | 25,917 | | | | 51,795 | | | | 52,421 | |
Deferred gross profit adjustments (1) | | | 1,750 | | | | 13,440 | | | | 4,053 | | | | 35,098 | |
Severance, restructuring, and acquisition integration costs (2) | | | 5,869 | | | | 4,907 | | | | 14,277 | | | | 19,390 | |
Purchase accounting effects related to acquisitions (3) | | | - | | | | - | | | | 195 | | | | 9,422 | |
Depreciation expense | | | 11,987 | | | | 11,692 | | | | 23,650 | | | | 23,233 | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 108,110 | | | $ | 100,099 | | | $ | 197,175 | | | $ | 188,605 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP net income margin | | | 7.0% | | | | 3.7% | | | | 5.1% | | | | 0.2% | |
Adjusted EBITDA margin | | | 17.9% | | | | 16.7% | | | | 17.2% | | | | 16.1% | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2017 | | July 3, 2016 | | July 2, 2017 | | July 3, 2016 |
| | | | | | | |
| (In thousands, except percentages) |
GAAP revenues | $ | 610,633 |
| | $ | 601,631 |
| | $ | 1,162,014 |
| | $ | 1,143,128 |
|
Deferred revenue adjustments (1) | — |
| | 1,750 |
| | — |
| | 4,053 |
|
Adjusted revenues | $ | 610,633 |
| | $ | 603,381 |
| | $ | 1,162,014 |
| | $ | 1,147,181 |
|
| | | | | | | |
GAAP net income attributable to Belden | $ | 35,977 |
| | $ | 42,032 |
| | $ | 61,664 |
| | $ | 58,489 |
|
Amortization of intangible assets | 27,113 |
| | 26,263 |
| | 50,782 |
| | 51,795 |
|
Interest expense, net | 23,533 |
| | 24,049 |
| | 47,039 |
| | 48,445 |
|
Depreciation expense | 11,528 |
| | 11,987 |
| | 22,911 |
| | 23,650 |
|
Severance, restructuring, and acquisition integration costs (2) | 9,560 |
| | 5,869 |
| | 16,160 |
| | 14,277 |
|
Income tax expense (benefit) | 2,210 |
| | (3,741 | ) | | 4,460 |
| | (3,531 | ) |
Purchase accounting effects related to acquisitions (3) | 1,167 |
| | — |
| | 1,167 |
| | 195 |
|
Loss on debt extinguishment | 847 |
| | — |
| | 847 |
| | — |
|
Deferred gross profit adjustments (1) | — |
| | 1,750 |
| | — |
| | 4,053 |
|
Noncontrolling interest | (86 | ) | | (99 | ) | | (192 | ) | | (198 | ) |
Adjusted EBITDA | $ | 111,849 |
| | $ | 108,110 |
| | $ | 204,838 |
| | $ | 197,175 |
|
| | | | | | | |
GAAP net income margin | 5.9 | % | | 7.0 | % | | 5.3 | % | | 5.1 | % |
Adjusted EBITDA margin | 18.3 | % | | 17.9 | % | | 17.6 | % | | 17.2 | % |
(1) For
both the
three and six months ended July 3, 2016
and June 28, 2015, both, our
segment results include revenues that would have been recorded by acquired businesses had they remained as independent entities. Our consolidated
results do not include these revenues
and gross profit were negatively impacted bydue to the
reductionpurchase accounting effect of
the acquiredrecording deferred revenue
balance toat fair
value associated with our 2015 acquisition of Tripwire. See Note 2 to the Condensed Consolidated Financial Statements,Acquisitions.value.
(2) See Note 7 to the Condensed Consolidated Financial Statements,8, Severance, Restructuring, and Acquisition Integration Activities,for details.details
. (3) For the
three and six months ended
July 2, 2017 and July 3, 2016, we recognized
$0.2 million of cost of sales
related tofor the adjustment of acquired inventory to fair value related to
our acquisition of M2FX. For the
six months ended June 28, 2015, we recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards associated with our acquisition of Tripwire. In addition, we recognized $0.3 million of cost of sales related to the adjustment of acquired inventory to fair value related to our acquisition of Coast. See Note 2 to the Condensed Consolidated Financial Statements,Acquisitions.Thinklogical and M2FX acquisitions, respectively.
Segment Results of Operations
For additional information regarding our segment measures, see Note
34 to the Condensed Consolidated Financial Statements.
Broadcast Solutions
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Segment Revenues | | $ | 193,521 | | | $ | 174,923 | | | | 10.6% | | | $ | 364,793 | | | $ | 351,423 | | | | 3.8% | |
Segment EBITDA | | | 29,505 | | | | 22,878 | | | | 29.0% | | | | 52,772 | | | | 46,005 | | | | 14.7% | |
as a percent of segment revenues | | | 15.2% | | | | 13.1% | | | | | | | | 14.5% | | | | 13.1% | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Segment Revenues | $ | 188,071 |
| | $ | 193,521 |
| | (2.8 | )% | | $ | 356,667 |
| | $ | 364,793 |
| | (2.2 | )% |
Segment EBITDA | 29,610 |
| | 29,505 |
| | 0.4 | % | | 55,010 |
| | 52,772 |
| | 4.2 | % |
as a percent of segment revenues | 15.7 | % | | 15.2 | % | | | | 15.4 | % | | 14.5 | % | | |
Broadcast Solutions revenues increaseddecreased in both the three and six months ended July 3, 20162, 2017 from the comparable periodsperiod of 20152016 primarily due to increasesdecreases in unit sales volume of $17.5$12.6 million and $13.8$11.7 million, respectively. Sales of our broadcast infrastructure products benefited from a more stable U.S. dollar as well as increased domestic advertising spending by broadcasters and their customers. The increasedecline in volume was experienced across all geographies, with international growth stronger than domestic growth. Sales of our broadband connectivity products benefited from continued capital investments by our customersmost notable in North America. Furthermore, a product line transfer to meet consumer demand for increased bandwidth. The acquisition of M2FXEnterprise Solutions contributed $2.1$1.2 million and $3.6$3.3 million ofto the decrease in revenues, respectively. In addition, unfavorable currency translation had a $1.8 million and $3.3 million unfavorable impact on revenues, respectively. These factorsdecreases were partially offset by unfavorable currency translation, which resulted$10.2 million of revenues from the acquisition of Thinklogical in decreases in revenues of $1.0both the three and six months ended July 2, 2017.
Broadcast Solutions EBITDA increased $0.1 million and
$4.0$2.2 million
respectively.-26-
Broadcast EBITDA increased in the three and six months ended July 3, 20162, 2017 from the comparable periodsperiod of 2015 primarily2016 due to leverage oncontributions from the increases in revenues discussed above. Additionally, EBITDA increased due toacquisition of Thinklogical, as well as improved productivity as a result ofresulting from our restructuring actions and acquisition integration activities. Accordingly, Broadcast Solutions EBITDA margins expanded 50 basis points and 90 basis points to 15.7% from 15.4%, respectively, from the comparable period of 2016.
Enterprise Solutions
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Segment Revenues | $ | 160,733 |
| | $ | 160,401 |
| | 0.2 | % | | $ | 306,415 |
| | $ | 296,293 |
| | 3.4 | % |
Segment EBITDA | 26,801 |
| | 29,575 |
| | (9.4 | )% | | 50,901 |
| | 53,311 |
| | (4.5 | )% |
as a percent of segment revenues | 16.7 | % | | 18.4 | % | | | | 16.6 | % | | 18.0 | % | | |
Enterprise Solutions revenues increased
to 15.2%$0.3 million and
14.5% for the three and six months ended July 3, 2016, respectively.Enterprise Connectivity Solutions
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Segment Revenues | | $ | 160,401 | | | $ | 161,827 | | | | -0.9% | | | $ | 296,293 | | | $ | 303,608 | | | | -2.4% | |
Segment EBITDA | | | 29,575 | | | | 29,792 | | | | -0.7% | | | | 53,311 | | | | 49,801 | | | | 7.0% | |
as a percent of segment revenues | | | 18.4% | | | | 18.4% | | | | | | | | 18.0% | | | | 16.4% | | | | | |
Enterprise Connectivity revenues decreased$10.1 million in the three and six months ended July 3, 2016 from the comparable periods of 2015. Lower copper costs resulted in revenue decreases of $4.6 million and $9.6 million, respectively. Unfavorable currency translation resulted in revenue decreases of $0.6 million and $3.5 million, respectively. Increases in unit sales volume resulted in increases in revenues of $3.8 million and $5.8 million, respectively. Sales volume growth was most notable in the U.S., Canada, Mexico, and Europe.
Enterprise Connectivity EBITDA decreased in the three months ended July 3, 20162, 2017 from the comparable period of 2015 by $0.22016, respectively. Favorable copper costs resulted in an increase in revenues of $4.7 million as the prior year period benefitedand $9.2 million, respectively. A product line transfer from the timing ofBroadcast Solutions contributed $1.2 million and $3.3 million, respectively. Changes in volume had a $3.5 million unfavorable impact on revenues and a $0.4 million favorable input costs.
Enterprise Connectivity EBITDA increased in the six months ended July 3, 2016 from the comparable period of 2015 due to leverageimpact on the higher sales volume discussed above. EBITDA also increased due to favorable currency translation of $2.3 million. Accordingly, EBITDA margins improved to 18.0% for the six months ended July 3, 2016.
Industrial Connectivity Solutions
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Segment Revenues | | $ | 147,808 | | | $ | 160,875 | | | | -8.1% | | | $ | 288,899 | | | $ | 313,847 | | | | -7.9% | |
Segment EBITDA | | | 27,064 | | | | 28,680 | | | | -5.6% | | | | 50,051 | | | | 52,853 | | | | -5.3% | |
as a percent of segment revenues | | | 18.3% | | | | 17.8% | | | | | | | | 17.3% | | | | 16.8% | | | | | |
Industrial Connectivity revenues decreased in the three and six months ended July 3, 2016 from the comparable periods of 2015. Lower copper costs resulted in revenue decreases of $6.9 million and $12.2 million,2, 2017, respectively. Unfavorable currency translation resulted in revenue decreases of $0.6$2.1 million and $4.7$2.8 million, respectively. Decreases in unit sales volume resulted in revenue decreases of $5.6 million and $8.0 million, respectively. The sales volume declines stemmed fromrespectively, partially offset the impact of lower energy prices, which result in lower capital spending for industrial projects. Sales volume was most notably down in Latin America.
Industrial Connectivityincreases to revenues discussed above.
Enterprise Solutions EBITDA decreased in the three and six months ended July 3, 2016 from2, 2017 compared to the comparable periods of 2015 by $1.6year ago period primarily because we have been unable to fully pass through the rise in copper costs to our customers.
Industrial Solutions
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Segment Revenues | $ | 159,255 |
| | $ | 147,808 |
| | 7.7 | % | | $ | 305,436 |
| | $ | 288,899 |
| | 5.7 | % |
Segment EBITDA | 31,036 |
| | 27,064 |
| | 14.7 | % | | 56,769 |
| | 50,051 |
| | 13.4 | % |
as a percent of segment revenues | 19.5 | % | | 18.3 | % | | | | 18.6 | % | | 17.3 | % | | |
Industrial Solutions revenues increased $11.5 million and $2.8$16.5 million, respectively, primarily due to the decline in sales volume discussed above. These decreases were partially offset by productivity improvements resulting from our restructuring actions. Accordingly, Industrial Connectivity EBITDA margin increased to 18.3% and 17.3% for the three and six months ended July 3,2, 2017 from the comparable period of 2016. Increases in volume resulted in revenue growth of $9.4 million and $10.0 million, respectively. We experienced strong organic growth in discrete manufacturing, with robust demand from machine builders primarily driven by increased investments in automation. Favorable copper costs resulted in an increase in revenues of $3.5 million and $8.3 million, respectively.These increases were partially offset by unfavorable currency translation of $1.5 million and $1.8 million, respectively.
Industrial Solutions EBITDA increased $3.9 million and $6.7 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016
respectively.-27-
primarily due to leverage on volume and favorable mix. Accordingly, Industrial IT Solutions
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Segment Revenues | | $ | 62,510 | | | $ | 61,270 | | | | 2.0% | | | $ | 116,392 | | | $ | 122,343 | | | | -4.9% | |
Segment EBITDA | | | 12,676 | | | | 10,178 | | | | 24.5% | | | | 21,285 | | | | 21,265 | | | | 0.1% | |
as a percent of segment revenues | | | 20.3% | | | | 16.6% | | | | | | | | 18.3% | | | | 17.4% | | | | | |
Industrial IT EBITDA margins expanded 120 basis points and 130 basis points to 19.5% and 18.6%, respectively.
Network Solutions
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| July 2, 2017 | | July 3, 2016 | | % Change | | July 2, 2017 | | July 3, 2016 | | % Change |
| | | | | | | | | | | |
| (In thousands, except percentages) | | |
Segment Revenues | $ | 102,574 |
| | $ | 101,651 |
| | 0.9 | % | | $ | 193,496 |
| | $ | 197,196 |
| | (1.9 | )% |
Segment EBITDA | 22,780 |
| | 22,191 |
| | 2.7 | % | | 40,657 |
| | 42,267 |
| | (3.8 | )% |
as a percent of segment revenues | 22.2 | % | | 21.8 | % | | | | 21.0 | % | | 21.4 | % | | |
Network Solutions revenues increased $0.9 million and decreased $3.7 million, respectively, in the three and six months ended July 2, 2017 from the comparable period of 2016. Increases in volume resulted in revenue growth of $2.1 million in the three months ended July 2, 2017, and decreases in volume resulted in a $1.2 million decline in revenues in the six months ended July 2, 2017. Unfavorable currency translation had a $1.2 million and $2.5 million impact on revenues, respectively.
Network Solutions EBITDA increased in the three months ended July
3, 20162, 2017 from the
prior year by $1.2 million. Favorable currency translation resulted in a revenue increasecomparable period of
$0.7 million, and an increase in unit sales volume generated a revenue increase of $0.5 million. Industrial IT EBITDA increased by $2.5 million compared to the prior year,2016 primarily due to
the leverage on the higherproductivity from improved sales
volume and improved productivity. Favorable currency translation contributed $0.4 million of the increase in EBITDA. Accordingly,force retention. EBITDA
margins increased from 16.6% for the three months ended June 28, 2015 to 20.3% for the three months ended July 3, 2016.Industrial IT revenues decreased in the six months ended July 3, 20162, 2017 from the comparable period of 20152016 primarily due to a decrease in unit sales volume of $5.7 million. The sales volume declines stemmed from the impact of lower energy prices, which result in lower capital spending for industrial projects. Unfavorable currency translation resulted in a decrease in revenues of $0.3 million. Industrial IT EBITDA was $21.3 million for the six months ended July 3, 2016, unchanged from the comparable period of 2015. The impact of lower sales volume wasunfavorable product mix, partially offset by improved productivity due to restructuring actions, and accordingly, EBITDA margins improved from 17.4% to 18.3%.
Network Security Solutions
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | % | | | Six Months Ended | | | % | |
| | July 3, 2016 | | | June 28, 2015 | | | Change | | | July 3, 2016 | | | June 28, 2015 | | | Change | |
| | (In thousands, except percentages) | |
| | | | | | |
Segment Revenues | | $ | 39,141 | | | $ | 39,618 | | | | -1.2% | | | $ | 80,804 | | | $ | 76,743 | | | | 5.3% | |
Segment EBITDA | | | 9,515 | | | | 8,772 | | | | 8.5% | | | | 20,982 | | | | 18,673 | | | | 12.4% | |
as a percent of segment revenues | | | 24.3% | | | | 22.1% | | | | | | | | 26.0% | | | | 24.3% | | | | | |
Network Security revenues decreased in the three months ended July 3, 2016 from the comparable period of 2015 by $0.5 million due to a decline in unit sales volume. Sales volume declined due to the timing of several large orders. For the six months ended July 3, 2016, revenues increased by $4.1 million, due to an increase in sales volume.
Despite the decrease in revenues for the three months ended July 3, 2016, Network Security EBITDA increased by $0.7 million from the comparable period of 2015, due to improved productivity. EBITDA for the six months ended July 3, 2016 increased by $2.3 million, due to both leverage on the increase in revenues and improved productivity. EBITDA margins expanded to 24.3% and 26.0% for the three and six months ended July 3, 2016, respectively.
Discontinued Operations
In both the three and six months ended June 28, 2015, we recognized a $0.2 million ($0.1 million net of tax) loss from disposal of discontinued operations for a final escrow settlement related to the 2010 disposition of Trapeze Networks, Inc.
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Liquidity and Capital Resources
Significant factors affecting our cash liquidity include (1) cash from operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, (4) our available credit facilities and other borrowing arrangements, and (5) cash proceeds from equity offerings. We expect our operating activities to generate cash in
20162017 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing
werein the event we
to complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing.
The following table is derived from our Condensed Consolidated Cash Flow Statements:
| | | | | | | | |
| | Six Months Ended | |
| | July 3, 2016 | | | June 28, 2015 | |
| | (In thousands) | |
Net cash provided by (used for): | | | | |
Operating activities | | $ | 60,454 | | | $ | 5,046 | |
Investing activities | | | (42,931) | | | | (722,489) | |
Financing activities | | | (58,936) | | | | 188,346 | |
Effects of currency exchange rate changes on cash and cash equivalents | | | 434 | | | | (3,646) | |
| | | | | | | | |
Decrease in cash and cash equivalents | | | (40,979) | | | | (532,743) | |
Cash and cash equivalents, beginning of period | | | 216,751 | | | | 741,162 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 175,772 | | | $ | 208,419 | |
| | | | | | | | |
Net
|
| | | | | | | |
| Six Months Ended |
| July 2, 2017 | | July 3, 2016 |
| | | |
| (In thousands) |
Net cash provided by (used for): | |
Operating activities | $ | 34,781 |
| | $ | 60,570 |
|
Investing activities | (189,142 | ) | | (42,931 | ) |
Financing activities | (33,679 | ) | | (59,052 | ) |
Effects of currency exchange rate changes on cash and cash equivalents | 10,284 |
| | 434 |
|
Decrease in cash and cash equivalents | (177,756 | ) | | (40,979 | ) |
Cash and cash equivalents, beginning of period | 848,116 |
| | 216,751 |
|
Cash and cash equivalents, end of period | $ | 670,360 |
| | $ | 175,772 |
|
Operating cash
provided by operating activities totaled $60.5flows were a $34.8 million
forsource of cash in the six months ended July
3, 2016,2, 2017 as compared to
$5.0$60.6 million
forin the comparable period of
2015.Receivables were2016, a usedecrease of cash$25.8 million. This deterioration was primarily due to unfavorable changes in inventory and accounts receivable of $3.8$42.1 million forand $14.2 million, respectively. The unfavorable change in inventory was primarily due to increases in inventory levels in preparation of expected higher demand in the six months ended July 3, 2016, comparedsecond half of 2017. Days sales outstanding increased in the second quarter of 2017 to $6.3 million for62.5 days from 59.5 days in the comparable periodsecond quarter of 2015.2016. The use of cash for receivables improved as a result of a decreaseincrease in days sales outstanding from 64 dayswas due in part to 60 days.the timing of revenues in the quarter. Days sales outstanding is calculated by dividing accounts receivable as of the end of the quarter by the average daily revenues recognized during the quarter.
Inventories were a source of
Net cash
of $0.4used for investing activities totaled $189.1 million for the six months ended July
3, 20162, 2017, compared to
a use of cash of $11.8$42.9 million for the comparable period of
2015. The source of cash for inventories improved as a result of an increase in inventory turnover from 6.0 turns to 7.1 turns. Inventory turnover is calculated by dividing annualized cost of sales for the quarter by inventories as of the end of the quarter.Accounts payable were a use of cash of $20.7 million2016. Investing activities for the six months ended July 3, 2016, compared to $43.7 million2, 2017 included payments, net of cash acquired, for the comparable periodacquisition of 2015. The useThinklogical of cash for accounts payable improved primarily due$165.9 million; capital expenditures of $22.2 million; and a $1.0 million payment
related to
the timingour 2015 acquisition of
payments.In the six months ended June 28, 2015, net income and net cash provided by operating activities include a $9.2 million non-recurring cash compensation charge as a result of accelerating the vesting of certain acquiree equity awards at the closing of the Tripwire acquisition.
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Net cash used for investing activities totaled $42.9 million for the six months ended July 3, 2016 compared to $722.5 million for the comparable period of 2015.that had previously been deferred. Investing activities for the six months ended July 3, 2016 included payments, net of cash acquired, for the acquisition of M2FX of $15.3 million,million; capital expenditures of $25.1 million; and payments of $2.5 million related to our 2015 acquisition of Tripwire that had previously been deferred. Investing activities for the six months ended July 3, 2016 also included capital expenditures of $25.1 million. Investing activities for the six months ended June 28, 2015 included payments for acquisitions, net of cash acquired, of $695.3 million and capital expenditures of $27.2 million.
Net cash used for financing activities for the six months ended July
3, 20162, 2017 totaled
$58.9$33.7 million, compared to
net cash provided by financing$59.1 million for the comparable period of 2016. Financing activities
of $188.3 million for the six months ended
June 28, 2015.July 2, 2017 included cash dividend payments of $21.7 million, payments under borrowing arrangements of $5.2 million, net payments related to share based compensation activities of $4.7 million, and debt issuance costs of $2.0 million. Financing activities for the six months ended July 3, 2016 included payments under borrowing arrangements of $51.3 million, cash dividend payments of $4.2 million, and net payments related to share based compensation activities of $3.5 million.
Financing activities for the six months ended June 28, 2015 included borrowings of $200.0 million to partially fund the acquisition of Tripwire, net payments related to share based compensation activities of $6.2 million, and cash dividend payments of $4.2 million.Our cash and cash equivalents balance was
$175.8$670.4 million as of July
3, 2016.2, 2017. Of this amount,
$100.9$179.8 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest the foreign cash and cash equivalents outside of the U.S. If we were to repatriate the foreign cash to the U.S., we may be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation.
Our outstanding debt obligations as of July
3, 20162, 2017 consisted of
$1.5 billion$1,700.8 million of senior subordinated
notes and $242.8 million of term loan borrowings.notes. Additional discussion regarding our various borrowing arrangements is included in Note
89 to the Condensed Consolidated Financial Statements. As of July
3, 2016,2, 2017, we had
$293.7$288.7 million in available borrowing capacity under our Revolver.
Forward-Looking Statements
Statements in this report other than historical facts are “forward-looking statements” made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding future financial performance (including revenues, expenses, earnings, margins, cash flows, dividends, capital expenditures and financial condition), plans and objectives, and related assumptions. These forward-looking statements reflect management’s current beliefs and expectations and are not guarantees of future performance. Actual results may differ materially from those suggested by any forward-looking statements for a number of reasons, including, without limitation: the impact of a challenging global economy or a downturn in served markets; the
competitiveness of the global broadcast, enterprise, and industrial markets; the inability to successfully complete and integrate acquisitions in furtherance of the Company’s strategic plan; volatility in credit and foreign exchange markets; variability in the Company’s quarterly and annual effective tax rates; the cost and availability of raw materials including copper, plastic compounds, electronic components, and other materials;
the competitiveness of the global broadcast, enterprise, and industrial markets; disruption of, or changes in, the Company’s key distribution channels;
volatility in credit and foreign exchange markets; the inability to execute and realize the expected benefits from strategic initiatives (including revenue growth, cost control, and productivity improvement programs);
the inability to successfully complete and integrate acquisitionsdisruptions in
furtherance of the Company’s
strategic plan;information systems including due to cyber-attacks; the inability of the Company to develop and introduce new products and competitive responses to our products;
the inability to retain senior management and key employees; assertions that the Company violates the intellectual property of others and the ownership of intellectual property by competitors and others that prevents the use of that intellectual property by the Company; risks related to the use of open source software; the
inability to retain senior managementimpact of regulatory requirements and
key employees; disruptions in the Company’s information systems including due to cyber-attacks; variability in the Company’s quarterly and annual effective tax rates;other legal compliance issues; perceived or actual product failures; political and economic uncertainties in the countries where the Company conducts business, including emerging markets; the impairment of goodwill and other intangible assets and the resulting impact on financial performance;
the impact of regulatory requirements and other legal compliance issues; disruptions and increased costs attendant to collective bargaining groups and other labor matters; and other factors.
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For a more complete discussion of risk factors, please see our Annual Report on Form 10-K for the year ended December 31, 20152016 filed with the Securities and Exchange Commission on February 25, 2016.17, 2017. We disclaim any duty to update any forward-looking statements as a result of new information, future developments, or otherwise.
Item 3: Quantitative and Qualitative Disclosures about Market Risks
The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal amounts by expected maturity dates and fair values as of July
3, 2016. | | | | | | | | | | | | | | | | |
| | Principal Amount by Expected Maturity | | | Fair | |
| | 2016 | | | Thereafter | | | Total | | | Value | |
| | (In thousands, except interest rates) | |
| | | | |
Variable-rate term loan due 2020 | | $ | 1,250 | | | $ | 241,504 | | | $ | 242,754 | | | $ | 242,754 | |
Average interest rate | | | 3.41% | | | | 3.41% | | | | | | | | | |
| | | | |
Fixed-rate senior subordinated notes due 2022 | | $ | - | | | $ | 700,000 | | | $ | 700,000 | | | $ | 711,375 | |
Average interest rate | | | | | | | 5.50% | | | | | | | | | |
| | | | |
Fixed-rate senior subordinated notes due 2023 | | $ | - | | | $ | 559,709 | | | $ | 559,709 | | | $ | 565,502 | |
Average interest rate | | | | | | | 5.50% | | | | | | | | | |
| | | | |
Fixed-rate senior subordinated notes due 2024 | | $ | - | | | $ | 200,000 | | | $ | 200,000 | | | $ | 196,500 | |
Average interest rate | | | | | | | 5.25% | | | | | | | | | |
| | | | |
Fixed-rate senior subordinated notes due 2019 | | $ | - | | | $ | 5,221 | | | $ | 5,221 | | | $ | 5,221 | |
Average interest rate | | | | | | | 9.25% | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | $ | 1,707,684 | | | $ | 1,721,352 | |
| | | | | | | | | | | | | | | | |
2, 2017.
|
| | | | | | | | | | | | | | | |
| Principal Amount by Expected Maturity | | Fair |
| 2017 | | Thereafter | | Total | | Value |
| | | | | | | |
| (In thousands, except interest rates) |
Fixed-rate senior subordinated notes due 2022 | $ | — |
| | $ | 700,000 |
| | $ | 700,000 |
| | $ | 721,000 |
|
Average interest rate | | | 5.50 | % | | | | |
Fixed-rate senior subordinated notes due 2023 | $ | — |
| | $ | 573,722 |
| | $ | 573,722 |
| | $ | 598,529 |
|
Average interest rate | | | 5.50 | % | | | | |
Fixed-rate senior subordinated notes due 2026 | $ | — |
| | $ | 227,120 |
| | $ | 227,120 |
| | $ | 242,230 |
|
Average interest rate | | | 4.125 | % | | | | |
Fixed-rate senior subordinated notes due 2024 | $ | — |
| | $ | 200,000 |
| | $ | 200,000 |
| | $ | 207,000 |
|
Average interest rate | | | 5.25 | % | | | | |
Total | | | | | $ | 1,700,842 |
| | $ | 1,768,759 |
|
Item 7A of our 20152016 Annual Report on Form 10-K provides information as to the practices and instruments that we use to manage market risks. There were no material changes in our exposure to market risks since December 31, 2015.2016.
Item 4: Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
-31-
PART II OTHER INFORMATION
Item 1: Legal Proceedings
PPC Broadband, Inc. v. Corning Optical Communications RF, LLC (U.S. Dist. Ct., N.D.N.Y. Civil Action No. 5:11-cv-00761-GLS-DEP)— - On July 5, 2011, the Company’s wholly-owned subsidiary, PPC Broadband, Inc. (f/k/a John Mezzalingua Associates, Inc., d/b/a PPC) (“PPC”), filed an action for patent infringement in the U.S. District Court for the Northern District of New York against Corning Optical Communications RF LLC (f/k/a Corning Gilbert, Inc.) (“Corning”). The Complaint alleged that Corning infringed two of PPC’s patents –- U.S. Patent Nos. 6,558,194 and 6,848,940 –- each entitled “Connector and Method of Operation.” OnIn July 23, 2015, a jury found that Corning willfully infringed both patents. In November 2016, following a series of post-trial motions, the trial judge issued rulings for a total judgment in our favor of approximately $61.3 million. On December 2, 2016, Corning appealed the case to the U.S. Court of Appeals for the Federal Circuit, and that appeal remains pending. We have not recorded any amounts in our consolidated financial statements related to this matter asdue to the court has not entered judgment and is considering post-trial motions filed bypendency of the parties.appeal.
We are also a party to various legal proceedings and administrative actions that are incidental to our operations. In our opinion, the proceedings and actions in which we are involved should not, individually or in the aggregate, have a material adverse effect on our financial condition, operating results, or cash flows. However, since the trends and outcome of this litigation are inherently uncertain, we cannot give absolute assurance regarding the future resolution of such litigation, or that such litigation may not become material in the future.
There have been no material changes with respect to risk factors as previously disclosed in our 20152016 Annual Report on Form 10-K.
|
| | |
Exhibit 10.1 31.1 | | Form of Stock Appreciation Rights Award
|
| |
Exhibit 10.2
| | Form of Performance Stock Units Award
|
| |
Exhibit 31.1
| | Certificate of the Chief Executive Officer pursuant to § 302 of the Sarbanes-Oxley Act of 2002. |
| |
Exhibit 31.2 | | Certificate of the Chief Financial Officer pursuant to § 302 of the Sarbanes-Oxley Act of 2002. |
| |
Exhibit 32.1 | | Certificate of the Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002. |
| |
Exhibit 32.2 | | Certificate of the Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002. |
| |
Exhibit 101.INS | | XBRL Instance Document |
Exhibit 101.SCH | | XBRL Taxonomy Extension Schema |
Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation |
Exhibit 101.DEF | | XBRL Taxonomy Extension Definition |
Exhibit 101.LAB | | XBRL Taxonomy Extension Label |
Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation |
-32-
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| | | | | |
| | | | | | BELDEN INC. |
| | | | |
Date: | | August 3, 2016 | | 7, 2017 | | By: | | /s/ John S. Stroup |
| | | | |
| | | | |
| | | | | John S. Stroup |
| | | | | | | | President, Chief Executive Officer, and DirectorChairman |
| | | | |
Date: | | August 3, 2016 | | 7, 2017 | | By: | | /s/ Henk Derksen |
| | | | |
| | | | |
| | | | | Henk Derksen |
| | | | | | | | Senior Vice President, Finance, and Chief Financial Officer |
| | | | |
Date: | | August 3, 2016 | | 7, 2017 | | By: | | /s/ Douglas R. Zink |
| | | | |
| | | | |
| | | | | Douglas R. Zink |
| | | | | | | | Vice President and Chief Accounting Officer |
-33-