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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
-------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2006
COMMISSION FILE NO. 001-12561
-------------------
BELDEN CDT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
DELAWARE 36-3601505
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7701 FORSYTH BOULEVARD, SUITE 800
ST. LOUIS, MISSOURI 63105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(314) 854-8000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
-------------------
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, and (2) has been subject
to such filing requirements for the past 90 days.
The registrant is a large accelerated filer and is not a shell company.
Following is the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 2006
- ----------------------------- --------------------------
Common Stock, $0.01 Par Value 42,532,080
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Exhibit Index on Pages 33 Page 1 of 33
-1-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BELDEN CDT INC.
CONSOLIDATED BALANCE SHEETS
MARCH 26, DECEMBER 31,
2006 2005
-------------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 153,216 $ 134,638
Receivables 202,132 174,360
Inventories 261,859 245,481
Deferred income taxes 27,893 27,845
Other current assets 7,224 8,015
Current assets of discontinued operations - 56,997
-------------- ------------
Total current assets 652,324 647,336
Property, plant and equipment, less accumulated depreciation 283,114 287,778
Goodwill, less accumulated amortization 272,996 272,290
Other intangibles, less accumulated amortization 72,065 72,459
Other long-lived assets 17,621 6,214
-------------- ------------
$ 1,298,120 $ 1,286,077
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 195,962 $ 196,078
Current maturities of long-term debt 59,052 59,000
Current liabilities of discontinued operations 357 13,342
-------------- ------------
Total current liabilities 255,371 268,420
Long-term debt 172,000 172,051
Postretirement benefits other than pensions 33,917 33,167
Deferred income taxes 76,057 73,851
Other long-term liabilities 17,699 17,166
Minority interest 8,342 7,914
Stockholders' equity:
Preferred stock - -
Common stock 503 503
Additional paid-in capital 549,181 540,430
Retained earnings 298,047 290,870
Accumulated other comprehensive loss (1,535) (6,881)
Unearned deferred compensation - (336)
Treasury stock (111,462) (111,078)
-------------- ------------
Total stockholders' equity 734,734 713,508
-------------- ------------
$ 1,298,120 $ 1,286,077
============== ============
The accompanying notes are an integral part of these Consolidated Financial
Statements
-2-
BELDEN CDT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, 2006 MARCH 27, 2005
-------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 321,905 $ 286,268
Cost of sales (248,490) (223,483)
-------------- --------------
Gross profit 73,415 62,785
Selling, general and administrative expenses (46,459) (48,134)
-------------- --------------
Operating income 26,956 14,651
Interest expense (3,792) (3,758)
Interest income 995 756
Minority interest (217) (167)
-------------- --------------
Income from continuing operations before taxes 23,942 11,482
Income tax expense (9,002) (4,100)
-------------- --------------
Income from continuing operations 14,940 7,382
Loss from discontinued operations, net of tax (Note 3) (1,330) (739)
Gain (loss) on disposal of discontinued operations,
net of tax (Note 3) (4,298) 6,400
-------------- --------------
Net income $ 9,312 $ 13,043
============== ==============
Weighted average number of common shares and equivalents:
Basic 42,550 47,007
Diluted 49,307 53,684
Basic income (loss) per share:
Continuing operations $ 0.35 $ 0.16
Discontinued operations (0.03) (0.02)
Disposal of discontinued operations (0.10) 0.14
Net income 0.22 0.28
Diluted income (loss) per share:
Continuing operations $ 0.32 $ 0.15
Discontinued operations (0.03) (0.01)
Disposal of discontinued operations (0.09) 0.12
Net income 0.20 0.26
Dividends declared per share $ 0.05 $ 0.05
The accompanying notes are an integral part of these Consolidated Financial
Statements
-3-
BELDEN CDT INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, 2006 MARCH 27, 2005
---------------- ---------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 9,312 $ 13,043
Adjustments to reconcile net income to net cash used for operating
activities:
Depreciation and amortization 12,368 9,730
Deferred income tax expense 5,543 5,545
Pension funding in excess of pension expense (14,639) (2,246)
Share-based compensation 1,210 223
Loss (gain) on disposal of tangible assets 6,140 (10,000)
Changes in operating assets and liabilities, net of the effects of
currency exchange rate changes:
Receivables (23,727) (25,961)
Inventories (16,249) (8,880)
Accounts payable and accrued liabilities (1,139) 880
Current income taxes, net (3,592) (5,296)
Other assets and liabilities, net 13,747 19,400
---------------- ---------------
Net cash used for operating activities (11,026) (3,562)
Cash flows from investing activities:
Proceeds from disposal of tangible assets 27,856 12,833
Capital expenditures (3,074) (5,935)
---------------- ---------------
Net cash provided by investing activities 24,782 6,898
Cash flows from financing activities:
Proceeds from exercise of stock options 6,918 2,060
Excess tax benefits related to share-based compensation 966 -
Cash dividends paid (2,135) (2,364)
Debt issuance costs (1,063) -
Payments under borrowing arrangements - (169)
---------------- ---------------
Net cash provided by (used for) financing activities 4,686 (473)
Effect of foreign currency exchange rate changes on cash and cash
equivalents 136 (1,402)
---------------- ---------------
Increase in cash and cash equivalents 18,578 1,461
Cash and cash equivalents, beginning of period 134,638 188,795
---------------- ---------------
Cash and cash equivalents, end of period $ 153,216 $ 190,256
================ ===============
Supplemental cash flow information:
Income tax refunds received $ 450 $ 2,079
Income taxes paid (1,464) (1,749)
Interest paid, net of amount capitalized (6,983) (7,336)
The accompanying notes are an integral part of these Consolidated Financial
Statements
-4-
BELDEN CDT INC.
CONSOLIDATED STOCKHOLDERS' EQUITY STATEMENTS
THREE MONTHS ENDED MARCH 26, 2006 AND MARCH 27, 2005
(UNAUDITED)
ACCUMULATED
COMMON STOCK TREASURY SHARES UNEARNED OTHER
--------------- PAID-IN RETAINED ------------------ DEFERRED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT COMPENSATION INCOME (LOSS) TOTAL
------ ------ --------- ---------- ------ ---------- ------------ -------------- ---------
(IN THOUSANDS)
Balance at December 31, 2004 50,211 $ 502 $ 531,984 $ 252,114 (3,009) $ - $ (2,462) $ 27,862 $ 810,000
Net income 13,043 13,043
Foreign currency translation (14,643) (14,643)
Minimum pension liability 107 107
---------
Comprehensive loss (1,493)
Exercise of stock options 99 1 2,059 2,060
Share-based compensation 17 (316) (316)
Forfeiture of stock by
incentive plan
participants in lieu of
cash payment of individual
tax liabilities related to
share-based compensation (11) -
Amortization of unearned
deferred compensation 539 539
Cash dividends ($.05 per
share) (2,364) (2,364)
Other 386 314 700
------ ------ --------- ---------- ------ ---------- ------------ -------------- ---------
Balance at March 27, 2005 50,310 $ 503 $ 534,429 $ 263,107 (3,003) $ (316) $ (1,923) $ 13,326 $ 809,126
====== ====== ========= ========== ====== ========== ============ ============== =========
Balance at December 31, 2005 50,346 $ 503 $ 540,430 $ 290,870 (8,010) $ (111,078) $ (336) $ (6,881) $ 713,508
Net income 9,312 9,312
Foreign currency translation 5,392 5,392
Minimum pension liability (46) (46)
---------
Comprehensive income 14,658
Exercise of stock options 6,918 359 6,918
Share-based compensation 2,169 3 2,169
Forfeiture of stock by
incentive plan participants
in lieu of cash payment of
individual tax liabilities
related to share-based
compensation (15) (384) (384)
Adoption of SFAS No. 123(R) (336) 336 -
Cash dividends ($.05 per
share) (2,135) (2,135)
------ ------ --------- ---------- ------ ---------- ------------ -------------- ---------
Balance at March 26, 2006 50,346 $ 503 $ 549,181 $ 298,047 (7,663) $ (111,462) $ - $ (1,535) $ 734,734
====== ====== ========= ========== ====== ========== ============ ============== =========
The accompanying notes are an integral part of these Consolidated Financial
Statements
-5-
BELDEN CDT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements include Belden CDT Inc. and
all of its subsidiaries (the COMPANY, US, WE, or OUR). We eliminate all
significant affiliate accounts and transactions in consolidation.
The accompanying Consolidated Financial Statements presented as of any date
other than December 31, 2005:
- Are prepared from the books and records without audit, and
- Are prepared in accordance with the instructions to 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.
Please read these Consolidated Financial Statements in conjunction with the
Consolidated Financial Statements and Supplementary Data contained in our Annual
Report on Form 10-K for the year ended December 31, 2005.
Reporting Periods
Our fiscal year and fiscal fourth quarter both end on December 31. Our fiscal
first, second and third quarter each end on the last Sunday falling on or before
their respective calendar quarter-end.
Foreign Currency Translation
For international operations with functional currencies other than the United
States dollar, we translate asset and liability accounts at current exchange
rates and translate income and expenses using average exchange rates. We report
the resulting translation adjustments, as well as gains and losses from certain
affiliate transactions, in accumulated other comprehensive income (loss), a
separate component of stockholders' equity. We include exchange gains and losses
on transactions in operating earnings.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
are made in regard to receivables collectibility, inventory valuation,
realization of deferred tax assets, valuation of long-lived tangible assets,
valuation of goodwill and intangible assets, calculation of share-based
compensation expense, calculation of pension and other postretirement benefits
expense, and valuation of acquired businesses.
Reclassifications
Certain reclassifications have been made to the 2005 Consolidated Financial
Statements in order to conform to the 2006 presentation.
-6-
Inventories
Inventories are stated at the lower of cost or market. We determine the cost of
all raw materials, work-in-process and finished goods inventories by the first
in, first out method. Cost components include direct labor, applicable
production overhead and amounts paid to suppliers of materials and products as
well as freight costs and, when applicable, duty costs to import the materials
and products.
Shipping and Handling Costs
We include fees earned on the shipment of product to customers in revenues and
include costs incurred on the shipment of product to customers as cost of sales.
We include certain handling costs, primarily incurred at our distribution
centers, totaling $1.5 million and $1.4 million in selling, general and
administrative expenses for the three months ended March 26, 2006 and March 27,
2005, respectively.
NOTE 2: OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
During the first quarter of 2006. we announced organizational changes that
resulted in a change in our reported operating segments. We now conduct our
operations through four reported operating segments--the Belden Americas
segment, the Specialty Products segment, the Europe segment, and the Asia
Pacific segment. The Belden Americas segment, the Specialty Products segment and
the Europe segment all design, manufacture, and market metallic cable, fiber
optic cable, connectivity products, and certain other non-cable products with
industrial, communications/networking, video/sound/security, and
transportation/defense applications. The Asia Pacific segment markets these same
products, but currently has no design or manufacturing capabilities. We sell
these products principally through distributors or directly to systems
integrators, original equipment manufacturers, and large telecommunications
companies. We have reclassified prior year segment disclosures to conform to the
new segment presentation.
We evaluate operating segment performance and allocate resources based on
operating earnings before interest and income taxes. Operating earnings of the
reportable operating segments include all the ongoing costs of operations.
Allocations to or from these operating segments are not significant.
Transactions between the operating segments are conducted on an arms-length
basis. With the exception of unallocated goodwill, certain unallocated tax
assets, and tangible assets located at the corporate headquarters, substantially
all of our assets are utilized by the operating segments.
Operating Segment Information
Finance and administration costs reflected in the column entitled F&A in the
tables below represent corporate headquarters operating, treasury and income tax
expenses, corporate assets, and corporate investment in certain affiliates.
Amounts reflected in the column entitled Eliminations in the tables below
represent the eliminations of affiliate revenues, affiliate cost of sales, and
certain investments in affiliates.
-7-
BELDEN SPECIALTY ASIA
THREE MONTHS ENDED MARCH 26, 2006 AMERICAS PRODUCTS EUROPE PACIFIC F&A ELIMINATIONS TOTAL
- ------------------------------------------ -------- --------- --------- --------- --------- ------------ ----------
(IN THOUSANDS)
Total assets (1) $422,202 $ 234,975 $ 434,094 $ 25,437 $ 521,526 $ (340,114) $1,298,120
External customer revenues $175,366 $ 60,718 $ 73,012 $ 12,809 $ - $ - $ 321,905
Affiliate revenues 14,912 5,370 2,136 - - (22,418) -
Operating income (loss) 31,033 6,902 (1,140) 1,453 (6,265) (5,027) 26,956
Interest expense (3,792)
Interest income 995
Minority interest (217)
Income tax expense (9,002)
----------
Income from continuing operations 14,940
Loss from discontinued operations (Note 3) (1,330)
Loss on disposal of discontinued
operations (Note 3) (4,298)
----------
Net income $ 9,312
==========
BELDEN SPECIALTY ASIA
THREE MONTHS ENDED MARCH 27, 2005 AMERICAS PRODUCTS EUROPE PACIFIC F&A ELIMINATIONS TOTAL
- ------------------------------------------ -------- --------- --------- --------- --------- ------------ ----------
(IN THOUSANDS)
Total assets (1) $397,624 $ 233,084 $ 401,336 $ 26,329 $ 399,496 $ (166,810) $1,291,059
External customer revenues $142,421 $ 53,920 $ 78,947 $ 10,980 $ - $ - $ 286,268
Affiliate revenues 17,965 4,054 1,602 - - (23,621) -
Operating income (loss) 16,644 7,428 719 95 (5,952) (4,283) 14,651
Interest expense (3,758)
Interest income 756
Minority interest (167)
Income tax expense (4,100)
----------
Income from continuing operations 7,382
Loss from discontinued operations (Note 3) (739)
Gain on disposal of discontinued
operations (Note 3) 6,400
----------
Net income $ 13,043
==========
(1) Excludes discontinued operations
-8-
Geographic Information
The following table identifies revenues by geographic region based on the
location of the customer.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 26, 2006 MARCH 27, 2005
------------------------- --------------------------
PERCENT OF PERCENT OF
REVENUES REVENUES REVENUES REVENUES
------------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT % DATA)
United States $ 189,679 58.9% $ 154,691 54.0%
Europe 68,255 21.2% 75,497 26.4%
Canada 34,790 10.8% 31,063 10.9%
Rest of World 29,181 9.1% 25,017 8.7%
------------- ---------- ------------- ----------
Total $ 321,905 100.0% $ 286,268 100.0%
============= ========== ============= ==========
NOTE 3: DISCONTINUED OPERATIONS
In 2005, we announced our decision to exit the United Kingdom communications
cable business. In the first quarter of 2006, we sold certain assets and
liabilities of our telecommunications cable operation in Manchester, United
Kingdom (MANCHESTER) for approximately $27.9 million cash and terminated,
without penalty, our supply agreement with British Telecom plc. We recognized a
$4.3 million after-tax loss on the disposal of this discontinued operation.
During 2005, we sold substantially all of the remaining assets of our Belden
Communications Company (BCC) operation in Phoenix, Arizona; our Raydex/CDT Ltd.
(RAYDEX) operation in Skelmersdale, United Kingdom; our Montrose/CDT (MONTROSE)
operation in Auburn, Massachusetts; and our Admiral/CDT (ADMIRAL) operation in
Barberton, Ohio for approximately $40.0 million cash. We recognized a $15.2
million after-tax gain (which included a $6.4 million after-tax gain in the
first quarter of 2005) on the disposal of the BCC discontinued operation.
Raydex, Montrose and Admiral were acquired through the 2004 merger between
Belden Inc. (BELDEN) and Cable Design Technologies Corporation (CDT). The net
proceeds received from the sales of certain assets of Raydex, Montrose and
Admiral exceeded the carrying values of these assets by $0.1 million. Upon the
finalization of purchase accounting, we increased the portion of consideration
we previously allocated to the tangible assets of these discontinued operations
and reduced the portion of consideration we previously allocated to goodwill by
this excess amount.
We recognized severance and other related benefits costs related to the
discontinued Manchester operation totaling $1.0 million in discontinued
operations during 2005. We recognized severance and other related benefits costs
related to the discontinued BCC operation totaling $5.7 million in discontinued
operations during 2004 and 2005. We recognized severance and other related
benefits costs related to the discontinued Raydex and Montrose operations
totaling $5.3 million as a liability assumed in the merger between Belden and
CDT during 2004 and 2005. The number of employees eligible for severance
payments because of these actions was 1,244.
-9-
The following table sets forth discontinued operations restructuring activity
that occurred during the current quarter:
TOTAL NUMBER OF
ACCRUED SEVERANCE EMPLOYEES ELIGIBLE FOR
AND OTHER RELATED SEVERANCE AND OTHER
BENEFITS RELATED BENEFITS
----------------- ----------------------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES)
Balance at December 31, 2005 $ 160 6
Cash payments / employee terminations (162) (6)
Foreign currency translation 2 -
----------------- ---
Balance at March 26, 2006 $ - -
================= ===
The results of operations and financial position for Manchester, BCC, Raydex,
Montrose and Admiral have been classified as discontinued operations in all
periods presented.
Results from discontinued operations include the following revenues, loss before
taxes and income tax benefit:
THREE MONTHS ENDED MARCH 26, 2006 MARCH 27, 2005
- ------------------ -------------- --------------
(IN THOUSANDS)
Revenues $ 27,644 $ 24,827
Loss before taxes (1,900) (1,206)
Income tax benefit 570 467
Gain (loss) from disposal of discontinued operations includes the following gain
(loss) before taxes and income tax benefit (expense):
THREE MONTHS ENDED MARCH 26, 2006 MARCH 27, 2005
- ------------------ -------------- --------------
(IN THOUSANDS)
Gain (loss) before taxes $ (6,140) $ 10,000
Income tax benefit (expense) 1,842 (3,600)
At March 26, 2006, the only assets or liabilities belonging to the discontinued
operations that remained as part of the disposal group were accrued liabilities
related to our discontinued BCC operation totaling $0.4 million.
NOTE 4: EUROPEAN RESTRUCTURING
In 2005, we announced our decision to restructure European operations in an
effort to reduce manufacturing floor space and overhead. We recognized
accelerated depreciation of $1.3 million in cost of sales during the current
quarter related to these restructuring actions.
We recognized severance and other related benefits costs within the Europe
operating segment totaling $1.1 million ($0.3 million in costs of sales and $0.8
million in SG&A expense) in the first quarter of 2006 related to personnel
reductions in Sweden, Germany and the Netherlands because of the restructuring.
We will provide contractual termination benefits statutorily defined by the
Swedish and German governments to 52 and 3 employees, respectively, and will
provide special termination benefits to 2 employees in the Netherlands.
-10-
We recognized severance and other related benefits costs within the Europe
operating segment totaling $7.7 million ($7.5 million in cost of sales and $0.2
million in SG&A expense) during the year 2005 related to personnel reductions in
the Netherlands, the Czech Republic, and the United Kingdom because of the
restructuring. We provided contractual termination benefits statutorily defined
by the Dutch, Czech and British governments to 61, 78, and 4 employees,
respectively. We also offered one-time termination benefits to 1 employee in the
United Kingdom.
The following table sets forth European restructuring activity that occurred
during the current quarter:
TOTAL NUMBER OF
ACCRUED SEVERANCE EMPLOYEES ELIGIBLE FOR
AND OTHER RELATED SEVERANCE AND OTHER
BENEFITS RELATED BENEFITS
----------------- ----------------------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES)
Balance at December 31, 2005 $ 7,698 144
Cash payments / employee terminations (442) (13)
New charges 1,110 57
Foreign currency translation 181 -
----------------- ---
Balance at March 26, 2006 $ 8,547 188
================= ===
We anticipate making substantially all severance payments against these accruals
within one year of each accrual date.
We continue to review our business strategies and evaluate further restructuring
actions. This could result in additional severance and other related benefits
charges in future periods.
NOTE 5: BELDEN CDT MERGER RESTRUCTURING
In 2004, we initiated plans to reduce personnel at several legacy CDT locations
and recognized severance and other related benefits costs of $14.0 million ($6.7
million, $3.3 million, $2.0 million, $1.7 million and $0.3 million in the
financial records of F&A, the Europe segment, the Specialty Products segment,
the Belden Americas segment, and the Asia Pacific segment, respectively). These
costs were recognized as a liability assumed in the Belden CDT merger and were
included in the cost to acquire CDT. The number of employees eligible for
severance payments because of these actions was 233. During 2005, we decided to
terminate certain restructuring plans related to legacy CDT operations because
of improved capacity utilization at those operations. We reduced accrued
severance and other related benefits recorded within the Specialty Products
segment, the Europe segment, and the Belden Americas segment by $0.8 million,
$0.8 million and $0.5 million, respectively, and reduced the portion of the
consideration we had previously allocated to goodwill by this same amount. This
action reduced the number of employees eligible for severance payments by 76.
The following table sets forth restructuring activity related to the Belden CDT
merger that occurred during the current quarter:
-11-
TOTAL NUMBER OF
ACCRUED SEVERANCE EMPLOYEES ELIGIBLE FOR
AND OTHER RELATED SEVERANCE AND OTHER
BENEFITS RELATED BENEFITS
----------------- ----------------------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES)
Balance at December 31, 2005 $ 1,978 69
Cash payments / employee terminations (549) (2)
Foreign currency translation 24 -
----------------- ---
Balance at March 26, 2006 $ 1,453 67
================= ===
We anticipate making substantially all severance payments against these accruals
within the current year.
NOTE 6: INCOME PER SHARE
Basic income per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted income per share is
computed by dividing net income as adjusted for the tax-effected interest
expense on our convertible subordinated debentures by the weighted average
number of common shares outstanding plus additional potential dilutive shares
assumed to be outstanding. Except for additional potential shares associated
with our convertible subordinated debentures, additional potential shares are
calculated for each measurement period based on the treasury stock method, under
which repurchases are assumed to be made at the average fair market value price
per share of our common stock during the period. Additional potential shares
associated with our convertible subordinated debentures are calculated by
dividing the principal amount of the debentures by their conversion price. Our
additional potential dilutive shares currently consist of stock options, stock
appreciation rights, nonvested restricted stock awards, and convertible
subordinated debentures. Nonvested restricted stock awards carry dividend and
voting rights but are not included in the weighted average number of common
shares outstanding used to compute basic income per share.
-12-
MARCH 26, MARCH 27,
THREE MONTHS ENDED 2006 2005
- ---------------------------------------------------------------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator for basic income per share:
Income from continuing operations $ 14,940 $ 7,382
Loss from discontinued operations (1,330) (739)
Gain (loss) on disposal of discontinued operations (4,298) 6,400
--------- ---------
Net income $ 9,312 $ 13,043
Numerator for diluted income per share:
Income from continuing operations $ 14,940 $ 7,382
Tax-effected interest expense on convertible subordinated debentures 678 678
--------- ---------
Adjusted income from continuing operations 15,618 8,060
Loss from discontinued operations (1,330) (739)
Gain (loss) on disposal of discontinued operations (4,298) 6,400
--------- ---------
Adjusted net income $ 9,990 $ 13,721
Denominator:
Denominator for basic income per share -- weighted average shares 42,550 47,007
Effect of dilutive common stock equivalents 6,757 6,677
--------- ---------
Denominator for diluted incomeper share -- adjusted weighted average
shares 49,307 53,684
Basic income (loss) per share:
Continuing operations $ 0.35 $ 0.16
Discontinued operations (0.03) (0.02)
Disposal of discontinued operations (0.10) 0.14
Net income 0.22 0.28
Diluted income (loss) per share:
Continuing operations $ 0.32 $ 0.15
Discontinued operations (0.03) (0.01)
Disposal of discontinued operations (0.09) 0.12
Net income 0.20 0.26
-13-
NOTE 7: INVENTORIES
The major classes of inventories were as follows:
MARCH 26, DECEMBER 31,
2006 2005
---------- ------------
(IN THOUSANDS)
Raw materials $ 65,888 $ 67,899
Work-in-process 49,203 43,857
Finished goods 155,579 144,659
Perishable tooling and supplies 3,905 3,977
---------- ------------
Gross inventories 274,575 260,392
Obsolescence and other reserves (12,716) (14,911)
---------- ------------
Net inventories $ 261,859 $ 245,481
========== ============
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
The carrying values of property, plant and equipment were as follows:
MARCH 26, DECEMBER 31,
2006 2005
---------- ------------
(IN THOUSANDS)
Land and land improvements $ 23,938 $ 23,670
Buildings and leasehold improvements 129,272 128,498
Machinery and equipment 369,192 380,848
Computer software 24,363 23,861
Construction in process 10,298 10,056
---------- ------------
Gross property, plant and equipment 557,063 566,933
Accumulated depreciation (273,949) (279,155)
---------- ------------
Net property, plant and equipment $ 283,114 $ 287,778
========== ============
Disposal
Disclosure regarding the sale of property, plant and equipment belonging to our
discontinued Manchester operation is included in Note 3, Discontinued
Operations, to the Consolidated Financial Statements.
Depreciation Expense
We recognized total depreciation expense of $12.4 million and $9.7 million
during the three months ended March 26, 2006 and March 27, 2005, respectively,
which included $2.7 million and $0.5 million for our discontinued Manchester
operation, respectively.
Disclosures regarding accelerated depreciation related to the Company's
decisions to exit the United Kingdom communications cable market and restructure
its European operations are included in Note 3, Discontinued Operations, and
Note 4, European Restructuring, respectively, to the Consolidated Financial
Statements.
-14-
NOTE 9: INTANGIBLE ASSETS
The carrying values of intangible assets were as follows:
MARCH 26, DECEMBER 31,
2006 2005
---------- ------------
(IN THOUSANDS)
Intangible assets subject to amortization:
Customer relations $ 54,777 $ 54,608
Developed technologies 6,241 6,179
Favorable contracts 1,094 1,094
Backlog 1,999 1,976
---------- ------------
Gross intangible assets subject to amortization 64,111 63,857
Accumulated amortization (7,405) (6,634)
---------- ------------
Net intangible assets subject to amortization 56,706 57,223
---------- ------------
Intangible assets not subject to amortization:
Goodwill 272,996 272,290
Trademarks 15,359 15,236
---------- ------------
Total intangible assets not subject to amortization 288,355 287,526
---------- ------------
Net intangible assets $ 345,061 $ 344,749
========== ============
The Company recognized total amortization expense of $0.6 million and $1.3
million during the three months ended March 26, 2006 and March 27, 2005,
respectively.
Goodwill, net of accumulated amortization, was allocated to our operating
segments and other business units as follows:
MARCH 26, DECEMBER 31,
2006 2005
--------- ------------
(IN THOUSANDS)
Belden Americas Segment $ 60,252 $ 60,252
Specialty Products Segment 36,950 36,950
Europe Segment 31,180 30,474
Finance & Administration 144,614 144,614
--------- ------------
Consolidated $ 272,996 $ 272,290
========= ============
Goodwill allocated to the Europe segment increased from December 31, 2005
because of the impact of translation on goodwill denominated in currencies other
than the United States dollar. Certain goodwill has not been assigned to any
specific operating segment. Management believes it benefits the entire Company
because it represents acquirer-specific synergies unique to the Belden CDT
merger and is therefore recognized in the F&A financial records.
-15-
NOTE 10: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The carrying values of accounts payable and accrued liabilities were as follows:
MARCH 26, DECEMBER 31,
2006 2005
--------- ------------
(IN THOUSANDS)
Accounts payable $ 105,993 $ 100,731
Wages, severance and related taxes 32,596 33,370
Employee benefits 32,323 34,526
Interest 2,010 5,485
Other (individual items less than 5%
of total current liabilities) 23,040 21,966
--------- ------------
Total accounts payable and accrued
liabilities $ 195,962 $ 196,078
========= ============
Accrued Severance and Other Related Benefits
During the current quarter, we recognized severance and other related benefits
costs because of personnel reductions in the Specialty Products segment ($0.1
million in SG&A expenses) and the Europe segment ($0.1 million in cost of
sales). We notified 5 employees, prior to the end of the quarter, of the pending
terminations as well as the amount of one-time termination benefits they each
should expect to receive.
During 2004 and 2005, the Company recognized severance and other related
benefits costs because of (1) personnel reductions and the closure of a
manufacturing facility within the Belden Americas segment ($2.8 million in cost
of sales and $0.4 million in SG&A expenses), (2) personnel reductions within the
Europe segment ($9.0 million in cost of sales and $0.5 million in SG&A
expenses), and (3) personnel reductions within the Asia Pacific segment ($0.2
million in SG&A expenses). The Company notified 236 employees, prior to the end
of the respective quarter in which their severance costs were recognized, of the
pending terminations as well as the amount of one-time termination benefits they
each should expect to receive
We anticipate making substantially all severance payments against these accruals
within one year of each accrual date.
The following table sets forth severance activity that occurred during the three
months ended March 26, 2006:
TOTAL NUMBER OF
ACCRUED SEVERANCE EMPLOYEES ELIGIBLE FOR
AND OTHER RELATED SEVERANCE AND OTHER
BENEFITS RELATED BENEFITS
----------------- ----------------------
(In thousands, except number of employees)
Balance at December 31, 2005 $ 1,143 16
Cash payments / employee terminations (178) (7)
New charges 185 5
Foreign currency translation 4 -
Other adjustments (7) -
----------------- ---
Balance at March 26, 2006 $ 1,147 14
================= ===
We continue to review our business strategies and evaluate further restructuring
actions. This could result in additional severance and other related benefits
charges in future periods.
-16-
Environmental Remediation Liabilities
The Company is involved in the environmental remediation of various current and
former manufacturing sites. The Company estimates the range of potential costs
to remediate environmental sites, which can vary significantly depending on the
final determination on the extent of remediation required, the method of
remediation required, the Company's share of remediation costs if other parties
are involved, and other factors. The Company records a liability for its most
likely estimate of remediation costs.
The Company's reserve for environmental remediation and related costs was
approximately $6.8 million at March 26, 2006 and $7.2 million at December 31,
2005. The Company expects to fund these environmental remediation liabilities
over the next 5 years. It is reasonably possible that a change in the estimated
remediation costs will occur before remediation is completed.
NOTE 11: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Revolving Credit Facility
We executed a new credit agreement with a group of 8 banks in January 2006. This
new credit agreement provides us with a $165.0 million secured, variable-rate
and revolving credit facility expiring in January 2011. The facility is secured
by our overall cash flow and our assets in the United States. This new agreement
contains certain financial covenants, including maintenance of maximum leverage
and minimum fixed charge coverage ratios, with which we are required to comply.
This new agreement also allows us to increase the facility, at any time and from
time to time (subject to certain restrictions), to an aggregate amount not
exceeding $200.0 million.
The credit agreement executed in January 2006 replaced a $75.0 million agreement
executed in October 2003 between us and a group of 6 banks that would have
expired in June 2006. We cancelled this old credit agreement in January 2006.
There were no outstanding borrowings at March 26, 2006 under our credit
agreement executed in January 2006. We had $154.2 million in borrowing capacity
available at March 26, 2006 .We were in compliance with the covenants required
by this credit agreement at March 26, 2006.
Convertible Subordinated Debentures
At March 26, 2006, we had outstanding $110.0 million of unsecured subordinated
debentures. The debentures are convertible into approximately 6.2 million shares
of common stock, at a conversion price of $17.859 per share, upon the occurrence
of certain events. Holders may surrender their debentures for conversion into
shares of common stock upon satisfaction of any of the conditions listed in Note
14, Long-Term Debt and Other Borrowing Arrangements, to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended
December 31, 2005. At March 26, 2006, one of these conditions--the closing sale
price of our common stock must be at least 110% of the conversion price for a
minimum of 20 days in the 30 trading-day period prior to surrender--had been
satisfied. To date, no holders of the debentures have surrendered their
debentures for conversion into shares of our common stock.
The 6.2 million shares of common stock that would be issued if the debentures
were converted are included in our calculation of diluted income per share for
the three months ended March 26, 2006.
-17-
Medium-Term Notes
At March 26, 2006, we had outstanding $121.0 million of unsecured medium-term
notes. The agreements for these notes contain various customary affirmative and
negative covenants and other provisions, including restrictions on the
incurrence of debt, maintenance of a maximum leverage ratio and minimum net
worth, with which we are required to comply. We were in compliance with these
covenants at March 26, 2006.
Short-Term Borrowings
At March 26, 2006, we had unsecured, uncommitted arrangements with 7 banks under
which we could borrow up to $2.7 million at prevailing interest rates. There
were no outstanding borrowings under these arrangements on that date.
NOTE 12: INCOME TAXES
Net tax expense of $9.0 million for the three months ended March 26, 2006
resulted from income from continuing operations before taxes of $23.9 million.
We consider earnings from foreign subsidiaries to be indefinitely reinvested
and, accordingly, no provision for United States federal and state income taxes
has been made for these earnings. Upon distribution of foreign subsidiary
earnings, we may be subject to United States income taxes (subject to an
adjustment for foreign tax credits) and withholding taxes payable to the various
foreign countries.
The difference between the effective rate reflected in the provision for income
taxes on income from continuing operations before taxes and the amounts
determined by applying the applicable statutory United States tax rate for the
three months ended March 26, 2006 are analyzed below:
THREE MONTHS ENDED MARCH 26, 2006 AMOUNT RATE
- --------------------------------- --------------- -----------
(IN THOUSANDS, EXCEPT RATE DATA)
Provision at statutory rate $ 8,380 35.00%
State income taxes 638 2.70%
Change in valuation allowance 455 1.90%
Lower foreign tax rates and other, net (471) (2.00)%
--------------- -----
Total tax expense $ 9,002 37.60%
=============== =====
NOTE 13: PENSION AND OTHER POSTRETIREMENT OBLIGATIONS
We sponsor defined benefit pension plans for certain employees in the United
States, the United Kingdom, Canada and Germany. Annual contributions to these
pension plans equal or exceed the minimum funding requirements of applicable
local regulations. The assets of the pension plans are maintained in various
trusts and invested primarily in equity and fixed income securities and money
market funds.
We also sponsor unfunded postretirement (medical and life insurance) benefit
plans in the United States and Canada. The medical benefit portion of the United
States plan is only for employees who retired prior to 1989 as well as certain
other employees who were near retirement and elected to receive certain
benefits.
-18-
The following table provides the components of net periodic benefit costs for
the plans:
PENSION OBLIGATIONS OTHER POSTRETIREMENT OBLIGATIONS
--------------------------------- ----------------------------------
MARCH 26, MARCH 27, MARCH 26, MARCH 27,
THREE MONTHS ENDED 2006 2005 2006 2005
- ------------------------- --------------- -------------- -------------- --------------
(IN THOUSANDS)
Service cost $ 1,729 $ 2,732 $ 174 $ 112
Interest cost 2,197 3,440 603 596
Expected return on plan assets (2,547) (3,903) - -
Amortization of prior service cost (10) (10) (27) (27)
Net (gain) loss recognition 600 899 187 155
-------------- -------------- --------- --------------
Net periodic benefit cost $ 1,969 $ 3,158 $ 937 $ 836
============== ============== ========= ==============
We contributed $16.6 million and $0.8 million to our pension plans and other
postretirement plans, respectively, during the three months ended March 26,
2006. We anticipate contributing $33.7 million and $2.7 million to our pension
plans and other postretirement plans, respectively, during 2006.
In connection with the sale of Manchester in the first quarter of 2006, there
was a partial curtailment of our United Kingdom pension plan. No gain or loss
resulted from the curtailment.
NOTE 14: SHARE-BASED COMPENSATION PLANS
Prior to January 1, 2006, we accounted for awards issued under our share-based
compensation plans using the intrinsic-value method. We did not recognize
compensation expense on stock options in the three months ended March 27, 2005
as all options granted had an exercise price equal to the market price of our
stock on the date of grant. We did recognize compensation expense on restricted
stock awards in the three months ended March 27, 2005 based on intrinsic value,
which was equal to the market price of our stock on the date of grant.
On January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123 (as revised in 2004 and referred to as SFAS 123(R)), Share-Based Payment,
using the modified prospective method. This statement requires us to recognize
in net income an estimate of expense for stock awards and options over their
vesting periods typically determined as of the date of grant. Under the modified
prospective application, SFAS No. 123(R) applies to new awards and to awards
modified, repurchased, or cancelled after January 1, 2006. Additionally, we
recognized compensation cost for the portion of awards for which the requisite
service by the employee has not been rendered that were outstanding on January
1, 2006. The compensation cost for that portion of awards was based on the
grant-date fair value of those awards as calculated for pro forma disclosure
under SFAS No. 123 in prior years. Results for prior periods have not been
restated.
The following summarizes the effect on our results of operations and cash flows
for the three months ended March 26, 2006 of changing from the intrinsic-value
method to the fair-value method of accounting for share-based compensation:
-19-
INTRINSIC FAIR
VALUE VALUE INCREASE
METHOD METHOD (DECREASE)
-------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income from continuing operations before taxes $ 24,397 $ 23,942 $ (455)
Income from continuing operations 15,224 14,940 (284)
Net income 9,596 9,312 (284)
Net income per basic share 0.23 0.22 (0.01)
Net income per diluted share 0.21 0.20 (0.01)
Cash used by operating activities (10,742) (11,026) 284
Cash provided by financing activities 3,720 4,686 966
The following table illustrates the effect on net income and net income per
share if we had accounted for stock options using the fair value method in the
three months ended March 27, 2005. For purposes of this pro forma disclosure,
the value of the options is estimated using a Black-Scholes-Merton
option-pricing formula and amortized to expense over the options' vesting
periods.
THREE MONTHS
ENDED
MARCH 27, 2005
-----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As reported:
Share-based employee compensation cost, net of tax $ 332
Net income 13,043
Basic net income per share 0.28
Diluted net income per share 0.26
Pro forma:
Share-based employee compensation cost, net of tax $ 334
Net income 13,041
Basic net income per share 0.28
Diluted net income per share 0.26
Our 2001 Long-Term Performance Incentive Plan (the PLAN), which is stockholder
approved, permits the grant of stock-based awards such as stock options, stock
appreciation rights (SARS), restricted stock, and performance shares to our
employees and members of our Board of Directors for up to 4.3 million shares of
our common stock. We believe that such awards better align the interests of our
employees with those of our stockholders. Compensation cost charged against
income for this plan and the total income tax benefit recognized for share-based
compensation arrangements is included below:
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 26, 2006 MARCH 27, 2005
-------------- ---------------
(IN THOUSANDS)
Total share-based compensation cost charged to SG&A expenses $ 1,210 $ 539
Income tax benefit 455 192
-20-
Stock Appreciation Rights and Stock Options
We currently have outstanding both SARs and stock options with service
conditions. SARs may be converted into shares of our common stock in equal
amounts on each of the first 3 anniversaries of the grant date and expire 10
years from the grant date. We grant stock options with an exercise price equal
to the market price of our common stock on the grant date. Stock options become
exercisable in equal amounts on each of the first 3 anniversaries of the grant
date and expire 10 years from the grant date. Certain awards provide for
accelerated vesting if there is a change in control of the Company (as defined
in the Plan).
We recognize compensation cost for SARs and stock options based on their fair
values. These fair values are estimated on the grant date using the
Black-Scholes-Merton option-pricing formula which incorporates the assumptions
noted in the following table. The aggregate fair value of each award is
amortized to expense over that award's vesting period using the straight-line
method. We developed the expected term assumption using our historical exercise
and post vesting cancellation experience. We developed the expected volatility
assumption using our monthly historical price data and other economic data
trended into future years.
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 26, 2006 MARCH 27, 2005
------------------------- ---------------------------------
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE FAIR VALUE AND ASSUMPTIONS)
Weighted-average fair value of SARs and options granted $ 10.86 $ 5.00
Total intrinsic value of SARs converted and options exercised 2,280 679
Cash received for options exercised 6,918 2,060
Excess tax benefits realized from SARs converted and options
exercised 959 -
Expected volatility 36.92% 38.39%
Expected term (in years) 6.5 7.0
Risk-free rate 4.48% 4.40%
Dividend yield 0.78% 6.18%
A summary of stock appreciation right and stock option activity under the Plan
as of March 26, 2006, and changes during the three months then ended is
presented below:
AVERAGE REMAINING AGGREGATE
NUMBER OF EXERCISE CONTRACTUAL INTRINSIC
SARs / OPTIONS PRICE TERM VALUE
-------------- --------------- ------------ --------------
(IN THOUSANDS, EXCEPT EXERCISE PRICES AND CONTRACTUAL TERMS)
Outstanding at January 1, 2006 4,548 $ 24.06
Granted 316 25.81
Exercised or converted (359) 19.25
Forfeited or expired (192) 29.97
------------ ---------------
Outstanding at March 26, 2006 4,313 $ 24.26 5.3 $ 10,696
============ =============== === ==========
Vested or expected to vest at March 26, 2006 4,279 $ 24.26 5.3 $ 10,612
============ =============== === ==========
Exercisable or convertible at March 26, 2006 3,178 $ 24.93 4.7 $ 5,752
============ =============== === ==========
-21-
Restricted Stock Shares and Units
We currently have outstanding restricted stock shares and units, both with
service vesting conditions, and restricted stock units with performance vesting
conditions. Both restricted stock shares and units with service conditions
"cliff vest" in either 3 or 5 years from the grant date. Restricted stock units
with performance conditions begin to vest upon satisfaction of certain financial
performance conditions on the first anniversary of their grant date and then
vest ratably on the second and third anniversaries of their grant date. If the
financial performance conditions are not satisfied, the restricted stock units
will be forfeited. We believe it is probable that the performance vesting
conditions will be satisfied.
We recognize compensation expense for restricted stock shares and units over
their vesting periods based on fair value, which is equal to the market price of
our stock on the date of grant. Compensation costs for restricted stock shares
and units with service conditions are amortized to expense using the
straight-line method. Compensation costs for restricted stock units with
performance conditions are amortized to expense using the graded attribution
method.
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 26, 2006 MARCH 27, 2005
--------------------- ----------------------
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE FAIR VALUE)
Weighted-average fair value of restricted stock shares and units
granted $ 25.81 $ -
Total fair value of restricted stock shares and units vested $ 683 $ 993
A summary of the status of our restricted stock shares and units as of March 26,
2006, and changes during the three months then ended, is presented below:
WEIGHTED-
AVERAGE
NUMBER OF GRANT-DATE
SHARES / UNITS FAIR VALUE
-------------- --------------
(IN THOUSANDS, EXCEPT FAIR VALUES)
Outstanding at January 1, 2006 222 $ 20.16
Granted 130 25.81
Vested (33) 20.69
Forfeited (2) 20.50
---------------- --------------
Outstanding at March 26, 2006 317 $ 22.42
================ ==============
At March 26, 2006, the total unrecognized compensation cost related to all
nonvested awards was $14.0 million. That cost is expected to be recognized over
a weighted-average period of 3.0 years.
Historically, we have issued treasury shares, if available, to satisfy award
conversions and exercises. We do not expect to repurchase any shares during
2006, based on estimates of award conversions and exercises during the year.
NOTE 15: CONTINGENT LIABILITIES
General
Various claims are asserted against us in the ordinary course of business
including those pertaining to income tax examinations and product liability,
customer, employment, vendor and patent matters. Based on facts currently
available, management believes that 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.
-22-
Letters of Credit, Guaranties and Bonds
At March 26, 2006, we were party to unused standby letters of credit and unused
bank guaranties totaling $10.7 million and $5.4 million, respectively. We also
maintain surety bonds totaling $3.9 million in connection with workers
compensation self-insurance programs in several states, taxation in Canada, and
the importation of product into the United States and Canada.
Severance and Other Related Benefits
We completed the sale of part of our business in Germany to a management-led
buyout group in October 2003. We will retain liability for severance and other
related benefits estimated at $0.9 million on March 26, 2006 in the event the
buyout group terminates transferred employees within three years of the buyout
date. The severance and other related benefits amounts are reduced based upon
the transferred employees' duration of employment with the buyout group. We will
be relieved of any remaining contingent liability related to the transferred
employees on the third anniversary of the buyout date.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis, as well as the accompanying Consolidated
Financial Statements and related notes, will aid in the understanding of the
operating results as well as the financial position, cash flows, indebtedness
and other key financial information of the Company. Certain reclassifications
have been made to prior year amounts to make them comparable to current year
presentation. Preparation of this Quarterly Report on Form 10-Q requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements and the reported amounts of revenue and expenses during the
reporting period. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily derived from other
sources. There can be no assurance that actual amounts will not differ from
those estimates. The following discussion will also contain forward-looking
statements. In connection therewith, please see the cautionary statements
contained herein under the caption "Forward-Looking Statements", which identify
important factors that could cause actual results to differ materially from
those in the forward-looking statements.
OVERVIEW
Belden CDT designs, manufactures and markets high-speed electronic cables,
connectivity products and related items for the specialty electronics and data
networking markets. We focus on segments of the worldwide cable and connectivity
market that require highly differentiated, high-performance products. We add
value through design, engineering, excellence in manufacturing, product quality,
and customer service.
We believe that revenue growth, operating margins and working capital management
are our key operating performance indicators.
EFFECTS OF INFLATION
The principal raw material we use in many of our products is copper. We also
purchase Teflon(R) fluoropolymers, PVC, polyethylene, color chips and insulating
materials such as plastic and rubber in large quantities. During 2004, 2005 and
2006, the price of copper has risen significantly and rapidly. Materials such as
PVC and other plastics derived from petrochemical feedstocks have also risen in
price. Generally, we have recovered much of the higher cost of raw materials
through higher pricing of our finished products. The majority of our products
are sold through distribution, and we manage the pricing of these products
through published price lists which we update from time to time, with new prices
generally taking effect a few weeks after they are announced. Some original
equipment manufacturer and telecommunications customer contracts have provisions
which allow us to pass on raw material cost increases, generally with a lag of a
few weeks to three months.
-23-
EUROPEAN OPERATIONS
In 2005, we announced our decisions to (1) exit the United Kingdom
communications cable market and (2) restructure our European operations in an
effort to reduce manufacturing floor space and overhead and streamline
administrative processes. In 2006, we sold certain assets and liabilities of our
operation in Manchester, United Kingdom and announced the upcoming closure of
our manufacturing facility in Orebro, Sweden.
As a result of these decisions, we recognized asset impairment expense of $12.8
million, severance expense of $9.8 million, and accelerated depreciation of $7.1
million from our announcement date in 2005 through the first quarter of 2006. We
may recognize additional restructuring costs and associated expenses during
2006. We may recognize additional asset impairment expenses or losses on the
disposal of assets during the European restructuring.
OPERATING SEGMENTS
We conduct our operations through four reported operating segments--the Belden
Americas segment, the Specialty Products segment, the Europe segment, and the
Asia Pacific segment. The Belden Americas segment, the Specialty Products
segment and the Europe segment all design, manufacture, and market metallic
cable, fiber optic cable, connectivity products, and certain other non-cable
products with industrial, communications/networking, video/sound/security, and
transportation/defense applications. The Asia Pacific segment markets these same
products, but currently has no design or manufacturing capabilities. We sell
these products principally through distributors or directly to systems
integrators, OEMs, and large telecommunications companies.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 26, 2006 COMPARED WITH THREE
MONTHS ENDED MARCH 27, 2005
CONTINUING OPERATIONS
Revenues generated in the three months ended March 26, 2006 increased 12.4% to
$321.9 million from revenues generated in the three months ended March 27, 2005
of $286.3 million because of increased selling prices and increased sales volume
partially offset by unfavorable foreign currency translation on international
revenues. Price improvement resulted primarily from the impact of sales price
increases implemented by the Company during 2005 and 2006 across most product
lines in response to increases in the costs of copper and commodities derived
from petrochemical feedstocks and improved pricing practices at certain of our
operations. Higher unit sales of products with industrial and
video/sound/security applications were partially offset by a volume decrease in
sales of products with communications/networking applications.
Gross profit increased 16.9% to $73.4 million in the three months ended March
26, 2006 from $62.8 million in the three months ended March 27, 2005 primarily
because of improved pricing practices in certain of our operations, higher sales
volumes, and the current-quarter impact of our manufacturing cost reduction
initiatives. These positive factors were partially offset by higher product
costs resulting from increased purchase prices for copper and commodities
derived from petrochemical feedstocks and $1.3 million of accelerated
depreciation of certain European assets because of our restructuring efforts.
Gross profit as a percent of revenues increased from 21.9% in the first quarter
of 2005 to 22.8% in the current quarter because of the previously mentioned
items and increased manufacturing utilization as a result of plant
rationalization and consolidation.
Operating income increased 84.0% to $27.0 million for the three months ended
March 26, 2006 from $14.7 million for the three months ended March 27, 2005
because of higher gross profit and a decrease in selling, general and
administrative (SG&A) expenses. These expenses decreased to $46.5 million in the
first quarter of 2006 from $48.1 million for the first quarter of 2005 primarily
because of the impact of cost reduction initiatives (including 2005 personnel
reductions) partially offset by an increase in share-based compensation expense
resulting from the 2006 adoption of Statement of Financial Accounting Standards
(SFAS) No. 123(R) and an increase in severance expense resulting from the
European restructuring and other 2006 personnel reductions. Operating income as
a percent of revenues improved from 5.1% in the first quarter of 2005 to 8.4% in
the current quarter because of the previously mentioned items.
-24-
Income from continuing operations before taxes increased 108.5% to $23.9 million
in the three months ended March 26, 2006 from $11.5 million in the three months
ended March 27, 2005 primarily because of higher operating income.
The Company's effective annual tax rate increased to 37.6% in the three months
ended March 26, 2006 from 35.7% in the three months ended March 27, 2005
primarily attributable to a smaller relative benefit of permanent deductions to
a larger pretax income amount and to losses in foreign jurisdictions for which
no tax benefit is currently available.
Income from continuing operations increased 102.4% to $14.9 million in the three
months ended March 26, 2006 from $7.4 million in the three months ended March
27, 2005 because of higher income from continuing operations before taxes
partially offset by higher income tax expense.
BELDEN AMERICAS SEGMENT
March 26, March 27, %
Three months ended 2006 2005 Change
- ------------------------ ---------- ---------- ----------
(in thousands, except percentages)
Total revenues $ 190,278 $ 160,386 18.6%
Operating income 31,033 16,644 86.5%
as a percent of total revenues 16.3% 10.4%
Belden Americas total revenues (which includes affiliate revenues) increased
18.6% primarily because of sales price increases that we implemented in 2005 and
2006 in response to rising raw material costs, improved pricing behavior at
operations manufacturing products with communications/networking applications,
and increased demand for products with industrial applications by customers in
the oil and gas, paper and pulp, automotive, power generation, and food
processing industries. Operating income increased 86.5% primarily because of
improved revenues, share gains and price realization in some of our stronger
businesses, improved factory utilization and cost absorption that resulted from
both the 2005 actions and the rising demand, and the impact of 2005 cost
reduction initiatives (including manufacturing facility closures) partially
offset by increased share-based compensation costs resulting from the adoption
of SFAS No. 123(R).
SPECIALTY PRODUCTS SEGMENT
March 26, March 27, %
Three months ended 2006 2005 Change
- ----------------------------- ---------- ---------- ----------
(in thousands, except percentages)
Total revenues $ 66,088 $ 57,974 14.0%
Operating income 6,902 7,428 -7.1%
as a percent of total revenues 10.4% 12.8%
Specialty Products total revenues increased 14.0% primarily because of sales
price increases that we implemented in 2005 and 2006 in response to rising raw
material costs, improved pricing behavior at certain operations manufacturing
networking products, and increased demand for both industrial products and
aerospace products. Operating income decreased 7.1% primarily because of the
rising costs of copper and commodities derived from petrochemical feedstocks and
increased share-based compensation costs resulting from the adoption of SFAS No.
123(R).
-25-
EUROPE SEGMENT
March 26, March 27, %
Three months ended 2006 2005 Change
- ------------------------- ----------- ----------- --------
(in thousands, except percentages)
Total revenues $ 75,148 $ 80,549 -6.7%
Operating income (loss) (1,140) 719 -258.6%
as a percent of total revenues -1.5% 0.9%
Europe total revenues decreased by 6.7% primarily because of the discontinuation
in 2005 of some unprofitable product lines, some distributor buy-ahead in the
fourth quarter of 2005 to take advantage of rebates, a weak quarter with
Deutsche Telecom for weather-related reasons, and unfavorable foreign currency
translation partially offset by the impact of sales price increases implemented
in 2005 in response to rising raw material costs and improved demand for
products with industrial applications. Europe operating results reflect a
deterioration from operating income of $0.7 million in the first quarter of 2005
to an operating loss of $1.1 million in the current quarter. This deterioration
resulted primarily from the rising costs of copper and commodities derived from
petrochemical feedstocks, accelerated depreciation and severance costs related
to restructuring actions, and increased share-based compensation costs because
of the adoption of SFAS No. 123(R) partially offset by the impact of cost
reduction initiatives throughout the segment.
ASIA PACIFIC SEGMENT
March 26, March 27, %
Three months ended 2006 2005 Change
- ---------------------------------- ---------- ---------- -----------
(in thousands, except percentages)
Total revenues $ 12,809 $ 10,980 16.7%
Operating income 1,453 95 1,429.5%
as a percent of total revenues 11.3% 0.9%
Asia Pacific total revenues increased by 16.7% primarily because of increased
demand for products with industrial and video/sound/security applications, sales
price increases implemented in 2005 in response to rising raw material costs,
and improvement in sales representation over the past year. Operating income
increased from $0.1 million in the first quarter of 2005 to $1.5 million in the
current quarter primarily because of the favorable revenue comparison and the
impact of cost reduction initiatives.
DISCONTINUED OPERATIONS
During each of the periods presented we reported five operations--our
telecommunications cable business in Manchester, United Kingdom (MANCHESTER);
Belden Communications Company in Phoenix, Arizona (BCC); Raydex/CDT Ltd. in
Skelmersdale, United Kingdom; Montrose/CDT in Auburn, Massachusetts; and
Admiral/CDT in Wadsworth, Ohio and Barberton, Ohio--as discontinued operations.
Loss from discontinued operations for the quarter ended March 26, 2006 includes
$27.6 million of revenues and $1.9 million of loss before income tax benefits.
We recognized a loss on the disposal of discontinued operations in the amount of
$6.1 million before tax ($4.3 million after tax) during the first quarter of
2006 related to Manchester. Loss from discontinued operations for the quarter
ended March 27, 2005 includes $24.8 million of revenues and $1.2 million of loss
before income tax benefits. We recognized a gain on the disposal of discontinued
operations in the amount of $10.0 million before tax ($6.4 million after tax)
during the first quarter of 2005 related to BCC.
At March 26, 2006, the only assets or liabilities belonging to the discontinued
operations that remained as part of the disposal group were accrued liabilities
related to our discontinued BCC operation totaling $0.4 million.
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our sources of cash liquidity included cash and cash equivalents and amounts
available under credit facilities. Generally, our primary source of cash has
been from business operations. Cash sourced from credit facilities and other
borrowing arrangements has historically been used to fund business acquisitions.
We believe that the sources listed above are sufficient to fund the current
requirements of working capital, to make scheduled pension contributions for our
retirement plans, to fund scheduled debt maturity payments, to fund quarterly
dividend payments and to support our short-term and long-term operating
strategies.
We anticipate funding $33.7 million in pension contributions and $2.7 million in
contributions for other postretirement benefit plans in the upcoming year. We
also plan to pay off tranches of both our 1997 and 1999 medium-term notes
totaling $59.0 million during 2006. We anticipate we will have sufficient funds
to satisfy these cash requirements.
Because of net operating loss carryforwards and deductible temporary
differences, we anticipate that cash payments of United States income taxes
during 2006 will be significantly less than tax expense. Cash payments of income
taxes for foreign jurisdictions will approximate tax expense.
Planned capital expenditures for 2006 are approximately $30.0 million. We have
the ability to revise and reschedule the anticipated capital expenditure program
should our financial position require it.
Customer demand, competitive market forces, uncertainties related to the effect
of competitive products and pricing, customer acceptance of our product mix or
economic conditions worldwide could affect our ability to continue to fund our
needs from business operations.
Net cash inflow during the current quarter totaled $18.6 million. The disposal
of discontinued operations provided $27.9 million of cash during this period.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used for operating activities in the first three months of 2006 totaled
$11.0 million and included $12.4 million of other non-cash operating expenses
and a $32.7 million net increase in operating assets and liabilities. Other
non-cash operating expenses consisted of depreciation, amortization, deferred
tax expense, share-based compensation, and a loss on the disposal of tangible
assets partially offset by excess tax benefits recognized on share-based
compensation. The net increase in operating assets and liabilities resulted
primarily from increased receivables, increased inventories, increased current
income taxes and decreased accounts payable and accrued liabilities partially
offset by decreased other net operating assets and liabilities.
CASH FLOW FROM INVESTING ACTIVITIES
Net cash provided by investing activities totaled $24.8 million in the first
three months of 2006. We received proceeds on the sale of certain tangible
assets of our discontinued Manchester, United Kingdom operation totaling $27.9
million during the current quarter. This cash source was partially offset by
capital expenditures totaling $3.1 million during the current quarter.
CASH FLOW FROM FINANCING ACTIVITIES
Net cash provided by financing activities during the first three months of 2006
totaled $4.7 million. During the current quarter, we received proceeds from the
exercise of stock options totaling $6.9 million and recognized excess tax
benefits related to share-based compensation in the amount of $1.0 million.
These cash sources were partially offset by the payment of dividends of $.05 per
share to stockholders during the quarter, which resulted in cash outflow of $2.1
million and the payment of debt issuance costs in the amount of $1.1 million.
-27-
During the quarter ended March 26, 2006, there were no material changes outside
the ordinary course of business to the Company's contractual obligations
presented in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, of the Annual Report on Form 10-K for the period
ended December 31, 2005.
WORKING CAPITAL
Current assets less cash and cash equivalents decreased 2.7% from December 31,
2005 to March 26, 2006 primarily because of the decrease in current assets of
discontinued operations. Current assets of discontinued operations were
eliminated during the first quarter of 2006 because of our sale of certain
assets of the discontinued Manchester, United Kingdom business. Receivables and
inventories increased 15.9% and 6.7%, respectively, from December 31, 2005 to
March 26, 2006 mainly because of higher sales levels and increased costs for
copper and commodities derived from petrochemical feedstocks.
Current liabilities decreased 4.9%, from December 31, 2005 to March 26, 2006
primarily because of the decrease in current liabilities of discontinued
operations. Current liabilities of discontinued operations decreased from
December 31, 2005 to March 26, 2006 because of our sale of certain liabilities
of the discontinued Manchester, United Kingdom business during the current
quarter.
LONG-LIVED ASSETS
Our long-lived assets consist of property, plant and equipment, goodwill,
intangible assets such as patents, trademarks, backlog, favorable contracts and
customer relationships, and other assets such as prepaid pension contributions
and prepaid debt service costs. Long-lived assets increased 1.1% from December
31, 2005 to March 26, 2006 primarily because of a $10.5 million contribution to
our United Kingdom pension plan during the current quarter.
LONG-TERM LIABILITIES
Our long-term liabilities other than long-term debt consist of postretirement
benefit obligations, deferred income taxes and other long-term liabilities such
as accrued incentive compensation and accrued environmental remediation costs
which we do not expect to settle within the upcoming year. Long-term liabilities
other than long-term debt increased 3.0% from December 31, 2005 to March 26,
2006 primarily because of an increase in deferred income taxes.
CAPITAL STRUCTURE
Our capital structure consists primarily of current maturities of long-term
debt, long-term debt and stockholders' equity. The capital structure increased
2.2% during the first quarter of 2006 because of an increase in stockholders'
equity.
Discussion regarding our various borrowing arrangements is included in Note 11,
Long-Term Debt and Other Borrowing Arrangements, to the Consolidated Financial
Statements in this Quarterly Report on Form 10-Q.
Stockholders' equity increased by 3.0% from December 31, 2005 to March 26, 2006
primarily because of increases in additional paid-in capital and retained
earnings and improvement in accumulated other comprehensive loss. Additional
paid-in capital increased primarily because of stock option exercises. Retained
earnings increased primarily because of net income partially offset by
dividends. Accumulated other comprehensive loss improved primarily because of
the positive effect of currency exchange rates on financial statement
translation.
OFF-BALANCE SHEET ARRANGEMENTS
We were not a party to any off-balance sheet arrangements at March 26, 2006.
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CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires us
to make judgments, assumptions and estimates that affect the amounts reported in
our Consolidated Financial Statements and accompanying notes. We consider the
accounting policies described in Critical Accounting Policies within Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of our Annual Report on Form 10-K for the year ended December 31,
2005 to be our most critical accounting policies. An accounting policy is deemed
to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is
made, and if different estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the Consolidated Financial Statements. We
base our estimates on historical experience or various assumptions that are
believed to be reasonable under the circumstances, and the results form the
basis for making judgments about the reported values of assets, liabilities,
revenues and expenses. We believe these judgments have been materially accurate
in the past and the basis for these judgments should not change significantly in
the future. Our senior management has discussed the development, selection and
disclosure of these estimates with the Audit Committee of our Board of
Directors. Actual results may differ materially from these estimates under
different assumptions or conditions.
During the three months ended March 26, 2006:
- We did not change any of our existing critical accounting policies;
- 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;
- There were no significant changes in the manner in which critical
accounting policies were applied or in which related judgments and
estimates were developed; and
- We did adopt one new critical accounting policy, share-based
compensation, as described below.
SHARE-BASED COMPENSATION
We compensate certain employees with various forms of share-based payment
awards-- stock appreciation rights (SARs), stock options, restricted stock
units, and performance stock units. We recognize compensation cost for SARs and
stock options based on the fair values of these awards. These fair values are
estimated on the grant date using the Black-Scholes-Merton option-pricing
formula which incorporates certain assumptions regarding the expected term of an
award, stock volatility, dividend yield, and risk-free investment rates. We
developed the expected term assumption based on the vesting period and
contractual term of an award, our historical exercise and post-vesting
cancellation experience, our stock price history, our expected volatility, known
blackout periods that may trigger automatic early exercise or delay exercise,
plan provisions that require exercise or cancellation of awards after employees
terminate, and the extent to which currently available information indicates
that the future is reasonably expected to differ from past experience. We
develop the expected volatility assumption based on monthly historical price
data for our stock as well as the stock of legacy Belden and legacy CDT
separately and other economic data trended into future years, information about
our corporate and capital structure, and the extent to which currently available
information indicates that future volatility is reasonably expected to differ
from historical volatility. The dividend yield is the ratio of historical
per-annum dividends paid per share of our common stock to the market price of
our common stock on the grant date. The assumption made with regard to dividend
yield is that current dividend payment practices will continue in the future.
The risk-free rate is the implied yield currently available on United States
Treasury zero-coupon issues with a remaining term equal to the expected term
used as the assumption in the valuation model. After calculating the aggregate
fair value of an award, we use an estimated forfeiture rate to discount the
amount of share-based payments compensation cost to be recognized in our
operating results over the service period of the award. We developed the
forfeiture assumption based on our historical pre-vesting cancellation
experience.
Discussion regarding the adoption of SFAS No. 123(R) is included in Note 14,
Share-Based Compensation Plans, to the Consolidated Financial Statements in this
Quarterly Report on Form 10-Q.
-29-
OUTLOOK
We anticipate relatively strong end markets in both North America and Asia in
2006; however, we expect somewhat slower growth in Europe. We estimate that unit
volumes will increase between 3.0% and 5.0% for 2006 compared with 2005. Revenue
will also increase because of higher prices, largely in response to higher raw
material costs.
Management expects improvement in operating income from all parts of the
Company--particularly, from Europe and certain North American operations that
manufacture products with communications/networking applications. Restructuring
in Europe is well under way, and management believes its recent reorganization
in North America will help leverage the Company's strengths and improve the
contribution made to operating income by the North American operations mentioned
above. We anticipate operating margins will reflect continued product mix
enrichment for networking products and will include further migration to higher
bandwidth cables, more 10-gigabit projects, and an increasing proportion of
connectivity sales. We will also benefit from the full-year realization of
Belden CDT merger synergies in 2006.
Management anticipates the Company will generate diluted income from continuing
operations per share, excluding any further restructuring charges, between $1.55
and $1.70 in 2006. This outlook includes $.02 to $.03 of incremental stock
option expense related to the adoption of SFAS No. 123(R).
We anticipate funding $33.7 million in pension contributions and $2.7 million in
contributions for other postretirement benefit plans in 2006. We also plan to
pay off tranches of both our 1997 and 1999 medium-term notes totaling $59.0
million during 2006. We anticipate we will have sufficient funds to satisfy
these cash requirements.
Management expects that the Company's effective tax rate for continuing
operations in 2006 will be 37.6%. Because of net operating loss carryforwards
and deductible temporary differences, we anticipate that cash payments of United
States income taxes during 2006 will be significantly less than tax expense.
Cash payments of income taxes for foreign jurisdictions will approximate tax
expense.
Depreciation and amortization for continuing operations are expected to total
approximately $37.0 million in 2006. Capital expenditures for Belden CDT during
2006 are expected to be approximately $30.0 million.
We have incurred severance and executive succession charges related to the
discontinuation of certain operations and with other actions intended to reduce
costs. The amount of the charges recognized but not funded as of March 26, 2006
is $11.6 million. Management expects that that all of these charges will be
funded in 2006. This will have a negative effect on cash flow. Management
expects that there may be additional restructuring charges (severance and asset
impairment) in future periods that would have a negative effect on both
operating results and cash flow.
We anticipate that annual dividends in the aggregate of $.20 per common share
($.05 per common share each quarter) will be paid to all common stockholders.
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FORWARD-LOOKING STATEMENTS
The statements set forth in this report other than historical facts, including
those noted in the "Outlook" section, are forward-looking statements made in
reliance upon the safe harbor of the Private Securities Litigation Reform Act of
1995. As such, they are based on current expectations, estimates, forecasts and
projections about the industries in which we operate, general economic
conditions, and management's beliefs and assumptions. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict. As a result, our actual results may
differ materially from what is expected or forecasted in such forward-looking
statements. We undertake no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise, and
disclaims any obligation to do so.
Our actual results may differ materially from such forward-looking statements
for the following reasons:
- Changing economic conditions in the United States, Europe and parts
of Asia (and the impact such conditions may have on our sales);
- Changes in raw material costs (specifically, costs for copper,
Teflon FEP(R) and commodities derived from petrochemical feedstocks)
and availability;
- The pricing of our products (including our ability to adjust product
pricing in a timely manner in response to raw material cost
volatility);
- The ability to successfully implement its announced restructuring
plans;
- The level of business spending in the United States, Canada, Europe,
and other markets on information technology and the building or
reconfiguring of network infrastructure;
- Demand and acceptance of our products by customers and end users;
- The success of implementing cost-saving programs and initiatives;
- Our continued ability to introduce, manufacture and deploy
competitive new products and services on a timely, cost-effective
basis;
- Increasing price, product and service competition from competitors,
including new entrants;
- The creditworthiness of our customers;
- Developments in technology;
- Energy costs;
- The threat of displacement from competing technologies (including
wireless and fiber optic technologies);
- The outcome of routine labor negotiations in Canada and Europe;
- Changes in foreign currency exchange rates;
- Reliance on large distributor customers;
- The threat of war and terrorist activities; and
- Other factors noted in this report and other Securities Exchange Act
of 1934 filings of the Company.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risks relating to the Company's operations result primarily from general
economic conditions, interest rates, foreign exchange rates, certain commodity
prices and concentrations of credit. The Company manages its exposure to these
and other market risks through regular operating and financing activities, and
on a limited basis, through the use of derivative financial instruments. The
Company intends to use such derivative financial instruments as risk management
tools and not for speculative investment purposes. Item 7A, Quantitative and
Qualitative Disclosures About Market Risks, of the Company's Annual Report on
Form 10-K for the year ended December 31, 2005 provides more information as to
the types of practices and instruments used to manage risk. There was no
material change in the Company's exposure to market risks since December 31,
2005 other than commodities pricing discussed in the section entitled "Effects
of Inflation" in Item 2 of this Quarterly Report on Form 10-Q.
-31-
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.
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative actions
that are incidental to its operations. These proceedings include personal injury
cases (about 147 of which the Company was aware at May 1, 2006) in which the
Company is one of many defendants, 48 of which are scheduled for trial during
2006.
Electricians have filed a majority of these cases, primarily in New Jersey and
Pennsylvania. Plaintiffs in these cases generally seek compensatory, special and
punitive damages. As of May 1, 2006, in 22 of these cases, plaintiffs generally
allege only damages in excess of some dollar amount (i.e., in one case, not less
than $15 thousand and in the other cases, in excess of $50.0 thousand in
compensatory damages and $50.0 thousand in punitive damages). In 123 of these
cases, plaintiffs generally do not allege a specific monetary damage demand. As
to each of the other 2 cases, the plaintiffs generally allege $5.0 million in
compensatory and $5.0 million in punitive damages. In none of these cases do
plaintiffs allege claims for specific dollar amounts as to any defendant. Based
on the Company's experience in such litigation, the amounts pleaded in the
complaints are not typically meaningful as an indicator of the Company's
ultimate liability.
Typically in these cases, the claimant alleges injury from alleged exposure to
heat-resistant asbestos fiber, which was usually encapsulated or embedded and
lacquer-coated or covered by another material. Exposure to the fiber generally
would have occurred, if at all, while stripping (cutting) the wire or cable that
had such fiber. It is alleged by claimants that exposure to the fiber may result
in respiratory illness. Generally, stripping was done to repair or to attach a
connector to the wire or cable. Alleged predecessors of the Company had a small
number of products that contained the fiber, but ceased production of such
products more than fifteen years ago.
Through May 1, 2006, the Company had been dismissed (or reached agreement to be
dismissed) in approximately 158 similar cases without any going to trial, and
with only 7 of these involving any payment to the claimant. Some of these cases
were dismissed without prejudice primarily because the claimants could not show
any injury, or could not show that injury was caused from exposure to products
of alleged predecessors of the Company. The Company has insurance that it
believes should cover a significant portion of any defense or settlement costs
borne by the Company in these types of cases.
The Company vigorously defends these cases. As a separate matter, liability for
any such injury generally should be allocated among all defendants in such cases
in accordance with applicable law. In the opinion of the Company's management,
the proceedings and actions in which the Company is involved should not,
individually or in the aggregate, have a material adverse effect on the
Company's results of operations, cash flows or financial condition.
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ITEM 1A: RISK FACTORS
There have been no material changes with respect to risk factors as previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2005.
ITEM 6: EXHIBITS
Exhibits
Exhibit 10.1 Belden CDT Inc. Stock Appreciation Rights Award Agreement for Award Recipients Other than
John S. Stroup
Exhibit 10.2 Belden CDT Inc. Performance Stock Units Award Agreement for Award Recipients Other than
John S. Stroup
Exhibit 10.3 Belden CDT Inc. Restricted Stock Units Award Agreement for Award Recipients
Exhibit 10.4 Belden CDT Inc. Stock Appreciation Rights Award Agreement for John S. Stroup
Exhibit 10.5 Belden CDT Inc. Performance Stock Units Award Agreement for John S. Stroup
Exhibit 10.6 Belden CDT Inc. Annual Cash Incentive Plan Agreement
Exhibit 31.1 Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 32.1 Certificate of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certificate of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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 CDT INC.
Date: May 5, 2006 By: /s/ John S. Stroup
----------------------------------------------
John S. Stroup
President, Chief Executive Officer and Director
Date: May 5, 2006 By: /s/ Stephen H. Johnson
-----------------------------------------------
Stephen H. Johnson
Treasurer and Interim Chief Financial Officer
Date: May 5, 2006 By: /s/ John S. Norman
------------------------------------------- -
John S. Norman
Controller and Chief Accounting Officer
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