2019
Annual Report
Dear Fellow Shareholders,
This is an unprecedented time. The COVID-19 pandemic is putting incredible stress on the global economy
and financial markets, and our associates, customers, and suppliers are experiencing disruptions in their
daily lives that were unimaginable just a short time ago. Belden is certainly not immune from these new
challenges, but our shareholders can rest assured that the Company has the solid financial foundation to
weather these difficult times. In recent years we took proactive steps to strengthen our balance sheet, extend
our debt maturities to 2025 and beyond, and secure ample sources of additional liquidity. These decisions
are proving to be especially beneficial now. Our teams are rising to the occasion, ensuring the health and
safety of our associates and supporting our customers. As we navigate the near-term challenges, we remain
focused on the eventual recovery and the long-term opportunities for our business.
Now, reflecting on 2019, Belden delivered a total shareholder return of 32% during the year, which
outpaced the strong gains in the U.S. equity markets. Beyond the robust equity performance, the year was
highlighted by the transformative actions we initiated following a comprehensive strategic review of our
portfolio of businesses. These actions, which are intended to further improve business performance and
shareholder returns, include the following:
Divesting our Live Media business (“Grass Valley”);
Exiting undifferentiated product lines; and
Streamlining the cost structure.
This will result in a simplified portfolio that is aligned with favorable secular trends in industrial
automation, cybersecurity, broadband & 5G, and smart buildings. Once fully implemented, we expect to
deliver significantly higher growth rates and margins, which we believe will support improved valuation
and enhanced equity returns. I would like to share some additional details of each of these with you.
Divesting Grass Valley. During the year, we concluded that it was in the best interests of our shareholders,
customers, and employees to separate Grass Valley from Belden. Subsequent to the end of the year, we
announced a definitive agreement to sell 100% of Grass Valley in a transaction that is expected to close in
the first half of 2020. We were pleased to reach this definitive agreement and are extremely excited about
the opportunities for Belden going forward as we continue our transformation. Following the divestiture,
our simplified portfolio, while smaller, offers improved revenue predictability and multiple platforms for
organic growth. Further, the cash proceeds from the transaction will be available for strategic deployment.
Exiting undifferentiated product lines. We also decided to exit certain undifferentiated product lines,
which represent approximately $250 million in annual revenue, by 2021. These are primarily stand-alone
copper cable products in international markets that cannot achieve our growth and margin goals.
Importantly, we will retain our most attractive copper cable and fiber product lines, which are more
specialized with superior growth and margin characteristics. This, too, provides an opportunity for strategic
deployment of any proceeds we receive from divesting these product lines.
Streamlining the cost structure. Exiting entire business units and product lines obviously reduces the
revenue base of the Company and creates opportunities for optimizing the cost structure. As a result, we
implemented a meaningful cost reduction program that is designed to improve performance, delivering $40
million in annualized SG&A savings. This will expand our EBITDA margins by approximately 200 basis
points, supporting our margin goals. We are committed to delivering at least $20 million of these savings
in 2020, and the full $40 million by 2021. We intend to deliver these savings by streamlining the
organization and investing in technology to drive productivity. This includes consolidating our internal
business unit reporting structure, realigning our sales and marketing organization, and optimizing
headcount across many other functional areas. However, this does not include reducing our investments in
R&D or new product development, as we continue to innovate and support our core businesses.
2019 was also highlighted by balanced capital deployment toward organic growth investments, strategic
acquisitions, and share repurchases. These deployments, along with the transformative actions described
above, provide the foundation for improved results going forward. I would like to share with you some of
these significant accomplishments.
Organic Growth Investments – During our strategic planning process, our businesses identified many
attractive opportunities to expand into high-growth markets and enhance our product offering. As a result,
we deployed $80 million in net capital expenditures to fund a number of organic initiatives that are expected
to drive meaningful growth in future periods. This included investments in new software solutions for both
cybersecurity and industrial automation, and targeted capacity additions to support our customers by
shortening our lead times and expanding our fiber capabilities.
Strategic Acquisitions – We completed three strategic broadband fiber acquisitions in 2019 for a combined
purchase price of $74 million1, and we are pleased with the successful integrations. These included Opterna
International and the FutureLink product line in the second quarter and Special Product Company (SPC) in
the fourth quarter. These acquisitions support our Broadband and 5G strategies by enhancing our fiber
1 Net of cash acquired
management product offering and adding higher-growth outside-the-home product revenues. We continue
to pursue a pipeline of attractive acquisition targets to further improve our robust portfolio.
Share Repurchases – During the year, we deployed the first $50 million toward share repurchases under
our $300 million authorization. We expect to execute additional share repurchases in 2020 while
maintaining prudent financial leverage within our target range of 2 to 3 times net debt to EBITDA2.
To summarize, I am extremely pleased with our capital deployments in 2019. These initiatives support the
ongoing transformation of Belden into the world’s leading specialty networking solutions provider and will
allow us to drive impressive financial results.
Given our decision to divest Grass Valley, we presented the financial results for this business as
discontinued operations for 2019. Full year revenues from continuing operations excluding Grass Valley
were $2.13 billion. Importantly, end demand for our products increased during the year despite the more
challenging global economic environment that resulted from trade disputes. We also generated full year
EBITDA margins of 16.5% and EPS3 of $4.52. I would now like to share with you some of the details of
our 2019 performance by segment.
Enterprise Solutions – Revenues in our Enterprise Solutions segment were $1.08 billion in 2019, with
EBITDA margins of 15.0%. The smart building market continues to benefit from healthy non-residential
construction in the United States, and increased needs for contractor productivity and building efficiency.
Integrated building networks with more connected devices are driving demand for our connectivity
solutions, including our innovative fiber and power-over-Ethernet products. In the broadband & 5G market,
our market-leading connectivity business is well-positioned to support our MSO cable customers as they
upgrade existing networks and our telecom customers as they build out new 5G infrastructure. We continue
to see robust demand for our fiber optic products, and we are significantly expanding our product offering
and capturing additional share following the successful integration of our recent acquisitions. As a result,
our fiber revenues more than doubled in 2019. We also see a number of attractive inorganic opportunities
in the broadband fiber area that would allow us to add to our product offering and drive substantial growth.
Industrial Solutions – Revenues in our Industrial Solutions segment were $1.05 billion in 2019, with
EBITDA margins of 18.0%. Demand softened during the year in our largest industrial market, discrete
2 Net leverage is calculated as (A) total debt less cash and cash equivalents divided by (B) the sum of trailing twelve months adjusted EBITDA
plus trailing twelve months stock based compensation expense
3 Consolidated adjusted results are referenced in this letter. See appendix for reconciliations to comparable GAAP results. All references to EPS
refer to adjusted income from continuing operations per diluted share attributable to Belden common stockholders.
manufacturing, in response to the escalating global trade dispute. However, our balanced portfolio of
industrial automation businesses is a critical differentiator, and we benefitted from solid growth in our other
three industrial markets – process facilities, energy, and mass transit. We continue to gain traction with our
integrated product portfolio of ruggedized networking equipment and cybersecurity software, which
supports our customers with essential interoperability and security of assets.
Strategic Financial Goals
Each year, we reflect on our financial goals to ensure alignment with our strategic plan and our end markets.
We have a long track record of achieving our goals, but we are not satisfied with our recent performance.
Our commitment to delivering for our shareholders is unwavering, and the important strategic actions
outlined above will position us for success. An update on each of our financial goals is provided below.
• Revenue Growth of 5 - 7%4
Our long-term goal of 5-7% revenue growth represents a combination of market growth, share
capture, and successful acquisition integration. In addition to our plans to remove certain declining
or low-growth businesses from the portfolio, our strategic alignment with favorable secular trends
in our served markets will drive demand for our secure, highly-engineered specialty networking
solutions. We are well-positioned to deliver solid growth over the long-term given our organic
investments and pipeline of potential inorganic opportunities, enabled by our strong balance sheet.
• EBITDA Margins of 20 - 22%
We have a long track record of margin expansion, with EBITDA margins increasing from 8.4% in
2005 when we started our transformation to 16.5% in 2019. We have line of sight to substantially
higher margins, as the ongoing $40 million cost reduction program and the planned exit of low-
margin product lines are expected to be accretive to EBITDA margins by over 300 basis points. In
addition, we anticipate making significant progress toward this financial goal as our teams execute
a number of meaningful productivity initiatives and we leverage accelerating revenue growth.
• Free Cash Flow Growth of 13 – 15%
Our long-term goal of 13-15% free cash flow growth reflects our commitment to quality of earnings
and working capital improvements. In 2019, free cash flow increased by 15% to $167 million after
adjusting for a $46 million non-recurring after-tax gain related to patent litigation that occurred in
4 In constant currency
2018. We also increased net capital expenditures to fund our organic initiatives. This included
investments in new software solutions and targeted capacity additions to support our fiber growth
initiatives. With anticipate a robust free cash flow growth trajectory going forward.
• Return on Invested Capital of 13 – 15%
Our return on invested capital target of 13-15% requires a disciplined approach to capital allocation.
We achieved a ROIC of 12.5% in 2019. Our strategic actions are expected to add approximately
150 basis points, and we anticipate making further progress as we execute our strategic plans.
Outlook
As a leading global specialty networking company primarily serving the Industrial and Enterprise markets,
we are ideally positioned to benefit from a number of favorable secular trends impacting our businesses,
including industrial automation, cybersecurity, broadband & 5G, and smart buildings. I am confident that
we have the talent, strategy, balance sheet, and proven Lean enterprise system to navigate the COVID-19
situation, achieve our goals, and provide a compelling long-term return for our shareholders.
We are thankful for the loyalty of our customers, shareholders, and talented associates who make Belden a
world-class company. We are grateful for your support, and we look forward to sharing in Belden’s
continued success together.
Sincerely,
John Stroup
President, CEO and Chairman of the Board
BELDEN INC.
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
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' 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.
Adjusted results should be considered only in conjunction with results reported according to accounting principles generally
accepted in the United States.
Three Months Ended
Twelve Months Ended
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
(In thousands, except percentages and per share amounts)
GAAP revenues
Deferred revenue adjustments
Adjusted revenues
GAAP gross profit
Severance, restructuring, and acquisition integration costs
Purchase accounting effects related to acquisitions
Amortization of software development intangible assets
Adjusted gross profit
GAAP gross profit margin
Adjusted gross profit margin
GAAP selling, general and administrative expenses
Severance, restructuring, and acquisition integration costs
Costs related to patent litigation
Purchase accounting effects related to acquisitions
Loss on sale of assets
Adjusted selling, general and administrative expenses
GAAP research and development expenses
Severance, restructuring, and acquisition integration costs
Adjusted research and development expenses
$
$
$
$
$
$
$
$
$
$
549,688
—
549,688
202,772
2,333
60
318
552,052
$ 2,131,278
—
552,052 $ 2,131,278
—
216,994
$
1,979
—
43
793,505
3,425
592
525
798,047
$
$
$
2,165,702
—
2,165,702
829,911
17,962
27
79
$
847,979
39.3%
39.7%
37.2 %
37.4 %
$
205,483
$
219,016 $
36.9 %
37.4 %
(118,675)
18,645
—
—
—
$
(104,813)
$
191
—
1,138
—
(100,030)
(22,346)
—
(22,346)
$
$
$
(103,484) $
(22,223)
$
—
(22,223) $
(417,329)
23,119
—
—
—
(394,210)
(94,360)
—
(94,360)
$
$
$
$
38.3%
39.2%
(411,352)
4,546
2,634
1,663
94
(402,415)
(91,552)
117
(91,435)
Three Months Ended
Twelve Months Ended
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
(In thousands, except percentages and per share amounts)
GAAP net income (loss) attributable to Belden
$
Loss (income) from discontinued operations, net of tax
Interest expense, net
Income tax expense
Non-operating pension settlement loss
Loss on debt extinguishment
Noncontrolling interests
Total non-operating adjustments
Amortization of intangible assets
Severance, restructuring, and acquisition integration costs
Costs related to patent litigation
Purchase accounting effects related to acquisitions
Amortization of software development intangible assets
Loss on sale of assets
Gain from patent litigation
Total operating income adjustments
Depreciation expense
Adjusted EBITDA
GAAP net income (loss) margin
Adjusted EBITDA margin
GAAP net income (loss) attributable to Belden
Operating income adjustments from above
Loss (income) from discontinued operations, net of tax
Non-operating pension settlement loss
Loss on debt extinguishment
Tax effect of adjustments above
Amortization expense attributable to noncontrolling interest,
net of tax
Adjusted net income attributable to Belden
GAAP net income (loss) attributable to Belden
Loss (income) from discontinued operations, net of tax
Less: Preferred stock dividends
Adjusted net income attributable to Belden
Less: Preferred stock dividends
Adjusted net income attributable to Belden common
stockholders
GAAP income from continuing operations per diluted share
attributable to Belden common stockholders
Adjusted income from continuing operations per diluted share
attributable to Belden common stockholders
$
$
$
$
$
(147,408)
149,759
13,863
26,340
—
—
179
190,141
18,351
20,978
—
60
318
—
—
39,707
10,419
$
43,526
(7,526)
14,639
19,552
1,342
—
(35)
27,972
18,693
2,170
—
1,138
43
—
—
22,044
9,674
$
92,859
$
103,216 $
(377,015)
486,667
55,814
42,519
—
—
239
585,239
74,609
26,544
—
592
525
—
—
102,270
40,409
350,903
$
160,894
6,433
60,839
62,936
1,342
22,990
(183)
154,357
75,140
22,625
2,634
1,690
79
94
(62,141)
40,121
38,309
$
393,681
(17.7)%
16.5 %
7.4%
18.2%
$
$
$
(26.8)%
16.9 %
(147,408)
39,707
149,759
—
—
12,796
—
54,854
(147,408)
149,759
—
54,854
—
$
$
$
$
$
$
7.9%
18.7%
43,526
22,044
(7,526)
1,342
—
(359)
(377,015)
102,270
486,667
—
—
(1,948)
(16)
59,011 $
—
209,974
43,526 $
(377,015)
486,667
(7,526)
(8,733)
(18,437)
91,215
27,267 $
59,011 $ 209,974
(18,437)
(8,733)
$
$
$
$
160,894
40,121
6,433
1,342
22,990
(5,351)
(66)
226,363
160,894
6,433
(34,931)
132,396
$ 226,363
(34,931)
54,854
$ 50,278
$ 191,537
$ 191,432
0.05
1.20
$
$
0.68 $
1.26 $
2.15
4.52
$
$
3.23
4.67
GAAP net income attributable to Belden common stockholders $
2,351
GAAP and adjusted diluted weighted average shares
45,684
40,031
42,416
40,956
BELDEN INC.
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
We define free cash flow, which is a non-GAAP financial measure, as net cash from operating activities adjusted for capital
expenditures net of the proceeds from the disposal of tangible assets. We believe free cash flow provides useful information to
investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments,
service of debt principal, dividends and share repurchases. We use free cash flow, as defined, as one financial measure to monitor
and evaluate performance and liquidity. Non-GAAP financial measures should be considered only in conjunction with financial
measures reported according to accounting principles generally accepted in the United States. Our definition of free cash flow may
differ from definitions used by other companies.
Twelve Months Ended
December 31,
2019
December 31,
2018
GAAP net cash provided by operating activities
Capital expenditures, net of proceeds from the disposal of tangible
assets
Gain from patent litigation, after taxes
Non-GAAP free cash flow
$
$
(In thousands)
276,893 $
289,220
(109,977) (96,267 )
(46,109)
146,844
166,916 $
-
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
or
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File No. 001-12561
BELDEN INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
36-3601505
(IRS Employer Identification No.)
1 North Brentwood Boulevard
15th Floor
St. Louis, Missouri 63105
(Address of Principal Executive Offices and Zip Code)
(314) 854-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
Trading Symbol
BDC
Name of each exchange on which registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No .
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No .
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 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 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 No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☑
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
Table of Contents
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 ☑.
At June 30, 2019, the aggregate market value of Common Stock of Belden Inc. held by non-affiliates was $1,719,404,831 based on
the closing price ($59.57) of such stock on such date.
As of February 6, 2020, there were 45,459,726 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement for its annual meeting of stockholders within 120 days of the end of the
fiscal year ended December 31, 2019 (the “Proxy Statement”). Portions of such proxy statement are incorporated by reference into
Part III.
Table of Contents
Form 10-K
Item No.
Name of Item
Page
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity and Related Shareholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
2
9
15
16
16
16
17
19
20
34
37
85
85
87
87
87
87
87
87
88
92
Table of Contents
Part I
Item 1. Business
General
Belden Inc. (the Company, us, we, or our) is a global supplier of specialty networking solutions built around two global business
platforms - Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit
and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments. Each
business platform represents a reportable segment. Financial information about our segments appears in Note 6 to the Consolidated
Financial Statements.
Our comprehensive portfolio of specialty networking solutions provides industry leading secure and reliable transmission of data,
sound, and video for mission critical applications. We sell our products to distributors, end-users, installers, and directly to original
equipment manufacturers (OEMs). Belden Inc. is a Delaware corporation incorporated in 1988, but the Company’s roots date back
to its founding by Joseph Belden in 1902.
As used herein, unless an operating segment is identified or the context otherwise requires, “Belden,” the “Company”, and “we”
refer to Belden Inc. and its subsidiaries as a whole.
Strategy and Business Model
Our business model is designed to generate shareholder value:
•
•
•
Operational Excellence—The core of our business model is operational excellence and the execution of our
Belden Business System. The Belden Business System has three areas of focus. First, we demonstrate a
commitment to Lean enterprise initiatives, which improve not only the quality and efficiency of the
manufacturing environment, but our business processes on a company-wide basis. Second, we utilize our Market
Delivery System (MDS), a go-to-market model that provides the foundation for organic growth. We believe that
organic growth, resulting from both market growth and share capture, is essential to our success. Finally, our
Talent Management System supports the development of our associates at all levels, which preserves the culture
necessary to operate our business consistently and sustainably.
Cash Generation—Our pursuit of operational excellence results in the generation of cash flow. We generated
cash flows from operating activities of $276.9 million, $289.2 million, and $255.3 million in 2019, 2018, and
2017, respectively.
Portfolio Improvement—We utilize the cash flow generated by our business to fuel our continued
transformation and generate shareholder value. We continuously improve our portfolio to ensure we provide the
most complete, end-to-end solutions to our customers. Our portfolio is designed with balance across end markets
and geographies to ensure we can meet our goals in most economic environments. We have a disciplined
acquisition cultivation, execution, and integration system that allows us to invest in outstanding companies that
strengthen our capabilities and enhance our ability to serve our customers.
Segments
We operate our business under the two segments – Enterprise Solutions and Industrial Solutions. A synopsis of the segments is
included below:
Enterprise Solutions
The Enterprise Solutions (Enterprise) segment is a leading provider in network infrastructure solutions, as well as cabling and
connectivity solutions for commercial audio/video and security applications. We serve customers in markets such as healthcare,
education, financial, government, and corporate enterprises, as well as end-markets, including sport venues and academia. Enterprise
product lines include copper cable and connectivity solutions, fiber cable and connectivity solutions, and racks and enclosures. Our
products are used in applications such as local area networks, data centers, access control, and building automation. Enterprise
provides true end-to-end copper and fiber network systems to include cable, assemblies, interconnect panels, and enclosures. Our
high-performance solutions support all networking protocols up to and including 100G+ Ethernet technologies. Enterprise’s
innovative products can deliver data in addition to power over Ethernet, which meets the higher performance requirements driven by
the increasing number of connections in smart buildings. Enterprise products also include intelligent power, cooling, and airflow
management for mission-critical data center operations. The Enterprise product portfolio is designed to support Internet Protocol
2
Table of Contents
convergence, the increased use of wireless communications, and cloud-based data centers by our customers. Our systems are
installed through a network of highly trained system integrators and are supplied through authorized distributors.
Industrial Solutions
The Industrial Solutions (Industrial) segment is a leading provider of high performance networking components and machine
connectivity products. Industrial products include physical network and fieldbus infrastructure components and on-machine
connectivity systems customized to end user and OEM needs. Products are designed to provide reliability and confidence of
performance for a wide range of industrial automation applications. Our products are used in applications such as network and
fieldbus infrastructure; sensor and actuator connectivity; and power, control, and data transmission. Industrial products include
solutions such as industrial and input/output (I/O) connectors, industrial cables, IP and networking cables, I/O modules, distribution
boxes, ruggedized controls and sensors, and customer specific wiring solutions.
Our industrial cable products are used in discrete manufacturing and process operations involving the connection of computers,
programmable controllers, robots, operator interfaces, motor drives, sensors, printers, and other devices. Many industrial
environments, such as petrochemical and other harsh-environment operations, require cables with exterior armor or jacketing that
can endure physical abuse and exposure to chemicals, extreme temperatures, and outside elements. Other applications require
conductors, insulation, and jacketing materials that can withstand repeated flexing. In addition to cable product configurations for
these applications, we supply heat-shrinkable tubing and wire management products to protect and organize wire and cable
assemblies. Our industrial connector products are primarily used as sensor and actuator connections in factory automation
supporting various fieldbus protocols as well as power connections in building automation. These products are used both as
components of manufacturing equipment and in the installation and networking of such equipment.
Industrial Solutions products are sold directly to industrial equipment OEMs and through a network of industrial distributors, value-
added resellers, and system integrators.
See Note 5 to the Consolidated Financial Statements for additional information regarding our segments.
Acquisitions
A key part of our business strategy includes acquiring companies to support our growth and enhance our product portfolio. Our
acquisition strategy is based upon targeting leading companies that offer innovative products and strong brands. We utilize a
disciplined approach to acquisitions based on product and market opportunities. When we identify acquisition candidates, we
conduct rigorous financial and cultural analyses to make certain that they meet both our strategic plan targets and our goal for return
on invested capital of 13-15%.
We have completed a number of acquisitions in recent years as part of this strategy. Most recently, in December 2019, we acquired
substantially all of the assets of Special Product Company (SPC), a leading designer, manufacturer, and seller of outdoor cabinet
products for optical fiber cable installations. In April 2019, we acquired the FutureLink business from Suttle Inc. as well as Opterna
International Corp. (Opterna), which designs and manufactures complementary fiber connectivity, cabinet, and enclosure products
used in optical networks.The results of SPC, FutureLink, and Opterna have been included in our Consolidated Financial Statements
as of their acquisition dates, and are reported within the Enterprise Solutions segment.
In 2018, we acquired Net-Tech Technology, Inc. (NT2), an integrator of optical passive components and network optimization
products used within broadband network applications where optical backhaul is used. The results of NT2 have been included in our
Consolidated Financial Statements from the acquisition date, and are reported within the Enterprise Solutions segment.
In 2017, we completed the acquisition of Thinklogical Holdings, LLC (Thinklogical), a leading provider of secure, centralized KVM
video switches to the command and control market. The results of Thinklogical have been included in our Consolidated Financial
Statements from the acquisition date and are reported in the Enterprise Solutions segment.
For more information regarding these transactions, see Note 4 to the Consolidated Financial Statements.
Customers
We sell to distributors, OEMs, installers, and end-users. Sales to the distributor Anixter International Inc. (Anixter) represented
approximately 13% of our consolidated revenues in 2019. On January 10, 2020, Anixter entered into a definitive agreement with
WESCO International, Inc (WESCO) by which Anixter will be acquired WESCO. Sales to both Anixter and WESCO combined,
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represented approximately 15% of our consolidated revenues in 2019. No other customer accounted for more than 10% of our
revenues in 2019.
We have supply agreements with distributors and OEM customers. In general, our customers are not contractually obligated to buy
our products exclusively, in minimum amounts, or for a significant period of time. We believe that our relationships with our
customers and distributors are good and that they are loyal to Belden products as a result of our reputation, the breadth of our
product portfolio, the quality and performance characteristics of our products, and our customer service and technical support,
among other reasons.
International Operations
In addition to manufacturing facilities in the United States (U.S.), we have manufacturing and other operating facilities in Brazil,
Canada, China, India, Japan, Mexico, and St. Kitts, as well as in various countries in Europe. During 2019, approximately 44% of
Belden’s sales were to customers outside the U.S. Our primary channels to international markets include both distributors and direct
sales to end users and OEMs.
Financial information for Belden by country is shown in Note 6 to the Consolidated Financial Statements.
Competition
We face substantial competition in our major markets. The number and size of our competitors vary depending on the product line
and segment. Some multinational competitors have greater financial, engineering, manufacturing, and marketing resources than we
have. There are also many regional competitors that have more limited product offerings.
The markets in which we operate can be generally categorized as highly competitive with many players. In order to maximize our
competitive advantages, we manage our product portfolio to capitalize on secular trends and high-growth applications in those
markets. Based on available data for our served markets, we estimate that our market share across our segments is significant,
ranging from approximately 5% – 20%. A substantial acquisition in one of our served markets would be necessary to meaningfully
change our estimated market share percentage.
The principal competitive factors in all our product markets are technical features, quality, availability, price, customer support, and
distribution coverage. The relative importance of each of these factors varies depending on the customer. Some products are
manufactured to meet published industry specifications and are less differentiated on the basis of product characteristics. We believe
that Belden stands out in many of our markets on the basis of the breadth of our product portfolio, the quality and performance
characteristics of our products, our customer service, and our technical support.
Research and Development
We conduct research and development on an ongoing basis, including new and existing hardware and software product
development, testing and analysis, and process and equipment development and testing. See the Consolidated Statements of
Operations for amounts incurred for research and development. Many of the markets we serve are characterized by advances in
information processing and communications capabilities, including advances driven by the expansion of digital technology, which
require increased transmission speeds and greater bandwidth. Our markets are also subject to increasing requirements for mobility,
information security, and transmission reliability. Some of our markets are using workflows and resources in public and private
cloud and showing preference for software products delivered as services. We believe that our future success will depend in part
upon our ability to enhance existing products and to develop, manufacture and deliver new products that meet or anticipate such
changes in our served markets.
In our Enterprise Solutions segment, in order to support the demand for additional bandwidth and to improve service integrity,
broadband service providers are investing in their networks to enhance delivery capabilities to customers for the foreseeable future.
Additional bandwidth requirements resulting from increased traffic expose weak points in the network, which are often connectivity
related, causing broadband service operators to improve and upgrade residential networks with higher performing connectivity
products.
In our Industrial Solutions segment, there is a compelling need among global enterprises, service providers and government agencies
to detect, prevent and respond to cyber security threats. This is a long-standing need within corporate networks, but we believe the
rapid proliferation of new devices in the “internet of things” will cause this need to broaden and accelerate. Additionally, cyber-
attacks are moving beyond traditional targets into critical infrastructure, which will further amplify the importance of our work in
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network security. Furthermore, there is a growing trend toward adoption of Industrial Ethernet technology, bringing to the critical
infrastructure the advantages of digital communication and the ability to network devices made by different manufacturers and
integrate them with enterprise systems. While the adoption of this technology is at a more advanced stage in certain regions of the
world, we believe that the trend will globalize. This trend will also lead to a rising need for wireless systems for some applications
and for cybersecurity to protect this critical infrastructure. Part of our research and development is focused on creating scalable,
efficient technologies to provide real-time instrumentation and analytics across entire networks. This includes delivering high-
fidelity visibility and deep intelligence about networked systems, their vulnerabilities, and providing actionable information about
how to effectively secure them. Additionally, we have highly-skilled and active research teams who analyze current and anticipated
threats, and provide offerings to the market to enable customers to quickly detect and resolve cybersecurity threats.
Our research and development efforts are also focused on fiber optic technology, which presents a potential substitute for certain of
the copper-based products that comprise a portion of our revenues. Fiber optic cables have certain advantages over copper-based
cables in applications where large amounts of information must travel significant distances and where high levels of information
security are required. While the cost to interface electronic and optical light signals and to terminate and connect optical fiber
remains comparatively high, we expect that in future years the cost difference versus traditional copper networks will diminish. We
sell fiber optic infrastructure, and many customers specify these products in combination with copper-based infrastructure. The final
stage of most networks remains almost exclusively copper-based, and we expect that it will continue to be copper for the foreseeable
future. However, if a significant decrease in the cost of fiber optic systems relative to the cost of copper-based systems were to
occur, such systems could become superior on a price/performance basis to copper-based systems. Part of our research and
development efforts focus on expanding our fiber-optic based product portfolio.
Patents and Trademarks
We have a policy of seeking patents when appropriate on inventions concerning new products, product improvements, and advances
in equipment and processes as part of our ongoing research, development, and manufacturing activities. We own many patents and
registered trademarks worldwide that are used by our operating segments, with pending applications for numerous others. We
consider our patents and trademarks to be valuable assets. Our most prominent trademarks are: Belden®, Alpha Wire™,
GarrettCom®, Hirschmann®, Lumberg Automation™, Mohawk®, Poliron™, PPC®, ProSoft Technology®, Thinklogical®,
Tofino®, Tripwire® and West Penn Wire™.
Raw Materials
The principal raw material used in many of our cable products is copper. Other materials we purchase in large quantities include
fluorinated ethylene-propylene (FEP), polyvinyl chloride (PVC), polyethylene, aluminum-clad steel and copper-clad steel
conductors, aluminum, brass, other metals, optical fiber, printed circuit boards, and electronic components. With respect to all major
raw materials used by us, we generally have either alternative sources of supply or access to alternative materials. Supplies of these
materials are generally adequate and are expected to remain so for the foreseeable future.
Over the past three years, the prices of metals, particularly copper, have been highly volatile. The chart below illustrates the high and
low spot prices per pound of copper over the last three years.
Copper spot prices per pound
High
Low
2019
2018
2017
$
$
2.98 $
2.51 $
3.29 $
2.56 $
3.29
2.48
Prices for materials such as PVC and other plastics derived from petrochemical feedstocks have also fluctuated. Since Belden
utilizes the first in, first out (FIFO) inventory costing methodology, the impact of copper and other raw material cost changes on our
cost of goods sold is delayed by approximately two months based on our rate of inventory turnover.
While we generally are able to adjust our pricing for fluctuations in commodity prices, we can experience short-term favorable or
unfavorable variances. When the cost of raw materials increases, we are generally able to recover these costs 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 typically taking effect a few weeks after they are
announced. Some OEM customer contracts have provisions for passing through raw material cost changes, generally with a lag of a
few weeks to three months.
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Backlog
Our business is characterized generally by short-term order and shipment schedules. Our backlog consists of product orders for
which we have received a customer purchase order or purchase commitment and which have not yet been shipped. Orders are
generally subject to cancellation or rescheduling by the customer. As of December 31, 2019, our backlog of orders believed to be
firm was $161.9 million. Nearly all of the backlog at December 31, 2019 is scheduled to be shipped in 2020.
Environmental Matters
We are subject to numerous federal, state, provincial, local, and foreign laws and regulations relating to the storage, handling,
emission, and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation,
and Liability Act; the Clean Water Act; the Clean Air Act; the Emergency Planning and Community Right-To-Know Act; the
Resource Conservation and Recovery Act; and similar laws in the other countries in which we operate. We believe that our existing
environmental control procedures and accrued liabilities are adequate, and we have no current plans for substantial capital
expenditures in this area.
Employees
As of December 31, 2019, for our continuing operations, we had approximately 7,000 employees worldwide. We also utilized
approximately 200 workers under contract manufacturing arrangements. Approximately 1,800 employees are covered by collective
bargaining agreements at various locations around the world. We believe our relationship with our employees is generally positive,
and we measure and monitor the workforce's sustainable engagement, among other metrics, to ensure this remains the case.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange
Commission (SEC). These reports, proxy statements, and other information contain additional information about us. These
electronic SEC filings are available on the SEC's web site at www.sec.gov.
Belden maintains an Internet web site at www.belden.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-
Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports and statements are available without
charge, as soon as reasonably practicable following the time they are filed with or furnished to the SEC.
We will provide upon written request and without charge a printed copy of our Annual Report on Form 10-K. To obtain such a copy,
please write to the Corporate Secretary, Belden Inc., 1 North Brentwood Boulevard, 15th Floor, St. Louis, MO 63105.
Information about our Executive Officers
The following table sets forth certain information with respect to the persons who were Belden executive officers as of February 10,
2020. All executive officers are elected to terms that expire at the organizational meeting of the Board of Directors following the
Annual Meeting of Shareholders.
Name
John Stroup
Brian Anderson
Ashish Chand
Henk Derksen
Leo Kulmaczewski
Dean McKenna
Paul Turner
Roel Vestjens
Doug Zink
Age Position
53
45
45
51
54
51
56
45
44
President, Chief Executive Officer, and Chairman
Senior Vice President, Legal, General Counsel and Corporate Secretary
Executive Vice President, Industrial Automation
Senior Vice President, Finance, and Chief Financial Officer
Senior Vice President, Operations and Lean Enterprise
Senior Vice President, Human Resources
Senior Vice President, Sales
Executive Vice President and Chief Operating Officer
Vice President and Chief Accounting Officer
John Stroup has been President, Chief Executive Officer and a member of the Board since October 2005. He was elected as
Chairman of the Board on November 30, 2016. From 2000 to the date of his appointment with the Company, he was employed by
Danaher Corporation, a manufacturer of professional instrumentation, industrial technologies, and tools and components. At
Danaher, he initially served as Vice President, Business Development. He was promoted to President of a division of Danaher’s
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Motion Group and later to Group Executive of the Motion Group. Earlier, he was Vice President of Marketing and General Manager
with Scientific Technologies Inc. He has a B.S. in Mechanical Engineering from Northwestern University and an M.B.A. from the
University of California at Berkeley Haas School of Business.
Brian Anderson has been Senior Vice President, Legal, General Counsel and Corporate Secretary since April 2015. Prior to that, he
served as Corporate Attorney for the Company from May 2008 through March 2015. Prior to joining Belden, Mr. Anderson was in
private practice at the law firm Lewis Rice. Mr. Anderson has a B.S.B. in Accounting and an M.B.A. from Eastern Illinois
University and holds a J.D. from Washington University in St. Louis.
Ashish Chand was appointed Executive Vice President, Industrial Automation in July 2019. Prior to that, he served as Managing
Director, Industrial Solutions, for the Company’s APAC division from August 2017 to June 2019. Mr. Chand joined the Company in
2002 and has assumed positions of increasing responsibility in sales and marketing, operations, business development and general
management since that time. Prior to joining Belden, Mr. Chand had experience in the oil and gas and non-ferrous metals segments.
Mr. Chand holds a doctoral degree in Business from the City University of Hong Kong, an M.B.A. from XLRI Jamshedpur, India
and a B.A. from Loyola College Chennai, India.
Henk Derksen has been Senior Vice President, Finance, and Chief Financial Officer since January 2012. Prior to that, he served as
Vice President, Corporate Finance from July 2011 to December 2011 and Treasurer and Vice President, Financial Planning and
Analysis of the Company from January 2010 to July 2011. In August of 2003, he became Vice President, Finance for the Company’s
EMEA division, after joining the Company at the end of 2000. Prior to joining the Company, he was Vice President and Controller
of Plukon Poultry, a food processing company from 1998 to 2000, and has 5 years’ experience in public accounting with Price
Waterhouse and Baker Tilly. Mr. Derksen has a M.A. in Accounting from the University of Arnhem in the Netherlands and holds a
doctoral degree in Business Economics in addition to an Executive Master of Finance & Control from Tias Business School in the
Netherlands.
Leo Kulmaczewski was appointed Senior Vice President, Operations and Lean Enterprise in October 2018. Prior to joining Belden,
Mr. Kulmaczewski was employed by Leica Biosystems, a division of Danaher Corporation, in various operations roles in the
medical devices industry, the most recent of which was Vice President, Operations, Global Supply Chain and Danaher Business
System. Prior to joining Leica in 2014, he worked for Thermo Fisher Scientific, Honeywell and Motorola, among other companies.
Mr. Kulmaczewski has a B.S. in Industrial Engineering from the University of Wisconsin and an M.B.A. from DePaul University.
Dean McKenna has been Senior Vice President, Human Resources since May 2015. Prior to joining Belden, he was Vice President
of Human Resources for the international business of SC Johnson. Prior to SC Johnson, he worked in various senior international
human resource, organizational development and talent positions at Ingredion, Akzo Nobel and ICI Group PLC. He received his
degree in Strategic Human Resource Management at the Nottingham Business School in the United Kingdom.
Paul Turner has been Senior Vice President, Sales since February 2017. Mr. Turner joined Belden in 2006, and has held a variety of
roles of increasing responsibility within Belden’s sales organization since that time. Before joining Belden, Mr. Turner spent five
years in the private sector in a subcontract manufacturing company based in the United Kingdom, ultimately serving in the post of
Managing Director. Prior to that experience, Mr. Turner spent 13 years with the 3M Company in the United Kingdom, holding roles
of increasing responsibility within 3M’s commercial organization across the EMEA region.
Roel Vestjens has been Executive Vice President, Industrial Solutions since February 2018 and was appointed as Chief Operating
Officer in July 2019. Prior to that, he was the Executive Vice President, Industrial Solutions and Broadcast IT Solutions from
January 2017 to February 2018 and the Executive Vice President, Broadcast Solutions from March 2014 to January 2017. Mr.
Vestjens joined Belden in 2006 as Director of Marketing for the EMEA region. In April 2008, Mr. Vestjens was promoted to Director
of Sales and Marketing for the Industrial Solutions business, and in January 2009, he was appointed General Manager of Belden’s
Wire and Cable Systems business in EMEA. Mr. Vestjens relocated to Asia in November 2010, and became President of the APAC
OEM business, followed by President of all APAC Operations in May 2012. Mr. Vestjens joined Belden from Royal Philips
Electronics where he held various European sales and marketing positions. Mr. Vestjens holds a bachelor degree in Electrical
Engineering and a Master of Science and Management degree from Nyenrode Business University in the Netherlands.
Doug Zink has been Vice President and Chief Accounting Officer since September 2013. Prior to that, he has served as the
Company’s Vice President, Internal Audit; Corporate Controller; and Director of Financial Reporting, after joining Belden in May
2007. Prior to joining the Company, he was a Financial Reporting Manager at TLC Vision Corporation, an eye care service
company, from 2004 to 2007, and has five years of experience in public accounting with KPMG LLP and Arthur Andersen LLP. He
holds Bachelor’s and Master’s Degrees in Accounting from Texas Christian University and is a Certified Public Accountant.
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Cautionary Information Regarding Forward-Looking Statements
We make forward-looking statements in this Annual Report on Form 10-K, in other materials we file with the SEC or otherwise
release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to
investors, analysts, the media, and others. Statements concerning our future operations, prospects, strategies, financial condition,
future economic performance (including growth and earnings) and demand for our products and services, and other statements of
our plans, beliefs, or expectations, including the statements contained in Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” that are not historical facts, are forward-looking statements. In some cases these
statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “forecast,” “guide,” “expect,”
“intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” and similar expressions. The forward-
looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors
that could cause actual results to differ materially from those suggested by these forward-looking statements. These factors include,
among others, those set forth in the following section and in the other documents that we file with the SEC.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
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Item 1A. Risk Factors
Following is a discussion of some of the more significant risks that could materially impact our business. There may be additional
risks that impact our business that we currently do not recognize as, or that are not currently, material to our business.
The presence of substitute products in the marketplace may reduce demand for our products and negatively impact our business.
Fiber optic systems are increasingly substitutable for copper based cable systems. Customers may shift demand to fiber optic
systems with greater capabilities than copper based cable systems, leading to a reduction in demand for copper based cable. We may
not be able to offset the effects of a reduction in demand for our copper-based cable systems with an increase in demand for our
existing fiber optic systems. Further, the supply chain in the fiber market is highly constrained, with a small number of vertically
integrated firms controlling critical inputs and the related intellectual property. Similarly, in our non-cable businesses, customers
could rapidly shift the methods by which they capture and transmit signals in ways that could lead to decreased demand for our
current or future products. These factors, either together or in isolation, may negatively impact revenue and profitability.
Our future success depends in part on our ability to develop and introduce new products and respond to changes in customer
preferences.
Our markets are characterized by the introduction of products with increasing technological capabilities. Our success depends in part
on our ability to anticipate and offer products that appeal to the changing needs and preferences of our customers in the various
markets we serve. Developing new products and adapting existing products to meet evolving customer expectations requires high
levels of innovation, and the development process may be lengthy and costly. If we are not able to timely anticipate, identify,
develop and market products that respond to rapidly changing customer preferences, demand for our products could decline.
The relative costs and merits of our solutions could change in the future as various competing technologies address the market
opportunities. We believe that our future success will depend in part upon our ability to enhance existing products and to develop
and manufacture new products that meet or anticipate technological changes, which will require continued investment in
engineering, research and development, capital equipment, marketing, customer service, and technical support. We have long been
successful in introducing successive generations of more capable products, but if we were to fail to keep pace with technology or
with the products of competitors, we might lose market share and harm our reputation and position as a technology leader in our
markets. See the discussion above in Part I, Item 1, under Research and Development.
The increased influence of chief information officers and similar high-level executives may negatively impact demand for our
products.
As a result of the increasing interconnectivity of a wide variety of systems, chief information officers and similar executives are
more heavily involved in operation areas that have not historically been associated with information technology. As a result, CIOs
and IT departments are exercising influence over the procurement and purchasing process at the expense of engineers, plant
managers and operation personnel that have historically driven demand for many of our products. When making purchasing
decisions, CIO’s often value interoperability, standardization, cloud-readiness and security over domain expertise and niche
application knowledge. As a result of the influences of CIOs and IT departments, we may face increased competition from IT-
industry companies that have not traditionally had major presences in the markets in which we operate. Further, the variance in
considerations that drive purchasing decisions between CIOs and those with niche application expertise may result in increased
competition based on price and a reduction in demand for our products.
Alterations to our product mix and go-to-market strategies designed to respond to the changes in the marketplace presented by cloud
computing may be disruptive to our business and lead to increase expenses, which may result in lower revenues and profitability.
Further, if a competitor is able to more quickly or efficiently adapt, or if cloud computing results in significantly lower barriers to
entry and new competitors enter our markets, demand for our products may be reduced.
The increased prevalence of cloud computing and other disruptive business models may negatively impact certain aspects of our
business.
The nature in which many of our products are purchased or used is evolving with the increasing prevalence of cloud computing and
other methods of off-premises computing and data storage. This may negatively impact one or more of our businesses in a number
of ways, including:
• Consolidation of procurement power leading to the commoditization of IT products;
• Reduction in the demand for infrastructure products previously used to support on-site data centers;
• Lowering barriers to entry for certain markets, leading to new market entrants and enhanced competition; and
• Preferences for software as a service billing and pricing models may reduce demand for non-cloud “packaged”
software.
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We may be unable to achieve our goals related to growth.
In order to meet the goals in our strategic plan, we must grow our business, both organically and through acquisitions. Our goal is to
generate total revenue growth of 5-7% per year in constant currency. We may be unable to achieve this desired growth due to a
failure to identify growth opportunities, such as trends and technological changes in our end markets. We may ineffectively execute
our Market Delivery System (“MDS”), which is designed to identify and capture growth opportunities. The enterprise and industrial
end markets we serve may not experience the growth we expect. Further, those markets may be unable to sustain growth on a long-
term basis, particularly in emerging markets. If we are unable to achieve our goals related to growth, it could have a material adverse
effect on our results of operations, financial position, and cash flows.
We may be unable to implement our strategic plan successfully.
Our strategic plan is designed to continually enhance shareholder value by improving revenues and profitability, reducing costs, and
improving working capital management. To achieve these goals, our strategic priorities are reliant on our Belden Business System,
which includes continuing deployment of our MDS to capture market share through end-user engagement, channel management,
outbound marketing, and careful vertical market selection; improving our recruitment and development of talented associates;
developing strong global business platforms; acquiring businesses that fit our strategic plan; and continuing to be a leading Lean
company. We have a disciplined process for deploying this strategic plan through our associates. There is a risk that we may not be
successful in developing or executing these measures to achieve the expected results for a variety of reasons, including market
developments, economic conditions, shortcomings in establishing appropriate action plans, or challenges with executing multiple
initiatives simultaneously. For example, our MDS initiative may not succeed or we may lose market share due to challenges in
choosing the right products to market or the right customers for these products, integrating products of acquired companies into our
sales and marketing strategy, or strategically bidding against OEM partners. We may fail to identify growth opportunities. We may
not be able to acquire businesses that fit our strategic plan on acceptable business terms, and we may not achieve our other strategic
priorities.
We may be unable to achieve our strategic priorities in emerging markets.
Emerging markets are a significant focus of our strategic plan. The developing nature of these markets presents a number of risks.
We may be unable to attract, develop, and retain appropriate talent to manage our businesses in emerging markets. Deterioration of
social, political, labor, or economic conditions in a specific country or region may adversely affect our operations or financial
results. Emerging markets may not meet our growth expectations, and we may be unable to maintain such growth or to balance such
growth with financial goals and compliance requirements. Among the risks in emerging market countries are bureaucratic intrusions
and delays, contract compliance failures, engrained business partners that do not comply with local or U.S. law, such as the Foreign
Corrupt Practices Act, fluctuating currencies and interest rates, limitations on the amount and nature of investments, restrictions on
permissible forms and structures of investment, unreliable legal and financial infrastructure, regime disruption and political unrest,
uncontrolled inflation and commodity prices, fierce local competition by companies with better political connections, and
corruption. In addition, the costs of compliance with local laws and regulations in emerging markets may negatively impact our
competitive position as compared to locally owned manufacturers.
We must complete acquisitions and divestitures in order to achieve our strategic plan.
In order to meet the goals in our strategic plan, we must complete acquisitions and divestitures. The extent to which appropriate
acquisitions are made will affect our overall growth, operating results, financial condition, and cash flows. Our ability to acquire
businesses successfully will decline if we are unable to identify appropriate acquisition targets consistent with our strategic plan, the
competition among potential buyers increases, the cost of acquiring suitable businesses becomes too expensive, or we lack sufficient
sources of capital. As a result, we may be unable to make acquisitions or be forced to pay more or agree to less advantageous
acquisition terms for the companies that we would like to acquire.
Additionally, our strategic plan includes the divestiture of our Grass Valley disposal group (as discussed in Note 5) and the planned
divestiture of certain low-margin cable businesses representing up to $250 million in annual revenues. As discussed in Note 28, we
entered into a definitive agreement to sell the Grass Valley disposal group on February 4, 2020, which is subject to closing
conditions. If we are unable to close the divestiture of Grass Valley per the terms of the definitive agreement or are unable to find an
alternative buyer for the business with similar terms, it could have a material adverse effect on our operating results, financial
condition, and cash flow. We may also be unable to find a suitable buyer(s) for certain low-margin cable assets with acceptable
terms.
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We may have difficulty integrating the operations of acquired businesses, which could negatively affect our results of operations
and profitability.
We may have difficulty integrating acquired businesses and future acquisitions might not meet our performance expectations. Some
of the integration challenges we might face include differences in corporate culture and management styles, additional or conflicting
governmental regulations, compliance with the Sarbanes-Oxley Act of 2002, financial reporting that is not in compliance with U.S.
generally accepted accounting principles, disparate company policies and practices, customer relationship issues, and retention of
key personnel. In addition, management may be required to devote a considerable amount of time to the integration process, which
could decrease the amount of time we have to manage the other businesses. We may not be able to integrate operations successfully
or cost-effectively, which could have a negative impact on our results of operations or our profitability. The process of integrating
operations could also cause some interruption of, or the loss of momentum in, the activities of acquired businesses.
Our results of operations are subject to foreign and domestic political, social, economic, and other uncertainties and are affected
by changes in currency exchange rates.
In addition to manufacturing and other operating facilities in the U.S., we have manufacturing and other operating facilities in
Brazil, Canada, China, India, Japan, Mexico, St. Kitts, and several European countries. We rely on suppliers in many countries,
including China. Our foreign operations are subject to economic, social, and political risks inherent in maintaining operations abroad
such as economic and political destabilization, land use risks, international conflicts, pandemics and other health-related crises,
restrictive actions by foreign governments, and adverse foreign tax laws. In addition to economic and political risk, a risk associated
with our European manufacturing operations is the higher relative expense and length of time required to adjust manufacturing
employment capacity. We also face political risks in the U.S., including tax or regulatory risks or potential adverse impacts from
legislative impasses over, or significant legislative, regulatory or executive changes in fiscal or monetary policy and other foreign
and domestic government policies, including, but not limited to, trade policies and import/export policies.
Approximately 40% of our sales are outside the U.S. Other than the U.S. dollar, the principal currencies to which we are exposed
through our manufacturing operations, sales, and related cash holdings are the euro, the Canadian dollar, the Hong Kong dollar, the
Chinese yuan, the Japanese yen, the Mexican peso, the Australian dollar, the British pound, and the Brazilian real. Generally, we
have revenues and costs in the same currency, thereby reducing our overall currency risk, although any realignment of our
manufacturing capacity among our global facilities could alter this balance. When the U.S. dollar strengthens against other
currencies, the results of our non-U.S. operations are translated at a lower exchange rate and thus into lower reported revenues and
earnings.
Changes in tax laws may adversely affect our financial position.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is
required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on
a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our
business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a
significant impact on our global provision for income taxes.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. The
U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. In addition,
governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the European Union, as
well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are
actively considering changes to existing tax laws. If tax laws and related regulations change, our financial results could be materially
impacted. Given the unpredictability of these possible changes and their potential interdependency, it is possible such changes could
adversely impact our financial results.
We may experience significant variability in our quarterly and annual effective tax rate which would affect our reported net
income.
We have a complex tax profile due to the global nature of our operations, which encompass multiple taxing jurisdictions. Variability
in the mix and profitability of domestic and international activities, identification and resolution of various tax uncertainties, changes
in tax laws and rates, and the extent to which we are able to realize net operating loss and other carryforwards included in deferred
tax assets and avoid potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our
effective income tax rate in the future.
Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of
income and losses in these jurisdictions affects our effective tax rate. For example, relatively more income in higher tax rate
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jurisdictions would increase our effective tax rate and thus lower our net income. Similarly, if we generate losses in tax jurisdictions
for which no benefits are available; our effective income tax rate will increase. Our effective income tax rate may also be impacted
by the recognition of discrete income tax items, such as required adjustments to our liabilities for uncertain tax positions or our
deferred tax asset valuation allowance. A significant increase in our effective income tax rate could have a material adverse impact
on our earnings.
Of our $407.5 million cash and cash equivalents balance as of December 31, 2019, $210.2 million was held outside of the U.S. in
our foreign operations. The Tax Cuts and Jobs Act of 2017 included a one-time transition tax of unremitted foreign earnings, and
accordingly, in the fourth quarter of 2018 we recorded a final adjustment to the tax expense related to the transition tax on the one-
time mandatory deemed repatriation of all our foreign earnings as of December 31, 2017. See Note 17 Income Taxes in the
accompanying notes to our consolidated financial statements.
Changes in global tariffs and trade agreements may have a negative impact on global economic conditions, markets and our
business.
Like most multinational companies, we have supply chains and sales channels that extend beyond national borders. Purchasing and
production decisions in some cases are largely influenced by the trade agreements and the tax and tariff structures in place.
Disruption in those structures can create significant market uncertainty. While the impact of Brexit and the U.S. and Chinese tariff
actions are not currently material to us, unanticipated complications in the free movement of goods in Europe, an escalation of tariff
activity anywhere in the world or changes to existing free trade agreements could materially impact our financial results. In addition
to the potential direct impacts of free trade restrictions, longer term macroeconomic consequences could result, including slower
growth, inflation, higher interest rates and unfavorable impacts to currency exchange rates. Any of these factors could have a
material adverse effect on our business, financial condition and results of operations.
Our revenue for any particular period can be difficult to forecast.
Our revenue for any particular period can be difficult to forecast, especially in light of the challenging and inconsistent global
macroeconomic environment and related market uncertainty. Our revenue may grow at a slower rate than in past periods or even
decline on a year-over-year basis. Changes in market growth rates can have a significant effect on our operating results.
The timing of orders for customer projects can also have a significant effect on our operating results in the period in which the
products are shipped and recognized as revenue. The timing of such projects is difficult to predict, and the timing of revenue
recognition from such projects may affect period to period changes in revenue. As a result, our operating results could vary
materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue. Similarly, we are
often informed by our customers well in advance that such customer intends to place an order related to a specific project in a given
quarter. Such a customer’s timeline for execution of the project, and the resulting purchase order, may be unexpectedly delayed to a
future quarter, or cancelled. The frequency of such delays can be difficult to predict. As a result, it is difficult to precisely forecast
revenue and operating results for future quarters.
In addition, our revenue can be difficult to forecast due to unexpected changes in the level of our products held as inventory by our
channel partners and customers. Our channel partners and customers purchase and hold our products in their inventory in order to
meet the service and on-time delivery requirements of their customers. As our channel partners and customers change the level of
Belden products owned and held in their inventory, our revenue is impacted. As we are dependent upon our channel partners and
customers to provide us with information regarding the amount of our products that they own and hold in their inventory,
unexpected changes can occur and impact our revenue forecast.
A challenging global economic environment or a downturn in the markets we serve could adversely affect our operating results
and stock price in a material manner.
A challenging global economic environment could cause substantial reductions in our revenue and results of operations as a result of
weaker demand by the end users of our products and price erosion. Price erosion may occur through competitors becoming more
aggressive in pricing practices. A challenging global economy could also make it difficult for our customers, our vendors, and us to
accurately forecast and plan future business activities. Our customers could also face issues gaining timely access to sufficient
credit, which could have an adverse effect on our results if such events cause reductions in revenues, delays in collection, or write-
offs of receivables. Further, the demand for many of our products is economically sensitive and will vary with general economic
activity, trends in nonresidential construction, investment in manufacturing facilities and automation, demand for information
technology equipment, and other economic factors.
Global economic uncertainty could result in a significant decline in the value of foreign currencies relative to the U.S. dollar, which
could result in a significant adverse effect on our revenues and results of operations; could make it difficult for our customers and us
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to accurately forecast and plan future business activities; and could cause our customers to slow or reduce spending on our products
and services. Economic uncertainty could also arise from fiscal policy changes in the countries in which we operate.
Changes in foreign currency rates and commodity prices can impact the buying power of our customers. For example, a
strengthened U.S. dollar can result in relative price increases for our products for customers outside of the U.S., which can have a
negative impact on our revenues and results of operations. Furthermore, customers’ ability to invest in capital expenditures, such as
our products, can depend upon proceeds from commodities, such as oil and gas markets. A decline in energy prices, therefore, can
have a negative impact on our revenues and results of operations.
The global markets in which we operate are highly competitive.
We face competition from other manufacturers for each of our global business platforms and in each of our geographic regions.
These companies compete on price, reputation and quality, product technology and characteristics, and terms. Some multinational
competitors have greater engineering, financial, manufacturing, and marketing resources than we have. Actions that may be taken by
competitors, including pricing, business alliances, new product introductions, market penetration, and other actions, could have a
negative effect on our revenues and profitability. Moreover, some competitors that are highly leveraged both financially and
operationally could become more aggressive in their pricing of products.
Volatility of credit markets could adversely affect our business.
Uncertainty in U.S. and global financial and equity markets could make it more expensive for us to conduct our operations and more
difficult for our customers to buy our products. Additionally, market volatility or uncertainty may cause us to be unable to pursue or
complete acquisitions. Our ability to implement our business strategy and grow our business, particularly through acquisitions, may
depend on our ability to raise capital by selling equity or debt securities or obtaining additional debt financing. Market conditions
may prevent us from obtaining financing when we need it or on terms acceptable to us.
Changes in the price and availability of raw materials we use could be detrimental to our profitability.
Copper is a significant component of the cost of most of our cable products. Over the past few years, the prices of metals,
particularly copper, have been volatile. Prices of other materials we use, such as polyvinylchloride (PVC) and other plastics derived
from petrochemical feedstocks, have also been volatile. 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 typically taking effect a
few weeks after they are announced. Some OEM contracts have provisions for passing through raw material cost changes, generally
with a lag of a few weeks to three months. If we are unable to raise prices sufficiently to recover our material costs, our earnings
could decline. If we raise our prices but competitors raise their prices less, we may lose sales, and our earnings could decline. If the
price of copper were to decline, we may be compelled to reduce prices to remain competitive, which could have a negative effect on
revenues. While we generally believe the supply of raw materials (copper, plastics, and other materials) is adequate, we have
experienced instances of limited supply of certain raw materials, resulting in extended lead times and higher prices. If a supply
interruption or shortage of materials were to occur (including due to labor or political disputes), this could have a negative effect on
revenues and earnings.
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially
reasonable terms.
Because the Company currently obtains certain components from single or limited sources, the Company is subject to significant
supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to
industry-wide shortages that could materially adversely affect the Company’s financial condition and operating results. While the
Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able
to extend or renew these agreements on similar terms, or at all. Component suppliers may suffer from poor financial conditions,
which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s
ability to obtain sufficient quantities of components on commercially reasonable terms. A regional health crises, like the
Coronavirus, could lead to quarantines or labor shortages, thus impacting the output of key suppliers. If the Company’s supply of
components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed
products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The
Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain
sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.
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Potential problems with our information systems could interfere with our business and operations.
We rely on our information systems and those of third parties for storing proprietary company information about our products and
intellectual property, as well as for processing customer orders, manufacturing and shipping products, billing our customers, tracking
inventory, supporting accounting functions and financial statement preparation, paying our employees, and otherwise running our
business. Any disruption, whether from hackers or other sources, in our information systems or those of the third parties upon whom
we rely could have a significant impact on our business. In addition, we may need to enhance our information systems to
provide additional capabilities and functionality. The implementation of new information systems and enhancements is frequently
disruptive to the underlying business of an enterprise. Any disruptions affecting our ability to accurately report our financial
performance on a timely basis could adversely affect our business in a number of respects. If we are unable to successfully
implement potential future information systems enhancements, our financial position, results of operations, and cash flows could be
negatively impacted.
We, and others on our behalf, store “personally identifiable information” (“PII”) with respect to employees, vendors, customers, and
others. While we have implemented safeguards to protect the privacy of this information, it is possible that hackers or others might
obtain this information. If that occurs, in addition to having to take potentially costly remedial action, we also may be subject to
fines, penalties, lawsuits, and reputational damage.
Perceived failure of our signal transmission solutions to provide expected results may result in negative publicity and harm our
business and operating results.
Our customers use our signal transmission solutions in a wide variety of IT systems and application environments in order to help
reduce security vulnerabilities and demonstrate compliance. Despite our efforts to make clear in our marketing materials and
customer agreements the capabilities and limitations of these products, some customers may incorrectly view the deployment of
such products in their IT infrastructure as a guarantee that there will be no security breach or policy non-compliance event. As a
result, the occurrence of a high profile security breach, or a failure by one of our customers to pass a regulatory compliance IT audit,
could result in public and customer perception that our solutions are not effective and harm our business and operating results, even
if the occurrence is unrelated to the use of such products or if the failure is the result of actions or inactions on the part of the
customer.
Our use of open source software could negatively impact our ability to sell our products and may subject us to unanticipated
obligations.
The products, services, or technologies we acquire, license, provide, or develop may incorporate or use open source software. We
monitor and restrict our use of open source software in an effort to avoid unintended consequences, such as reciprocal license grants,
patent retaliation clauses, and the requirement to license our products at no cost. Nevertheless, we may be subject to unanticipated
obligations regarding our products which incorporate or use open source software.
Our revenue and profits would likely decline, at least temporarily, if we were to lose a key distributor.
We rely on several key distributors in marketing our products. Distributors purchase the products of our competitors along with our
products. Our largest distributor, Anixter International Inc., accounted for 13% of our revenue in 2019 and our top six distributors,
including Anixter, accounted for a total of 26% of our revenue in 2019. On a combined basis, Anixter and WESCO accounted for
approximately 15% of our revenues in 2019. If we were to lose one of these key distributors, our revenue and profits would likely
decline, at least temporarily. Changes in the inventory levels of our products owned and held by our distributors can result in
significant variability in our revenues. Further, certain distributors are allowed to return certain inventory in exchange for an order of
equal or greater value. We have recorded reserves for the estimated impact of these inventory policies.
Consolidation of our distributors, like the proposed acquisition of Anixter by Wesco International, Inc., could adversely impact our
revenues and earnings. It could also result in consolidation of distributor inventory, which would temporarily depress our revenues.
We have also experienced financial failure of distributors from time to time, resulting in our inability to collect accounts receivable
in full. A global economic downturn could cause financial difficulties (including bankruptcy) for our distributors and other
customers, which would adversely affect our results of operations.
If we are unable to retain senior management and key employees, our business operations could be adversely affected.
Our success has been largely dependent on the skills, experience, and efforts of our senior management and key employees. The loss
of any of our senior management or other key employees, for example sales and product development employees, could have an
adverse effect on us. We may not be able to find qualified replacements for these individuals and the integration of potential
replacements may be disruptive to our business. More broadly, a key determinant of our success is our ability to attract, develop, and
retain talented associates. While this is one of our strategic priorities, we may not be able to succeed in this regard.
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We might have difficulty protecting our intellectual property from use by competitors, or competitors might accuse us of violating
their intellectual property rights.
Disagreements about patents and other intellectual property rights occur in the markets we serve. Third parties have asserted and
may in the future assert claims of infringement of intellectual property rights against us or against our customers or channel partners
for which we may be liable. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages
or prevents us from distributing certain products or performing certain services. We may encounter difficulty enforcing our own
intellectual property rights against third parties, which could result in price erosion or loss of market share.
We are subject to laws and regulations worldwide, changes to which could increase our costs and individually or in the aggregate
adversely affect our business.
We are subject to laws and regulations affecting our domestic and international operations in a number of areas. These U.S. and
foreign laws and regulations affect our activities including, but not limited to, in areas of labor, advertising, real estate, billing, e-
commerce, promotions, quality of services, property ownership and infringement, tax, import and export requirements, anti-
corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental,
health and safety.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent
from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the
future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our
products and services less attractive to our customers, delay the introduction of new products in one or more regions, or cause us to
change or limit our business practices. We have implemented policies and procedures designed to ensure compliance with applicable
laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and
regulations or our policies and procedures.
Specifically with respect to data privacy, new data protection regulations have been adopted or are being considered for most of the
developed world. Most notable are the European Commission’s adoption of the General Data Protection Regulation (GDPR), which
became effective in May 2018 and the California Consumer Privacy Act (CCPA), which became law on January 1, 2020. The
GDPR and CCPA include operational requirements for companies that receive or process personal data of residents of their
respective jurisdictions and include significant penalties for non-compliance. In addition, some countries are considering or have
passed legislation implementing data protection requirements or requiring local storage and processing of data or similar
requirements that could increase the cost and complexity of delivering our services.
If our goodwill or other intangible assets become impaired, we would be required to recognize charges that would reduce our
income.
Under accounting principles generally accepted in the U.S., goodwill and certain other intangible assets are not amortized but must
be reviewed for possible impairment annually or more often in certain circumstances if events indicate that the asset values may not
be recoverable. We have incurred significant charges for the impairment of goodwill and other intangible assets in the past, and we
may be required to do so again in future periods if the underlying value of our business declines. Such a charge would reduce our
income without any change to our underlying cash flows.
Some of our employees are members of collective bargaining groups, and we might be subject to labor actions that would
interrupt our business.
Some of our employees, primarily outside the U.S., are members of collective bargaining groups. We believe that our relations with
employees are generally good. However, if there were a dispute with one of these bargaining groups, the affected operations could
be interrupted, resulting in lost revenues, lost profit contribution, and customer dissatisfaction.
Item 1B. Unresolved Staff Comments
None.
15
Item 2. Properties
Belden owns and leases manufacturing, warehousing, sales, and administrative space in locations around the world. We also have a
corporate office that we lease in St. Louis, Missouri. The leases are of varying terms, expiring from 2020 through 2035.
The table below summarizes the geographic locations of our manufacturing and other operating facilities utilized by our segments as
of December 31, 2019.
Brazil
Canada
China
Czech Republic
Denmark
Germany
Hungary
India
Italy
Mexico
Netherlands
St. Kitts
United States
Total
Enterprise
Solutions
Industrial
Solutions
Both
Segments
Total
—
—
2
—
1
1
—
1
—
—
—
1
4
10
1
1
—
1
—
1
—
—
—
—
—
—
3
7
—
—
1
—
—
—
1
1
1
3
1
—
1
9
1
1
3
1
1
2
1
2
1
3
1
1
8
26
In addition to the manufacturing and other operating facilities summarized above, our business included in continuing operations,
also utilize approximately 12 warehouses worldwide. As of December 31, 2019, we owned or leased a total of approximately
6 million square feet of facility space worldwide. We believe that our production facilities are suitable for their present and intended
purposes and adequate for our current level of operations.
Item 3. Legal Proceedings
As disclosed on our Current Report on Form 8-K filed with the SEC on December 3, 2018, we are fully cooperating with an SEC
investigation related to the material weakness in internal controls over financial reporting as of December 31, 2017 disclosed in our
2017 Form 10-K. We continue to believe that the outcome of the investigation will not have a material adverse effect on the
Company.
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.
Item 4. Mine Safety Disclosures
Not applicable.
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the New York Stock Exchange under the symbol “BDC.” As of February 6, 2020, there were 246
record holders of common stock of Belden Inc.
On November 29, 2018, our Board of Directors authorized a share repurchase program, which allowed us to purchase up to $300.0
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 was funded with cash on hand and cash flows from operating
activities. During the fourth quarter of 2019, we did not repurchase any shares of our common stock under the program. During the
year ended December 31, 2019 and since the inception of this program, we have repurchased a total of 0.9 million shares of our
common stock under the program for an aggregate cost of $50.0 million and an average price per share of $56.19.
Stock Performance Graph
The following graph compares the cumulative total shareholder return on Belden’s common stock over the five-year period ended
December 31, 2019, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the
Standard and Poor’s 1500 Industrials Index. The comparison assumes $100 was invested on December 31, 2014, in Belden’s
common stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the
graph below represents historical stock performance and is not necessarily indicative of future stock price performance.
(1) The chart above and the accompanying data are “furnished,” not “filed,” with the SEC.
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Total Return to Shareholders
(Includes reinvestment of dividends)
Company Name / Index
Belden Inc.
S&P 500 Index
S&P 1500 Industrials Index
2015
(39.3)%
1.4 %
(2.7)%
ANNUAL RETURN PERCENTAGE
Years Ended December 31,
2017
2016
2018
57.3%
12.0%
20.4%
3.5 %
21.8 %
21.1 %
(45.7)%
(4.4)%
(13.4)%
INDEXED RETURNS
Years Ended December 31,
2019
32.1%
31.5%
29.8%
Company Name / Index
Belden Inc.
S&P 500 Index
S&P 1500 Industrials Index
Base Period
2014
2015
2016
$
100.00 $
60.69
$
95.47
$
100.00
100.00
101.38
97.29
113.51
117.14
2017
98.79
138.29
141.81
2018
2019
$
53.65
$
132.23
122.84
70.89
173.86
159.45
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Item 6. Selected Financial Data
2019
Years Ended December 31,
2017
2018
2016
2015
Balance sheet data:
Total assets
Long-term debt
Total stockholders’ equity
Statement of operations data:
Revenues
Operating income
Operating income margin
Income from continuing operations
Basic income per share from continuing
operations attributable to Belden common
stockholders
Diluted income per share from continuing
operations attributable to Belden common
stockholders
Other data:
Basic weighted average common shares
outstanding
Diluted weighted average common shares
outstanding
Dividends per common share
Statement of cash flow data:
(In thousands, except per share amounts and percentages)
$ 3,406,759
1,439,484
965,819
$ 3,779,321
1,463,200
1,387,588
$ 3,840,613
1,560,748
1,434,866
$ 3,806,803
1,620,161
1,461,317
$ 3,290,602
1,725,282
825,523
2,131,278
207,207
2,165,702
314,008
2,087,185
233,641
1,988,664
201,537
1,940,904
170,435
9.7%
14.5%
11.2%
10.1%
8.8%
109,891
167,144
102,607
106,192
105,845
2.16
3.25
1.61
2.52
2.50
2.15
3.23
1.60
2.49
2.46
42,203
40,675
42,220
42,093
42,390
42,416
0.20
$
40,956
0.20
$
42,643
0.20
$
42,557
0.20
$
42,953
0.20
$
Net cash provided by operating activities
276,893
289,220
255,300
314,794
241,460
The following table is a Non-GAAP Reconciliation of free cash flow.
2019
Years ended December 31,
2017
2018
2016
2015
Net cash provided by operating activities
$
276,893 $
289,220 $
255,300 $
314,794 $
241,460
Capital expenditures, net of proceeds from the
disposal of tangible assets
Free cash flow (1)
(109,977)
166,916 $
$
(96,267)
192,953 $
(63,222)
192,078 $
(53,582)
261,212 $
(54,436)
187,024
(In thousands)
(1) We define free cash flow, which is a non-GAAP financial measure, as net cash from operating activities adjusted for capital expenditures
net of the proceeds from the disposal of tangible assets. We believe free cash flow provides useful information to investors
regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of
debt principal, dividends and share repurchases. We use free cash flow, as defined, as one financial measure to monitor and evaluate
performance and liquidity. Non-GAAP financial measures should be considered only in conjunction with financial measures
reported according to accounting principles generally accepted in the United States. Our definition of free cash flow may differ
from definitions used by other companies.
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Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a global supplier of specialty networking solutions built around two global business platforms – Enterprise Solutions and
Industrial 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 to create shareholder value by:
•
•
•
•
•
•
•
Delivering highly engineered signal transmission solutions for mission-critical applications in a diverse set of
global markets;
Maintaining a balanced product portfolio across end markets, applications, and geographies that allows for a
disciplined approach to growth;
Capturing additional market share by using our Market Delivery System to improve channel and end-user
relationships and to concentrate sales efforts on customers in higher growth geographies and vertical end-markets;
Managing our product portfolio to provide innovative and complete end-to-end solutions for our customers in
applications for which we have operational expertise and can drive customer loyalty;
Acquiring leading companies with innovative product portfolios and opportunities for synergies which fit within
our strategic framework;
Continuously improving our processes and systems through scalable, flexible, and sustainable business systems
for talent management, Lean enterprise, and acquisition cultivation and integration; and
Protecting and enhancing the value of the Belden brands.
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 margin profile present a unique value proposition for our
shareholders.
We consider adjusted revenue growth on a constant currency basis, adjusted EBITDA margin, free cash flow, and return on invested
capital to be our key operating performance indicators. Our current business goals are to:
•
•
•
•
Grow adjusted revenues on a constant currency basis by 5-7% per year, from a combination of end market
growth, market share capture, and contributions from acquisitions;
Achieve adjusted EBITDA margins in the range of 20-22%;
Achieve free cash flow growth in the range of 13-15%; and
Realize return on invested capital of 13-15%.
Significant Trends and Events in 2019
The following trends and events during 2019 had varying effects on our financial condition, results of operations, and cash flows.
Foreign currency
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro,
Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, Indian rupee, 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.
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.
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Table of Contents
Commodity Prices
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 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.
Channel Inventory
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 our products 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 Belden
products owned and held 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 are dependent upon our channel partners to provide us with information regarding the
amount of our products that they own and hold in their inventory. As such, all references to the effect of channel inventory changes
are estimates.
Market Growth and Market Share
The 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 share across our segments is significant, ranging 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 generally 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.
Discontinued Operations Treatment of the Grass Valley Disposal Group
During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the
assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley represents a strategic
shift that is expected to have a major impact on our operations and financial results. As a result, the Grass Valley disposal group,
which was included in our Enterprise Solutions segment, is now reported within discontinued operations. As such, comparable prior
period information has been recast to exclude the Grass Valley disposal group from continuing operations, with the exception of the
Consolidated Cash Flow Statements. The Grass Valley disposal group excludes certain Grass Valley pension plans that we will
retain. In 2019, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $521.4 million. See
Note 5.
Acquisitions
We completed the acquisitions of SPC, Opterna, and FutureLink on December 6, 2019, April 15, 2019, and April 5, 2019,
respectively. The results of SPC, Opterna, and FutureLink have been included in our Consolidated Financial Statements as of their
acquisition dates and are reported within the Enterprise Solutions segment. See Note 4.
Cost Reduction Program: 2019
During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining
the organizational structure and investing in technology to drive productivity. We recognized approximately $19.6 million of
severance costs for this program during 2019. The costs were incurred by both of our segments, as well as our corporate office. The
cost reduction program is expected to deliver an estimated $40.0 million reduction in selling, general, and administrative expenses
on an annual basis, with some benefit in 2020, and the full benefit realized in 2021. We expect to incur approximately $10.0 million
for this program in 2020. See Note 14.
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Opterna, FutureLink, and SPC Integration Program: 2019
In 2019, we began a restructuring program to integrate the recent acquisitions of Opterna, FutureLink, and SPC with our existing
businesses. The restructuring and integration activities were focused on achieving desired cost savings by consolidating existing and
acquired facilities and other support functions. We recognized $6.1 million of severance and other restructuring costs for this
program during 2019. The costs were incurred by the Enterprise Solutions segment. We expect to incur an additional $5.0 million
for this program in 2020. See Note 14.
Preferred Stock Conversion
On July 15, 2019, all outstanding Preferred Stock was automatically converted into shares of Belden common stock at the
conversion rate of 132.50, resulting in the issuance of approximately 6.9 million shares of Belden common stock. Upon conversion,
the Preferred Stock was automatically extinguished and discharged, is no longer deemed outstanding for all purposes, and delisted
from trading on the New York Stock Exchange. For the year ended December 31, 2019, dividends on the Preferred Stock were $18.4
million. See Note 21.
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Results of Operations
Consolidated Income from Continuing Operations before Taxes
Revenues
Gross profit
Selling, general and administrative expenses
Research and development expenses
Amortization of intangibles
Gain from patent litigation
Operating income
Interest expense, net
Non-operating pension benefit (cost)
Loss on debt extinguishment
Income from continuing operations before
taxes
Years Ended December 31,
2018
2019
2017
(In thousands, except percentages)
2019 vs. 2018
Percentage Change
$
2,131,278 $
793,505
417,329
94,360
74,609
—
207,207
55,814
1,017
—
2,165,702 $
829,911
411,352
91,552
75,140
62,141
314,008
60,839
(99)
22,990
2,087,185
802,320
389,743
88,748
90,188
—
233,641
82,651
(561)
52,441
(1.6)%
(4.4)%
1.5 %
3.1 %
(0.7)%
(100.0)%
(34.0)%
(8.3)%
(1,127.3)%
(100.0)%
2018 vs. 2017
3.8 %
3.4 %
5.5 %
3.2 %
(16.7)%
n/a
34.4 %
(26.4)%
(82.4)%
(56.2)%
152,410
230,080
97,988
(33.8)%
134.8 %
2019 Compared to 2018
Revenues decreased $34.4 million from 2018 to 2019 due to the following factors:
•
•
•
•
Acquisitions contributed $32.4 million to the increase in revenues.
Currency translation had a $28.0 million unfavorable impact on revenues.
Lower sales volume, including the impact of changes in channel inventory and weaker industrial markets,
resulted in a $21.6 million decrease in revenues.
Lower copper costs resulted in a $17.2 million decrease in revenues.
Gross profit decreased $36.4 million from 2018 to 2019. The decrease in gross profit is primarily attributable to the decrease in
revenues discussed above as well as unfavorable product mix and the impact of lower production volumes. Gross profit for 2019
included $3.4 million of severance, restructuring, and acquisition integration costs; $0.6 million of cost of sales arising from the
adjustment of inventory to fair value related to acquisitions; and $0.5 million for the amortization of software development
intangible assets. Gross profit for 2018 included $18.0 million of severance, restructuring, and acquisition integration costs and $0.1
million for the amortization of software development intangible assets.
Selling, general and administrative expenses increased $6.0 million from 2018 to 2019 primarily due to an $18.5 million increase in
severance, restructuring, and acquisition integration costs and acquisitions and a $5.4 million increase from acquisitions. These
increases were partially offset by the impact of productivity improvement initiatives, currency translation, decrease in costs related
to patent litigation, and purchase accounting effects of acquisitions, which attributed to a decline in selling, general and
administrative expenses of $9.5 million, $4.1 million, $2.6 million, and $1.7 million, respectively.
Research and development expenses increased $2.8 million from 2018 to 2019 primarily due to investments in research and
development as well as acquisitions, which contributed $3.9 million and $0.3 million, respectively. These increases were partially
offset by currency translation of $1.4 million.
Amortization of intangibles decreased $0.5 million from 2018 to 2019 primarily due to certain intangible assets becoming fully
amortized, partially offset by the amortization expense for intangible assets from the acquisitions of SPC and Opterna. See Note 4.
The $62.1 million gain from patent litigation in 2018 is for judgments received in 2018 from the patent infringement case filed in
2011 by our wholly-owned subsidiary, PPC, against Corning alleging they willfully infringed upon two patents. After years of post-
trial motions and appeals, the District Court ruled in favor of PPC and required Corning to pay judgments of $62.1 million in 2018
to PPC. See Note 2.
Operating income decreased $106.8 million from 2018 to 2019 primarily due to the gain from the patent litigation in 2018, decrease
in gross profit discussed above, and changes in operating expenses discussed above.
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Net interest expense decreased $5.0 million from 2018 to 2019 as a result of our debt refinancing during 2018. In March 2018, we
issued €350.0 million aggregate principal amount of new senior subordinated notes due 2028 at an interest rate of 3.875%, and used
the net proceeds of this offering and cash on hand to repurchase all of our outstanding €200.0 million 5.5% senior subordinated
notes due 2023 as well as all of our outstanding $200.0 million 5.25% senior subordinated notes due 2024.
The loss on debt extinguishment recognized in 2018 represents the premium paid to the bond holders to retire the 2023 and 2024
notes as well as the unamortized debt issuance costs that were written-off. The loss on debt extinguishment recognized in 2017
represents the premium paid to the bond holders to retire the 2022 and a portion of the 2023 notes as well as the unamortized debt
issuance costs that were written-off and the unamortized debt issuance costs related to creditors no longer participating in the
Amended and Restated Credit Agreement (the Revolver), which we amended in May 2017. See Note 15.
Income from continuing operations before taxes decreased $77.7 million from 2018 to 2019 primarily due to the decrease in
operating income, partially offset by the decrease in interest expense and loss on debt extinguishment discussed above.
2018 Compared to 2017
Revenues increased $78.5 million from 2017 to 2018 due to the following factors:
•
•
•
•
•
Higher sales volume, including changes in channel inventory, resulted in a $53.8 million increase in
revenues.
Acquisitions contributed $29.7 million to the increase in revenues.
Currency translation had a $12.0 million favorable impact on revenues.
Higher copper costs contributed $10.7 million to the increase in revenues.
The divestiture of our MCS business resulted in a $27.7 million decrease in revenues.
Gross profit increased $27.6 million from 2017 to 2018 while gross profit margin remained relatively flat year-over-year. The
increase in gross profit is primarily attributable to the increase in revenues discussed above, and the impact on margins is due to
copper prices, which result in higher revenues as discussed above, but as they have minimal impact to gross profit dollars, result in
lower gross profit margins. Gross profit for 2018 included $18.0 million of severance, restructuring, and acquisition integration costs
and $0.1 million for the amortization of software development intangible assets. Gross profit for 2017 included $32.5 million of
severance, restructuring, and acquisition integration costs; $6.1 million of cost of sales arising from the adjustment of inventory to
fair value related to an acquisition; and $0.8 million of accelerated depreciation in our Enterprise Solutions segment.
Selling, general and administrative expenses increased $21.6 million from 2017 to 2018 primarily due to increases in manufacturing
constraints, acquisitions, an increase in costs related to patent litigation, and currency translation of $14.5 million, $5.7 million, $2.6
million, and $2.5 million, respectively; partially offset by the MCS divestiture in 2017, which contributed to a decline of
approximately $3.7 million over the year ago period.
Research and development expenses increased $2.8 million from 2017 to 2018 primarily due to investments in research and
development, acquisitions, and currency translation of $2.8 million, $0.9 million, and $0.8 million, respectively. These increases
were partially offset by the MCS divestiture in 2017, which contributed to a $1.7 million decline in research and development
expenses over the year ago period.
Amortization of intangibles decreased $15.0 million from 2017 to 2018 primarily due to certain intangible assets becoming fully
amortized, partially offset by an increase in amortization expense for intangible assets from the acquisition of NT2. See Note 12.
The $62.1 million gain from patent litigation in 2018 is for judgments received in 2018 from the patent infringement case filed in
2011 by our wholly-owned subsidiary, PPC, against Corning alleging they willfully infringed upon two patents. After years of post-
trial motions and appeals, the District Court ruled in favor of PPC and required Corning to pay judgments of $62.1 million in 2018
to PPC. See Note 2.
Operating income increased $80.4 million from 2017 to 2018 primarily due to the gain from patent litigation and increases in gross
profit discussed above, partially offset by the changes in operating expenses discussed above.
Net interest expense decreased $21.8 million from 2017 to 2018 as a result of our debt transactions during 2017 and 2018. In July
2017, we issued €450.0 million aggregate principal amount of new senior subordinated notes due 2027 at an interest rate of 3.375%,
and used the net proceeds of this offering and cash on hand to repurchase all of our outstanding $700.0 million 5.5% senior
subordinated notes due 2022. In September 2017, we issued €300.0 million aggregate principal amount of new senior subordinated
notes due 2025 at an interest rate of 2.875%, and used the net proceeds of this offering to repurchase €300.0 million of our
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outstanding €500.0 million 5.5% senior subordinated notes due 2023. In March 2018, we issued €350.0 million aggregate principal
amount of new senior subordinated notes due 2028 at an interest rate of 3.875%, and used the net proceeds of this offering and cash
on hand to repurchase all of our outstanding €200.0 million 5.5% senior subordinated notes due 2023 as well as all of our
outstanding $200.0 million 5.25% senior subordinated notes due 2024. See Note 15.
The loss on debt extinguishment recognized in 2018 represents the premium paid to the bond holders to retire the 2023 and 2024
notes as well as the unamortized debt issuance costs that were written-off. The loss on debt extinguishment recognized in 2017
represents the premium paid to the bond holders to retire the 2022 and a portion of the 2023 notes as well as the unamortized debt
issuance costs that were written-off and the unamortized debt issuance costs related to creditors no longer participating in the
Amended and Restated Credit Agreement (the Revolver), which we amended in May 2017. See Note 15.
Income from continuing operations before taxes increased by $132.1 million from 2017 to 2018 primarily due to the increase in
operating income, decrease in interest expense, and decrease in the loss on debt extinguishment discussed above.
Income Taxes
2019
Income from continuing operations before taxes
Income tax benefit (expense)
Effective tax rate
$
$
152,410
(42,519)
27.9%
2019 Compared to 2018
2018
2017
(In thousands, except percentages)
97,988
4,619
$
230,080
(62,936)
27.4%
(4.7)%
Percentage Change
2019 vs. 2018
2018 vs. 2017
(33.8)%
134.8 %
(32.4)% (1,462.5)%
We recognized income tax expense of $42.5 million in 2019, representing an effective tax rate of 27.9%. The effective tax rate was
primarily impacted by a change in valuation allowance on certain deferred tax assets and foreign tax rate differences.
During the fourth quarter of 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects
related to the Tax Cuts and Jobs Act of 2017 (the “Act”). Additional guidance provided in these regulations resulted in a tax
adjustment in the fourth quarter of 2019.
Our income tax expense was also impacted by foreign tax rate differences. Foreign tax rate differences reduced our income tax
expense by approximately $13.1 million and $2.4 million in 2019 and 2018, 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.
As of December 31, 2019, we maintained a valuation allowance on our deferred tax assets of $50.4 million. Of this amount,
approximately $43.0 million relates to deferred tax assets for certain U.S foreign tax credits and U.S. state net operating losses and
tax credits. The $33.9 million valuation allowance on the foreign tax credits is a direct result of the regulations issued by the United
States Treasury in the fourth quarter of 2019, the Act and the impact of classifying a business as discontinued operations. The
remaining $9.1 million valuation allowance primarily relates to state net operating losses and tax credits. While we have positive
evidence in the form of projected sources of income, we determined that these state carryforward assets were not realizable as of
December 31, 2019 due to a history of net operating losses and tax credits expiring without being utilized in certain states and
because the current forecast of income is not sufficient to utilize all of these state net operating losses and tax credits prior to
expiration.
2018 Compared to 2017
We recognized income tax expense of $62.9 million in 2018, representing an effective tax rate of 27.4%. The effective tax rate was
impacted by the Act and foreign tax rate differences.
On December 22, 2017, the Act was signed into law, making significant changes to the U.S. Internal Revenue Code. In accordance
with the Act, we recorded $24.5 million as additional income tax expense in the fourth quarter of 2017, the period in which the
legislation was enacted. The total income tax expense included a $41.6 million tax benefit for the remeasurement of deferred tax
assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation
of $30.8 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect
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to be able to realize based upon the new tax law. Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address
the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or
analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.
December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis
based on legislative updates relating to the Act currently available, which resulted in additional SAB 118 tax expense of $10.0
million for the year ended December 31, 2018. The total tax expense included an $8.0 million tax expense associated with an
increase to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the
new tax law, a $1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, a
$1.1 million tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of
covered employees, and a $0.4 million income tax benefit associated with an adjustment to the remeasurement of certain deferred
tax assets and liabilities.
Our income tax expense was also impacted by foreign tax rate differences. Foreign tax rate differences impacted our income tax
expense by approximately $(2.4) million and $14.7 million in 2018 and 2017, 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.
As of December 31, 2018, we maintained a valuation allowance on our deferred tax assets of $39.4 million. Of this amount,
approximately $33.1 million relates to deferred tax assets for certain U.S foreign tax credits and U.S. state net operating losses and
tax credits. The $23.9 million valuation allowance on the foreign tax credits is a direct result of the Act, as described above. The
remaining $9.2 million valuation allowance primarily relates to state net operating losses and tax credits. While we have positive
evidence in the form of projected sources of income, we determined that these state carryforward assets were not realizable as of
December 31, 2018 due to a history of net operating losses and tax credits expiring without being utilized in certain states and
because the current forecast of income is not sufficient to utilize all of these state net operating losses and tax credits prior to
expiration.
Consolidated Adjusted EBITDA
GAAP and adjusted revenues
GAAP net income (loss)
Amortization of intangible assets
Severance, restructuring, and acquisition integration costs (1)
Interest expense, net
Income tax expense (benefit)
Depreciation expense
Loss on debt extinguishment
Purchase accounting effects related to acquisitions (2)
Costs related to patent litigation
Amortization of software development intangible assets
Non-operating pension settlement loss
Loss on sale of assets (3)
Gain from patent litigation
Loss from discontinued operations
Adjusted EBITDA
GAAP net income (loss) margin
Adjusted EBITDA margin
Years Ended December 31,
2019
2018
2017
(In thousands, except percentages)
$ 2,131,278
$ 2,165,702
$ 2,087,185
$ (376,776)
$
74,609
26,544
55,814
42,519
40,409
—
592
—
525
—
—
—
486,667
350,903
$
$
160,711
75,140
22,625
60,839
62,936
38,309
22,990
1,690
2,634
79
1,342
94
(62,141)
6,433
393,681
$
$
92,853
90,188
41,893
82,651
(4,619)
38,624
52,441
6,133
—
—
—
1,013
—
9,754
410,931
(17.7)%
16.5 %
7.4%
18.2%
4.4%
19.7%
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(1) See Note 14, Severance, Restructuring, and Acquisition Integration Activities, for details.
(2) In 2019, we collectively recognized $0.6 million of cost of sales related to purchase accounting adjustments of acquired inventory to fair
value for both our SPC and Opterna acquisitions. In 2018, we made a $1.7 million adjustment to increase the earn-out liability
associated with an acquisition. In 2017, we recognized $6.1 million of cost of sales related to the adjustment of acquired inventory
to fair value for our Thinklogical acquisition.
(3) In 2018 and 2017, we recognized a $0.1 million and $1.0 million loss on sale of assets, respectively, for the sale of our MCS business
and Hirschmann JV. See Note 2.
Use of Non-GAAP Financial Information
Adjusted Revenues, 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 businesses' 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. Adjusted results should be considered only in conjunction with results
reported according to accounting principles generally accepted in the United States.
Percentage Change
Adjusted Revenues
Adjusted EBITDA
2019
$ 2,131,278
350,903
2017
2018
(In thousands, except percentages)
$ 2,087,185
410,944
$ 2,165,702
393,681
(1.6)%
(10.9)%
2019 vs. 2018
2018 vs. 2017
3.8 %
(4.2)%
as a percent of adjusted revenues
16.5%
18.2%
19.7 %
2019 Compared to 2018
Revenues decreased $34.4 million from 2018 to 2019 due to the following factors:
•
•
•
•
Acquisitions contributed $32.4 million to the increase in revenues.
Currency translation had a $28.0 million unfavorable impact on revenues.
Lower sales volume, including the impact of changes in channel inventory and weaker industrial markets,
resulted in a $21.6 million decrease in revenues.
Lower copper costs resulted in a $17.2 million decrease in revenues.
Adjusted EBITDA decreased $42.8 million in 2019 from 2018 primarily due to the decrease in revenues discussed above as well as
unfavorable product mix and the impact of lower production volumes.
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2018 Compared to 2017
Revenues increased $78.5 million from 2017 to 2018 due to the following factors:
•
•
•
•
•
Higher sales volume, including changes in channel inventory, resulted in a $53.8 million increase in
revenues.
Acquisitions contributed $29.7 million to the increase in revenues.
Currency translation had a $12.0 million favorable impact on revenues.
Higher copper costs contributed $10.7 million to the increase in revenues.
The divestiture of our MCS business resulted in a $27.7 million decrease in revenues.
Adjusted EBITDA decreased $17.3 million in 2018 from 2017 primarily due to unfavorable product mix and investments in organic
growth initiatives, partially offset by the increase in revenues.
Segment Results of Operations
For additional information regarding our segment measures, see Note 5 to the Consolidated Financial Statements.
Enterprise Solutions
Segment Revenues
Segment EBITDA
2019
2018
2017
(In thousands, except percentages)
Percentage Change
2019 vs. 2018 2018 vs. 2017
$ 1,081,232
162,276
$ 1,095,900
190,910
$ 1,054,847
196,554
(1.3)%
(15.0)%
3.9 %
(2.9)%
as a percent of segment revenues
15.0%
17.4%
18.6%
2019 Compared to 2018
Enterprise revenues decreased $14.7 million in 2019 as compared to 2018 primarily due to decreases in volume, including changes
in channel inventory; lower copper prices; and unfavorable currency translation, which contributed $31.9 million, $7.8 million, and
$7.4 million, respectively, to the decrease in revenues over the year ago period; partially offset by the impact of acquisitions which
grew revenues $32.4 million.
Enterprise EBITDA decreased $28.6 million in 2019 as compared to 2018 primarily due to the decreases in revenues discussed
above as well as the impact of lower production volumes.
2018 Compared to 2017
Enterprise revenues increased $41.1 million in 2018 as compared to 2017 primarily due to acquisitions, higher copper prices,
increases in volume, and favorable currency translation, which contributed $29.7 million, $4.3 million, $4.1 million, and $3.0
million, respectively, to the increase in revenues over the year ago period.
Enterprise EBITDA decreased $5.6 million in 2018 as compared to 2017 primarily due to manufacturing constraints.
Industrial Solutions
Segment Revenues
Segment EBITDA
2019
$ 1,050,046
188,947
Percentage Change
2018
2017
(In thousands, except percentages)
$ 1,032,338
208,875
$ 1,069,802
203,746
2019 vs. 2018
(1.8)%
(7.3)%
2018 vs. 2017
3.6 %
(2.5)%
as a percent of segment revenues
18.0%
19.0%
20.2 %
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2019 Compared to 2018
Industrial Solutions revenues decreased $19.8 million in 2019 as compared to 2018 primarily due to unfavorable currency
translation and lower copper prices, which contributed $20.6 million and $9.4 million, respectively, to the decrease in revenues over
the year ago period; partially offset by increases in volume, which grew revenues $10.2 million year-over-year.
Industrial EBITDA decreased $14.8 million in 2019 as compared to 2018 primarily due to the decline in revenues discussed above
and the impact of lower production volumes.
2018 Compared to 2017
Industrial Solutions revenues increased $37.5 million in 2018 as compared to 2017 primarily due to volume growth, including
changes in channel inventory; favorable currency translation; and higher copper costs, which contributed $50.5 million, $9.0
million, and $5.7 million, respectively, to the increase in revenues year over year; partially offset by $27.7 million from the MCS
divestiture in 2017.
Industrial EBITDA decreased $5.1 million in 2018 as compared to 2017. The revenue growth discussed above was offset by
unfavorable product mix and temporary inefficiencies related to extended lead times throughout the supply chain experienced in
2018.
Liquidity and Capital Resources
Significant factors affecting our cash liquidity include (1) cash provided by 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, and (4) our available credit facilities and other borrowing arrangements. We expect our operating
activities to generate cash in 2020 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 were 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 offerings, and commodities pricing.
The following table is derived from our Consolidated Cash Flow Statements and summarizes cash flows from operations, including
discontinued operations:
Net cash provided by (used for):
Operating activities
Investing activities
Financing activities
Effects of currency exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Years Ended
December 31,
2019
2018
(In thousands)
$
$
276,893 $
(184,369)
(86,948)
(301)
5,275
420,610
425,885 $
289,220
(140,676)
(281,770)
(7,272)
(140,498)
561,108
420,610
Net cash provided by operating activities totaled $276.9 million for 2019 compared to $289.2 million for 2018. Operating cash
flows declined $12.3 million, or 4.3%, compared to the prior year primarily due to the $62 million pre-tax cash proceeds from the
Corning patent litigation received in 2018. Excluding the patent litigation proceeds, operating cash flows increased year-over-year
due in part to favorable changes in receivables and inventory. Receivables were a source of cash of $22.9 million compared to a use
of cash of $21.7 million in the prior year. Inventory was a source of cash of $44.5 million compared to a use of cash of $14.8
million in the prior year. The improvements in receivables and inventory are attributable to effective working capital management.
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Net cash used for investing activities totaled $184.4 million for 2019 compared to $140.7 million for 2018. Investing activities for
2019 included capital expenditures of $110.0 million and payments, net of cash acquired, for acquisitions of $74.4 million. Investing
activities for 2018 included capital expenditures of $97.8 million; payments, net of cash acquired, for acquisitions of $84.6 million;
net proceeds from the sale of an operating facility of $1.5 million; and net cash received for the sale of the MCS business and
Hirschmann JV which closed on December 31, 2017 of $40.2 million. Capital expenditures increased $12.2 million year-over-year
due in part to investments in fiber capacity and software development.
Net cash flows from financing activities was a $86.9 million use of cash for 2019 compared to $281.8 million for 2018. Financing
activities for 2019 included payments under our share repurchase program of $50.0 million; cash dividend payments of $34.4
million, net payments related to share based compensation activities of $2.1 million; and interest payments on our financing leases
of $0.4 million. Financing activities for 2018 included payments under borrowing arrangements of $484.8 million, payments under
our share repurchase program of $175.0 million, cash dividend payments of $43.2 million, debt issuance costs of $7.6 million, net
payments related to share based compensation activities of $2.1 million, payments for the redemption of our stockholders' rights
agreement of $0.4 million, and cash proceeds from the issuance of the €350.0 million 3.875% Notes due 2028 of $431.3 million.
Our cash and cash equivalents balance, including discontinued operations, was $425.9 million as of December 31, 2019. Of this
amount, $228.4 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. See Note 17, Income Taxes in the
accompanying notes to our consolidated financial statements.
Our outstanding debt obligations as of December 31, 2019 consisted of $1.5 billion of senior subordinated notes. As of
December 31, 2019, we had no borrowings outstanding on the Revolver, and our available borrowing capacity, including the assets
of the Grass Valley disposal group, was $310.6 million. Additional discussion regarding our various borrowing arrangements is
included in Note 15 to the Consolidated Financial Statements.
Contractual obligations outstanding at December 31, 2019, have the following scheduled maturities:
Long-term debt payment obligations (1)(2) $
Interest payments on long-term debt
obligations
Operating lease obligations (3)
Purchase obligations (4)
Other commitments (5)
Pension and other postemployment
obligations
$
Total
Less than
1 Year
1-3
Years
(In thousands)
4-5
Years
More than
5 Years
1,459,380 $
— $
— $
— $
1,459,380
396,348
87,092
31,163
6,779
51,219
18,899
30,507
426
102,437
30,953
656
5,478
102,437
20,585
—
875
140,255
16,655
—
—
54,026
2,034,788 $
5,191
106,242 $
11,169
150,693 $
10,364
134,261 $
27,302
1,643,592
As described in Note 15 to the Consolidated Financial Statements.
Amounts do not include accrued and unpaid interest. Accrued and unpaid interest related to long-term debt obligations is reflected on the
line entitled, "Interest payments on long-term debt obligations" in the table.
As described in Note 11 to the Consolidated Financial Statements.
Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms,
including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing
of the transaction.
(5)
Does not include accounts payable reflected in the financial statements. Includes obligations for uncertain tax positions and legal
settlement obligations (see Notes 17 and 28 to the Consolidated Financial Statements).
30
Total
(1)
(2)
(3)
(4)
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Our commercial commitments expire or mature as follows:
Standby financial letters of credit
Bank guarantees
Surety bonds
Total
Total
Less than
1 Year
1-3
Years
(In thousands)
$
$
11,227 $
4,451
3,311
18,989 $
9,177 $
1,934
3,311
14,422 $
2,050 $
2,517
—
4,567 $
3-5
Years
More than
5 Years
— $
—
—
— $
—
—
—
—
Standby financial letters of credit, bank guarantees, and surety bonds are generally issued to secure obligations we have for a variety
of commercial reasons such as workers compensation self-insurance programs in several states and the importation and exportation
of product. We expect to replace most of these when they expire or mature.
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.
Current-Year Adoption of Recent Accounting Pronouncements
Discussion regarding our adoption of accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S. (GAAP).
In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future
events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures.
We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management
believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting
policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with
GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our
assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 of our Consolidated Financial Statements. We believe that the following
accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require
our most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are
inherently uncertain.
Revenue Recognition
We recognize revenue consistent with the principles as outlined in the following five step model: (1) identify the contract with the
customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract, and (5) recognize revenue when (or as) each performance obligation is satisfied.
See Note 3.
At the time of sale, we establish an estimated reserve for trade, promotion, and other special price reductions such as contract
pricing, discounts to meet competitor pricing, and on-time payment discounts. We also reserve for, among other things, correction of
billing errors, incorrect shipments, and settlement of customer disputes. Customers are allowed to return inventory if and when
certain conditions regarding the functionality of the inventory and our approval of the return are met. Certain distribution customers
are allowed to return inventory at original cost, in an amount not to exceed three percent of the prior year’s purchases, in exchange
for an order of equal or greater value. Until we can process these reductions, corrections, and returns (together, the Changes) through
individual customer records, we estimate the amount of outstanding Changes and recognize them by reducing revenues. We
determine our estimate based on our historical Changes as a percentage of revenues and the average time period between the
original sale and the issuance of the Changes. We adjust other current assets and cost of sales for the estimated level of returns.
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We base these estimates on historical and anticipated sales demand, trends in product pricing, and historical and anticipated Changes
patterns. We make revisions to these estimates in the period in which the facts that give rise to each revision become known. Future
market conditions and product transitions might require us to take actions to further reduce prices and increase customer return
authorizations. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or
assumptions we use to measure the Changes. However, if actual results are not consistent with our estimates or assumptions, we may
be exposed to losses or gains that could be material. A 10% change in our sales reserve for such Changes as of December 31, 2019
would have affected net income by less than $1 million in 2019.
At times, we enter into arrangements that involve the delivery of multiple promised goods or services. For these arrangements, when
the promised goods or services can be separated, the revenue is allocated to each distinct good or service based on that performance
obligation’s relative standalone selling price and recognized based upon transfer of control for each performance obligation.
Generally, we determine standalone selling price using the adjusted market assessment approach. For software licenses with highly
variable standalone selling prices sold with either support or professional services, we generally determine the standalone selling
price of the software license using the residual approach.
Revenue allocated to support services under our support contracts is typically recognized ratably over the term of the service.
Revenue allocated to distinct professional services is recognized when (or as) the performance obligation is satisfied depending on
the terms of the arrangement. When professional services are not distinct from goods, the professional services and goods are
combined into one performance obligation, and revenue allocated to that performance obligation is recognized when (or as) the
performance obligation is satisfied.
Income Taxes
We recognize deferred tax assets resulting from tax credit carryforwards, net operating loss carryforwards, and deductible temporary
differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred tax assets generally
represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses
previously reported in our Consolidated Financial Statements become deductible for income tax purposes. A deferred tax asset
valuation allowance is required when some portion or all of the deferred tax assets may not be realized. We are required to estimate
taxable income in future years or develop tax strategies that would enable tax asset realization in each taxing jurisdiction and use
judgment to determine whether to record a deferred tax asset valuation allowance for part or all of a deferred tax asset.
We consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets
associated with net operating losses. We consider the reversals of existing taxable temporary differences as well as projections of
future taxable income. We consider the future reversals of existing taxable temporary differences to the extent they were of the same
character as the temporary differences giving rise to the deferred tax assets. We also consider whether the future reversals of existing
taxable temporary differences will occur in the same period and jurisdiction as the temporary differences giving rise to the deferred
tax assets. The assumptions utilized to estimate our future taxable income are consistent with those assumptions utilized for
purposes of testing goodwill for impairment, as well as with our budgeting and strategic planning processes.
Significant judgment is required in evaluating our uncertain tax positions. We establish accruals for uncertain tax positions when we
believe that the full amount of the associated tax benefit may not be realized. In the future, if we prevail in matters for which
accruals have been established previously or pay amounts in excess of reserves, there could be a material effect on our income tax
provisions in the period in which such determination is made.
We have significant tax credit carryforwards in the U.S. for which we have recorded a partial valuation allowance as a result of the
Tax Cuts and Jobs Act of 2017 (the "Act"), regulations issued by the United States Treasury in the fourth quarter of 2019, and the
classification of a business as discontinued operations. The utilization of these credits is dependent upon the recognition of both U.S.
taxable income as well as income characterized as foreign source under the U.S. tax laws. We do not expect to generate enough
foreign source income in the future to utilize all of these tax credits due to law changes introduced by the Act.
See Note 17, Income Taxes, to the consolidated financial statements for further information regarding income taxes.
Goodwill and Indefinite-Lived Intangible Assets
We test our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment on an annual basis
during the fourth quarter or when indicators of impairment exist. We base our estimates on assumptions we believe to be reasonable,
but which are not predictable with precision and therefore are inherently uncertain. Actual future results could differ from these
estimates.
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We test goodwill annually for impairment at the reporting unit level. A reporting unit is an operating segment, or a business unit one
level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment
management. However, components within an operating segment are aggregated as a single reporting unit if they have similar
economic characteristics. We determined that each of our reportable segments (Enterprise Solutions and Industrial Solutions)
represents an operating segment. Within those operating segments, we have identified reporting units based on whether there is
discrete financial information prepared that is regularly reviewed by segment management. As a result of this evaluation, we have
identified from our continuing operations, four reporting units within Enterprise Solutions and six reporting units within Industrial
Solutions for purposes of goodwill impairment testing.
The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of
whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such an evaluation is made
based on the weight of all available evidence and the significance of all identified events and circumstances that may influence the
fair value of a reporting unit. If it is more likely than not that the fair value is less than the carrying value, then a quantitative
assessment is required for the reporting unit, as described in the paragraph below. In 2019, we did not perform a qualitative
assessment over any of our reporting units.
When we evaluate goodwill for impairment using a quantitative assessment, we compare the fair value of each reporting unit to its
carrying value. We determine the fair value using an income approach. Under the income approach, we calculate the fair value of a
reporting unit based on the present value of estimated future cash flows using growth rates and discount rates that are consistent with
current market conditions in our industry. If the fair value of the reporting unit exceeds the carrying value of the net assets including
goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill
exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference. In addition to the income
approach, we calculate the fair value of our reporting units under a market approach. The market approach measures the fair value of
a reporting unit through analysis of financial multiples of comparable businesses. Consideration is given to the financial conditions
and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or
similar lines of business.
For our annual impairment test in 2019, we performed a quantitative assessment for all ten of our reporting units included in
continuing operations, none of which proved to be impaired during 2019. Based on our annual goodwill impairment test, the excess
of the fair values over the carrying values of our ten reporting units tested under a quantitative income approach ranged from 12% -
394%. The assumptions used to estimate fair values were based on the past performance of the reporting unit as well as the
projections incorporated in our strategic plan. Significant assumptions included sales growth, profitability, and related cash flows,
along with cash flows associated with taxes and capital spending. The discount rate used to estimate fair value was risk adjusted in
consideration of the economic conditions in effect at the time of the impairment test. We also considered assumptions that market
participants may use. In our quantitative assessments, the discount rates ranged from 9.0% to 17.0%, the 2020 to 2029 compounded
annual revenue growth rates ranged from 1.9% to 7.6%, and the long-term revenue growth rates ranged from 2.0% to 3.0%. By
their nature, these assumptions involve risks and uncertainties, with the primary factor that could have an adverse effect being our
assumptions relating to growing revenues consistent with our strategic plan.
We test our indefinite-lived intangible assets, which consist primarily of trademarks, for impairment on an annual basis during the
fourth quarter. The accounting guidance related to impairment testing for such intangible assets allows for the performance of an
optional qualitative assessment, similar to that described above for goodwill. We did not perform any qualitative assessments as part
of our indefinite-lived intangible asset impairment testing for 2019. Rather, we performed a quantitative assessment for each of our
indefinite-lived trademarks in 2019. Under the quantitative assessments, we determined the fair value of each trademark using a
relief from royalty methodology and compared the fair value to the carrying value. We determined that none of our trademarks were
impaired during 2019. Significant assumptions to determine fair value included sales growth, royalty rates, and discount rates.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used
to test for impairment losses on goodwill and other intangible assets. However, if actual results are significantly different from our
estimates or assumptions, we may have to recognize an impairment charge that could be material.
As noted above, we also test our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment
when indicators of impairment exist. During 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the
criteria to classify the assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley
represents a strategic shift that is expected to have a major impact on our operations and financial results. We wrote down the
carrying value of Grass Valley and recognized impairment charges to goodwill, customer relationships, trademarks, etc. See Note 5.
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Pension and Other Postretirement Benefits
Our pension and other postretirement benefit costs and obligations are dependent on the various actuarial assumptions used in
calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets, health care cost
trend rates, mortality tables, and other factors. We base the discount rate assumptions on current investment yields on high-quality
corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook.
Long-term return on plan assets is determined based on historical portfolio results and management’s expectation of the future
economic environment. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook,
and an assessment of likely long-term trends. Our key assumptions are described in further detail in Note 18 to the Consolidated
Financial Statements. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the
projected benefit obligation or the fair market value of plan assets, amortized over the estimated future working life of the plan
participants.
As a sensitivity measure, the effect of a 50 basis point decline in the assumed discount rate would have resulted in an increase in the
2019 net periodic benefit cost and projected benefit obligations as of December 31, 2019 of approximately $0.5 million and $28.3
million, respectively. A 50 basis point decline in the expected return on plan assets would have resulted in an increase in the 2019
net periodic benefit cost of approximately $1.6 million.
Conversely, the effect of a 50 basis point increase in the assumed discount rate would have resulted in a decrease in the 2019 net
periodic benefit cost and projected benefit obligations as of December 31, 2019 of approximately $0.4 million and $32.9 million,
respectively. A 50 basis point increase in the expected return on plan assets would have resulted in a decrease in the 2019 net
periodic benefit cost of approximately $1.6 million.
Business Combination Accounting
We allocate the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values. The
excess of the consideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. We use all available
information to estimate fair values. We typically engage third party valuation specialists to assist in the fair value determination of
inventories, tangible long-lived assets, and intangible assets other than goodwill. The carrying values of acquired receivables and
accounts payable have historically approximated their fair values as of the business combination date. As necessary, we may engage
third party specialists to assist in the estimation of fair value for certain liabilities. We adjust the preliminary acquisition accounting,
as necessary, typically up to one year after the acquisition closing date as we obtain more information regarding asset valuations and
liabilities assumed.
Our acquisition accounting methodology contains uncertainties because it requires management to make assumptions and to apply
judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities
based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including
discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the
accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.
If actual results are materially different than the assumptions we used to determine fair value of the assets and liabilities acquired
through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an
impact on our net earnings.
See Note 4 to the Consolidated Financial Statements for the acquisition-related information associated with significant acquisitions
completed in the last three fiscal years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from currency exchange rates, certain commodity prices, interest rates, and
credit extended to customers. Each of these risks is discussed below.
Currency Exchange Rate Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local
currency balances of foreign subsidiaries and transactions denominated in currencies other than a location’s functional currency.
Our investments in certain foreign subsidiaries are recorded in currencies other than the U.S. dollar. As these foreign currency
denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations
of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These
fluctuations and the results of operations for foreign subsidiaries, where the functional currency is not the U.S. dollar, are translated
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into U.S. dollars using the average exchange rates during the year, while the assets and liabilities are translated using period end
exchange rates. The assets and liabilities-related translation adjustments are recorded as a separate component of accumulated other
comprehensive income (loss) in our Consolidated Balance Sheets. We generally view our investments in international subsidiaries
with functional currencies other than the U.S. dollar as long-term. As a result, we do not generally use derivatives to manage these
net investments. However, we designated euro debt issued in 2018, 2017 and 2016 by Belden Inc., a USD functional currency entity,
as a net investment hedge of certain international subsidiaries. See Note 15 for further discussion.
Transactions denominated in currencies other than a location’s functional currency may produce receivables or payables that are
fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional
currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency
cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign
exchange transaction gain or loss that is included in our operating income in the Consolidated Statements of Operations. In 2019, we
recorded approximately $1.5 million of net foreign currency transaction losses.
Generally, the currency in which we sell our products is the same as the currency in which we incur the costs to manufacture our
products, resulting in a natural hedge. Our currency exchange rate management strategy primarily involves the use of natural
techniques, where possible, such as the offsetting or netting of like-currency cash flows. However, we re-evaluate our strategy as the
foreign currency environment changes, and it is possible that we could utilize derivative financial instruments to manage this risk in
the future. We did not have any foreign currency derivatives outstanding as of December 31, 2019.
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro,
Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, Indian rupee, and
Brazilian real.
Commodity Price Risk
Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables, and
other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility
associated with purchases of commodities in the normal course of business. We do not speculate on commodity prices.
We are exposed to price risk related to our purchase of copper used in our products, although we are generally able to raise selling
prices to customers to cover the increase in copper costs. Our copper price management strategy involves the use of natural
techniques, where possible, such as purchasing copper for future delivery at fixed prices. We do not generally use commodity price
derivatives and did not have any outstanding at December 31, 2019 or 2018.
The following table presents unconditional commodity purchase obligations outstanding as of December 31, 2019. The
unconditional purchase obligations will settle during 2020.
Unconditional copper purchase obligations:
Commitment volume in pounds
Weighted average price per pound
Commitment amounts
Purchase
Amount
Fair
Value
(In thousands, except average price)
1,625
2.71
4,403 $
$
$
4,541
We are also exposed to price risk related to our purchase of selected commodities derived from petrochemical feedstocks used in our
products. We generally purchase these commodities based upon market prices established with the vendors as part of the purchase
process. Pricing of these commodities is volatile as they tend to fluctuate with the price of oil. Historically, we have not used
commodity financial instruments to hedge prices for commodities derived from petrochemical feedstocks.
Interest Rate Risk
We have occasionally managed our debt portfolio by using interest rate derivative instruments, such as swap agreements, to achieve
an overall desired position of fixed and floating rates. We were not a party to any interest rate derivative instruments as of or for the
years ended December 31, 2019 or 2018.
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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 December 31, 2019.
€350.0 million fixed-rate senior subordinated notes due 2028
Average interest rate
€450.0 million fixed-rate senior subordinated notes due 2027
Average interest rate
€200.0 million fixed-rate senior subordinated notes due 2026
Average interest rate
€300.0 million fixed-rate senior subordinated notes due 2025
Average interest rate
$
$
$
$
Total
Concentrations of Credit Risk
Principal Amount by Expected Maturity
2020
Thereafter
Total
Fair
Value
(In thousands, except interest rates)
— $
— $
— $
— $
392,910 $
3.875%
505,170 $
3.375%
224,520 $
4.125%
336,780 $
2.875%
392,910 $
417,561
505,170 $
529,029
224,520 $
240,472
336,780 $
345,594
$ 1,459,380 $
1,532,656
Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and cash equivalents and
accounts receivable. We are exposed to credit losses in the event of nonperformance by counterparties to these financial instruments.
We place cash and cash equivalents with various high-quality financial institutions throughout the world, and exposure is limited at
any one financial institution. Although we do not obtain collateral or other security to support these financial instruments, we
evaluate the credit standing of the counterparty financial institutions. As of December 31, 2019, we had $10.2 million in accounts
receivable outstanding from Anixter International Inc. This represented approximately 3% of our total accounts receivable
outstanding at December 31, 2019. Anixter generally pays all outstanding receivables within thirty to sixty days of invoice receipt.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Belden Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Belden Inc. (the Company) as of December 31, 2019 and 2018,
and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at
Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework
and our report dated February 11, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
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Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Description of
the Matter
Valuation of Goodwill for Certain Reporting Units
At December 31, 2019, the Company had goodwill on its balance sheet aggregating $1.2 billion.
As more fully described in Notes 2 and 12 to the Company’s consolidated financial statements,
goodwill is tested for impairment at least annually at the reporting unit level. The Company’s
goodwill is initially assigned to reporting units as of the respective acquisition dates. The
Company performed a quantitative assessment for all of its reporting units and determined that
the fair values of these reporting units were in excess of the carrying values. Therefore, the
Company did not record any goodwill impairment for any of its reporting units.
Auditing the Company’s annual goodwill impairment test for certain reporting units under the
quantitative assessment was complex due to the judgments and estimation required in
determining the fair values of the reporting units. In particular, the fair value estimates are
sensitive to significant assumptions such as discount rates, revenue growth rates, projected
operating margins, and terminal growth rates, which are sensitive to and affected by expectations
about future market or economic conditions and company-specific qualitative factors.
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s preparation and review of the goodwill impairment tests, significant
assumptions discussed above, as used in each of the models, and the completeness and accuracy
of the data used in the models.
Our audit procedures included, among others, involving our specialists to assist us in assessing
methodologies, and testing the significant assumptions discussed above and the underlying data
used by the Company in its analyses, and reviewing the methodology and market support used to
determine the discount rate. We compared the significant assumptions used by the Company to
current industry and future economic trends, changes to the Company’s business model,
customer base or product mix and other relevant factors. We assessed the historical accuracy of
the Company’s estimates and performed sensitivity analyses of significant assumptions to
evaluate the changes in the fair values of the reporting units that would result from changes in the
assumptions. We tested the Company’s reconciliation of the aggregate fair value of the reporting
units to the market capitalization of the Company. We also evaluated whether any changes in the
composition of the reporting units reflected significant changes in the organizational structure or
segments.
Revenue recognition - allocating consideration to performance obligations and estimating
variable consideration
As described in Notes 2 and 3 to the consolidated financial statements, the Company has
contractual arrangements that include software, support, and service revenues. The Company
estimated the selling prices of those contractual arrangements to determine the allocation of
consideration to each of the performance obligations. The objective was to determine the price at
which the Company would transact a sale if the product, support or service was sold on a
standalone basis. Generally, the Company determines standalone selling price using the adjusted
market assessment approach. For software licenses with highly variable standalone selling prices
sold with either support or professional services, the Company generally determines the
standalone selling price of the software license using the residual approach. The Company
estimated the standalone selling prices of each of the performance obligations and projected cash
flows over the term of each contractual arrangement to determine the amount of total
consideration allocated to each of the performance obligations. The Company also enters into
sales contracts that provide certain distributors with price concessions, product return rights,
refunds, and stock rotations, which all result in variable consideration. At the time of sale, the
Company establishes an estimated reserve for the variable consideration and recognizes it by
reducing revenues. Estimates are based on a percentage of revenues and the average time period
between the original sale and the issuance of the adjustments. As of December 31, 2019, the
Company recorded $29.5 million in unprocessed changes and $28.7 million in estimated pricing
adjustments that were recognized as a reduction of revenues and accounts receivable,
respectively.
38
Table of Contents
How We
Addressed the
Matter in Our
Audit
Auditing the Company’s allocation of consideration expected to be received under its contractual
arrangements was complex and involved a high degree of subjective auditor judgment because of
the management judgment required to develop the estimates of standalone selling prices for the
highly variable pricing of software licenses. Auditing the Company's measurement of variable
consideration under the distributor contracts involved especially challenging judgment because
the calculation involves subjective management assumptions, including historical adjustments as
a percentage of revenues and the estimated period of time between the original sale and the
issuance of the adjustment, all used in the estimates of unprocessed changes and pricing
concessions. The estimates developed by the Company are also dependent on anticipated sales
demand, trends in product pricing, and historical and anticipated adjustment patterns.
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company's processes to determine the estimated standalone selling price of
each of the performance obligations, the allocation of total consideration to be received over the
contractual term to all performance obligations based on their relative standalone selling price
and to calculate the variable consideration, including the process to determine and evaluate the
underlying assumptions about estimates of expected unprocessed changes and pricing
concessions.
We performed audit procedures related to the estimated standalone selling prices and allocation
to the performance obligations over the term of the contractual arrangement, including the
following, among others. To test the calculation of the amount of consideration allocated to each
performance obligation, we evaluated the accuracy and completeness of the underlying data used
in the Company’s calculation of the ranges of each standalone selling price and recalculated the
established range for the standalone selling price used. We analyzed transaction level detail, such
as invoices and price lists, to test that, if necessary, the transaction price was reallocated to bring
the amount allocated to the performance obligation within the established range. We evaluated
the appropriateness of the methodology used to determine the standalone selling price by
comparing such prices to historical analysis and practices observed in the industry. In addition,
we performed detailed testing of the underlying transactions in the calculation by agreeing the
amounts recognized to source documents and performed an analysis to recalculate the allocation
of revenue between performance obligations as part of our overall testing of revenue
transactions. Our audit procedures related to the Company’s estimates of variable consideration
included, among others, evaluating the significant assumptions and the accuracy and
completeness of the underlying data used in the Company's calculation. This included testing the
Company's estimate of historical adjustments as a percentage of revenues and the average time
period between the original sale and the issuance of the adjustment memo. In addition, we
inspected the results of the Company's retrospective review of adjustments reserved compared to
actual adjustments issued, evaluated the estimates made based on historical experience and
performed sensitivity analyses to evaluate the changes in variable consideration that would result
from changes in the Company's significant assumptions.
Fair Value Estimate and Impairment Loss of the Grass Valley Reporting Unit
Description of
the Matter
As described in Note 5 to the consolidated financial statements, the Company announced the sale
of its Grass Valley business in the fourth quarter of 2019, which is expected to close in early
2020. The Company evaluated the carrying value of the Grass Valley reporting unit and its
related indefinite-lived intangible assets and concluded the carrying value of those assets
exceeded the associated fair value. As a result, the Company recorded an impairment loss of
$521.4 million.
39
Table of Contents
How We
Addressed the
Matter in Our
Audit
Auditing the Company’s fair value of the reporting unit, including consideration of the fair value
of the various forms of consideration expected to be received from the disposal, involved a high
degree of subjectivity, as the fair value estimates developed by the Company, with the assistance
of a third-party valuation specialist, were based on assumptions related to projected financial
information and the associated terms of the disposal. The fair value of the reporting unit was
sensitive to significant assumptions such as discount rates, revenue growth rates, projected
EBITDA margins, and terminal growth rates. These assumptions are sensitive to and affected by
expectations about future market or economic conditions and Grass Valley-specific qualitative
factors. The estimated fair value of the consideration expected to be received was calculated
based on a combination of cash expected to be received at closing, as well as an interest-bearing
note receivable from the buyer with a five-year maturity and additional consideration available to
the Company. The additional consideration is contingent on certain performance thresholds being
met and certain assumptions underlying this contingent consideration, such as revenue growth
rates, projected EBITDA margins, and terminal growth rates all used in projecting earnings, are
subjective and sensitive to change.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company’s process to determine the fair value of the Grass Valley reporting
unit. This included controls over the Company's review of the significant assumptions underlying
the fair value determination, including projected revenue and EBITDA assumptions, as well as
the estimated discount rates.
Our testing of the Company’s fair value determination and subsequent impairment charge
included, among other procedures, evaluation of the methods and significant assumptions used
by the Company’s third-party valuation specialist, and evaluation of the operating data used in
the estimated fair value. For example, we compared the significant assumptions discussed above
that were used to estimate future revenue and EBITDA of the business unit to current industry
and economic trends in the Broadcast sector, obtained support to evaluate such data based on
historical performance, performed a sensitivity analysis of the significant assumptions to evaluate
the change in the fair value estimate that would result from changes in the assumptions and
recalculated the Company's estimate. We recalculated the impairment loss recorded. We also
involved our valuation specialists to assist in our evaluation of the discount rates used in the fair
value estimate.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1993.
St. Louis, Missouri
February 11, 2020
40
Table of Contents
Belden Inc.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other current assets
Current assets of discontinued operations
Total current assets
Property, plant and equipment, less accumulated depreciation
Operating lease right-of-use assets
Goodwill
Intangible assets, less accumulated amortization
Deferred income taxes
Other long-lived assets
Long-term assets of discontinued operations
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current liabilities of discontinued operations
Total current liabilities
Long-term debt
Postretirement benefits
Deferred income taxes
Long-term operating lease liabilities
Other long-term liabilities
Long-term liabilities of discontinued operations
Stockholders’ equity:
Preferred stock, par value $0.01 per share— 2,000 shares authorized; 0 shares and 52
shares outstanding at 2019 and 2018, respectively
Common stock, par value $0.01 per share— 200,000 shares authorized; 50,335 shares
issued; 45,458 and 39,396 shares outstanding at 2019 and 2018, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost— 4,877 and 10,939 shares at 2019 and 2018, respectively
Total Belden stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
December 31,
2019
2018
(In thousands, except par value)
$
$
$
$
407,480 $
334,634
231,333
29,172
375,135
1,377,754
345,918
62,251
1,243,669
339,505
25,216
12,446
—
3,406,759 $
268,466 $
283,799
170,279
722,544
1,439,484
136,227
48,725
55,652
38,308
—
407,454
335,956
265,002
30,590
219,722
1,258,724
310,960
—
1,206,877
359,931
26,459
13,249
603,121
3,779,321
297,498
272,396
147,028
716,922
1,463,200
127,748
36,109
—
30,140
17,614
—
1
503
811,955
518,004
(63,418)
(307,197)
959,847
5,972
965,819
3,406,759 $
503
1,139,395
922,000
(74,907)
(599,845)
1,387,147
441
1,387,588
3,779,321
The accompanying notes are an integral part of these Consolidated Financial Statements.
41
Table of Contents
Belden Inc.
Consolidated Statements of Operations
$
Revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Amortization of intangibles
Gain from patent litigation
Operating income
Interest expense, net
Non-operating pension benefit (cost)
Loss on debt extinguishment
Income from continuing operations before taxes
Income tax benefit (expense)
Income from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Belden
Less: Preferred stock dividends
Net income (loss) attributable to Belden common stockholders
$
Weighted average number of common shares and equivalents:
Years Ended December 31,
2019
2017
2018
(In thousands, except per share amounts)
2,131,278 $
(1,337,773)
793,505
(417,329)
(94,360)
(74,609)
—
207,207
(55,814)
1,017
—
152,410
(42,519)
109,891
(486,667)
(376,776)
239
(377,015)
18,437
(395,452) $
2,165,702 $
(1,335,791)
829,911
(411,352)
(91,552)
(75,140)
62,141
314,008
(60,839)
(99)
(22,990)
230,080
(62,936)
167,144
(6,433)
160,711
(183)
160,894
34,931
125,963 $
2,087,185
(1,284,865)
802,320
(389,743)
(88,748)
(90,188)
—
233,641
(82,651)
(561)
(52,441)
97,988
4,619
102,607
(9,754)
92,853
(357)
93,210
34,931
58,279
Basic
Diluted
42,203
42,416
40,675
40,956
42,220
42,643
Basic income (loss) per share attributable to Belden common
stockholders:
Continuing operations attributable to Belden common stockholders
Discontinued operations attributable to Belden common stockholders
Net income (loss) attributable to Belden common stockholders
Diluted income (loss) per share attributable to Belden common
stockholders:
Continuing operations attributable to Belden common stockholders
Discontinued operations attributable to Belden common stockholders
Net income (loss) attributable to Belden common stockholders
$
$
$
$
2.16 $
(11.53)
(9.37) $
2.15 $
(11.53)
(9.37) $
3.25 $
(0.16)
3.10 $
3.23 $
(0.16)
3.08 $
1.61
(0.23)
1.38
1.60
(0.23)
1.37
The accompanying notes are an integral part of these Consolidated Financial Statements.
42
Table of Contents
Belden Inc.
Consolidated Statements of Comprehensive Income
2019
Years Ended December 31,
2018
(In thousands)
2017
$
(376,776) $
160,711 $
92,853
24,121
27,802
(65,046)
(12,168)
11,953
(364,823)
(4,690)
23,112
183,823
6,071
(58,975)
33,878
(373)
34,251
Net income (loss)
Foreign currency translation, net of tax of $1.0 million, $1.7 million, and
$1.3 million, respectively
Adjustments to pension and postretirement liability, net of tax of $1.1
million, $1.0 million, and $2.2 million, respectively
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to noncontrolling
interest
Comprehensive income (loss) attributable to Belden
703
(365,526) $
(190)
184,013 $
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
43
Table of Contents
Belden Inc.
Consolidated Cash Flow Statements
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Asset impairment of discontinued operations
Depreciation and amortization
Share-based compensation
Loss on debt extinguishment
Deferred income tax expense (benefit)
Changes in operating assets and liabilities, net of the effects of exchange
rate changes, acquired businesses, and disposals:
Receivables
Inventories
Accounts payable
Accrued liabilities
Income taxes
Other assets
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Cash used to acquire businesses, net of cash acquired
Proceeds from disposal of tangible assets
Proceeds from disposal of business
Net cash used for investing activities
Cash flows from financing activities:
Payments under borrowing arrangements
Payments under share repurchase program
Cash dividends paid
Debt issuance costs paid
Withholding tax payments for share based-payment awards
Redemption of stockholders' rights agreement
Other
Borrowings under credit arrangements
Net cash used for financing activities
Effect of foreign currency exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Years Ended December 31,
2019
2018
2017
(In thousands)
$
(376,776) $
160,711 $
92,853
521,441
139,259
17,751
—
(23,540)
22,926
44,477
(41,527)
(17,654)
5,497
(16,118)
1,157
276,893
(110,002)
(74,392)
25
—
(184,369)
—
(50,000)
(34,439)
—
(2,149)
—
(360)
—
(86,948)
(301)
5,275
420,610
$
425,885 $
—
148,632
18,497
22,990
11,300
(21,748)
(14,779)
(29,401)
17,238
(4,390)
(18,748)
(1,082)
289,220
(97,847)
(84,580)
1,580
40,171
(140,676)
(484,757)
(175,000)
(43,169)
(7,609)
(2,094)
(411)
—
431,270
(281,770)
(7,272)
(140,498)
561,108
420,610 $
—
149,650
14,647
52,441
(24,098)
(24,931)
(84,088)
100,752
(25,076)
5,001
(13,255)
11,404
255,300
(64,261)
(166,896)
1,039
—
(230,118)
(1,105,892)
(25,000)
(43,376)
(17,316)
(6,564)
—
—
866,700
(331,448)
19,258
(287,008)
848,116
561,108
For all periods presented, the Consolidated Cash Flow Statement includes the results of the Grass Valley disposal group.
The accompanying notes are an integral part of these Consolidated Financial Statements.
44
Table of Contents
Belden Inc.
Consolidated Stockholders’ Equity Statements
Belden Inc. Stockholders
Balance at December 31, 2016
Net income (loss)
Other comprehensive income, net of tax
Preferred stock issuance, net
Exercise of stock options, net of tax withholding forfeitures
Conversion of restricted stock units into common stock, net of tax
withholding forfeitures
Share-based compensation related items
Preferred stock dividends
Common stock dividends ($0.20 per share)
Balance at December 31, 2017
Cumulative effect of change in accounting principles
Net income (loss)
Other comprehensive loss, net of tax
Exercise of stock options, net of tax withholding forfeitures
Conversion of restricted stock units into common stock, net of tax
withholding forfeitures
Share repurchase program
Share-based compensation
Redemption of stockholders' rights agreement
Preferred stock dividends
Common stock dividends ($0.20 per share)
Balance at December 31, 2018
Net income (loss)
Other comprehensive income, net of tax
Acquisition of business with noncontrolling interests
Acquisition of noncontrolling interests
Exercise of stock options, net of tax withholding forfeitures
Conversion of restricted stock units into common stock, net of tax
withholding forfeitures
Share repurchase program
Share-based compensation
Preferred stock conversion
Preferred stock dividends
Common stock dividends ($0.20 per share)
Balance at December 31, 2019
Mandatory Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
52 $
1
50,335 $
503 $
1,116,090 $
783,812
(8,155) $
(401,026) $
(39,067) $
1,004 $
1,461,316
(In thousands)
—
—
—
—
—
—
—
—
52 $
—
—
—
—
—
—
—
—
—
—
52 $
—
—
—
—
—
—
—
—
(52)
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,635)
(4,270)
—
14,647
—
—
93,210
—
—
—
—
—
(34,931)
(8,481)
—
—
55
97
—
—
(203)
544
(313)
(25,000)
—
—
—
—
—
—
—
(58,959)
—
—
—
—
—
—
(357)
(16)
—
—
—
—
—
—
92,853
(58,975)
(2,838)
(3,726)
(25,000)
14,647
(34,931)
(8,481)
50,335 $
503 $
1,123,832 $
833,610
(8,316) $
(425,685) $
(98,026) $
631 $
1,434,866
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(883)
(2,051)
—
18,497
—
—
—
(29,041)
160,894
—
—
—
—
—
(411)
(34,931)
(8,121)
—
—
—
20
51
—
—
—
118
722
(2,694)
(175,000)
—
—
—
—
—
—
—
—
—
—
23,119
—
—
—
—
—
—
—
—
(183)
(7)
—
—
—
—
—
—
—
(29,041)
160,711
23,112
(765)
(1,329)
(175,000)
18,497
(411)
(34,931)
(8,121)
50,335 $
503 $
1,139,395 $
922,000
(10,939) $
(599,845) $
(74,907) $
441 $
1,387,588
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(398)
(291)
(3,714)
—
17,751
(340,788)
—
—
(377,015)
—
—
—
—
—
—
—
—
(18,437)
(8,544)
—
—
—
—
4
91
(890)
—
6,857
—
—
—
—
—
—
180
1,679
(50,000)
—
340,789
—
—
—
11,489
—
—
—
—
—
—
—
—
—
239
464
5,195
(367)
—
—
—
—
—
—
—
(376,776)
11,953
5,195
(765)
(111)
(2,035)
(50,000)
17,751
—
(18,437)
(8,544)
50,335 $
503 $
811,955 $
518,004
(4,877) $
(307,197) $
(63,418) $
5,972 $
965,819
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
(1)
—
—
—
The accompanying notes are an integral part of these Consolidated Financial Statements.
45
Table of Contents
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
Business Description
Belden Inc. (the Company, us, we, or our) is a global supplier of specialty networking solutions built around two global business
platforms – Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit
and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments.
Consolidation
The accompanying Consolidated Financial Statements include Belden Inc. and all of its subsidiaries, including variable interest
entities for which we are the primary beneficiary. We eliminate all significant affiliate accounts and transactions in consolidation.
Foreign Currency
For international operations with functional currencies other than the United States (U.S.) dollar, we translate assets and liabilities at
current exchange rates; we 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 income.
We determine the functional currency of our foreign subsidiaries based upon the currency of the primary economic environment in
which each subsidiary operates. Typically, that is determined by the currency in which the subsidiary primarily generates and
expends cash. We have concluded that the local currency is the functional currency for all of our material subsidiaries.
Reporting Periods
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. Our fiscal second and third quarters each have 91 days.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, and operating results and the disclosure of
contingencies. Actual results could differ from those estimates. We make significant estimates with respect to the collectability and
valuation of receivables, the valuation of inventory, the realization of deferred tax assets, the valuation of goodwill and indefinite-
lived intangible assets, the valuation of contingent liabilities, the calculation of share-based compensation, the calculation of pension
and other postretirement benefits expense, and the valuation of acquired businesses.
Reclassifications
We have made certain reclassifications to the 2018 and 2017 Condensed Consolidated Financial Statements, primarily in relation to
the Grass Valley disposal group being included in discontinued operations. See Note 5.
Note 2: Summary of Significant Accounting Policies
Fair Value Measurement
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;
• 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.
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Table of Contents
During 2019, 2018, and 2017 we utilized Level 1 inputs to determine the fair value of cash equivalents, and Level 3 inputs to
determine the fair value of net assets acquired in business combinations (see Note 4), for our annual impairment testing (see Note
12), and our impairment testing over our disposal group (see Note 5). We did not have any transfers between Level 1 and Level 2
fair value measurements during 2019.
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. As of December 31, 2019 and 2018, we did not
have any such cash equivalents on hand. 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.
Accounts Receivable and Revenue Reserves
We classify amounts owed to us and due within twelve months, arising from the sale of goods or services and from other business
activities, as current receivables. We classify receivables due after twelve months as other long-lived assets.
At the time of sale, we establish an estimated reserve for trade, promotion, and other special price reductions such as contract
pricing, discounts to meet competitor pricing, and on-time payment discounts. We also adjust receivable balances for, among other
things, correction of billing errors, incorrect shipments, and settlement of customer disputes. Customers are allowed to return
inventory if and when certain conditions regarding the physical state of the inventory and our approval of the return are met. Certain
distribution customers are allowed to return inventory at original cost, in an amount not to exceed three percent of the prior year’s
purchases, in exchange for an order of equal or greater value. Until we can process these reductions, corrections, and returns
(together, the Changes) through individual customer records, we estimate the amount of outstanding Changes and recognize them by
reducing revenues. We base these estimates on historical and anticipated sales demand, trends in product pricing, and historical and
anticipated Changes patterns. We make revisions to these estimates in the period in which the facts that give rise to each revision
become known. Future market conditions might require us to take actions to further reduce prices and increase customer return
authorizations. Unprocessed Changes recognized against our gross accounts receivable balance at December 31, 2019 and 2018
totaled $29.5 million and $25.5 million, respectively. Unprocessed Changes recognized as accrued liabilities at December 31, 2019
and 2018 totaled $11.0 million and $9.1 million, respectively.
As of and for each of the three year periods ended December 31, 2019, we evaluated the collectability of accounts receivable based
on the specific identification method. A considerable amount of judgment is required in assessing the realizability of accounts
receivable, including the current creditworthiness of each customer and related aging of past due balances. We perform ongoing
credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a
customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings, or bankruptcy.
We record a specific reserve for bad debts against amounts due to reduce the receivable to its estimated collectible balance. We
recognized bad debt expense, net of recoveries, of $0.1 million, $0.2 million, and $0.4 million in 2019, 2018, and 2017, respectively.
The allowance for doubtful accounts at December 31, 2019 and 2018 totaled $2.6 million and $3.1 million, respectively.
Inventories and Related Reserves
Inventories are stated at the lower of cost or net realizable value. We determine the cost of all raw materials, work-in-process, and
finished goods inventories by the first in, first out method. Cost components of inventories 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.
We evaluate the realizability of our inventory on a product-by-product basis in light of historical and anticipated sales demand,
technological changes, product life cycle, component cost trends, product pricing, and inventory condition. In circumstances where
inventory levels are in excess of anticipated market demand, where inventory is deemed technologically obsolete or not saleable due
to condition, or where inventory cost exceeds net realizable value, we record a charge to cost of sales and reduce the inventory to its
net realizable value. The allowances for excess and obsolete inventories at December 31, 2019 and 2018 totaled $21.2 million and
$17.4 million, respectively.
Property, Plant and Equipment
We record property, plant and equipment at cost. We calculate depreciation on a straight-line basis over the estimated useful lives of
the related assets ranging from 10 to 40 years for buildings, 5 to 12 years for machinery and equipment, and 5 to 10 years for
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computer equipment and software. Construction in process reflects amounts incurred for the configuration and build-out of property,
plant and equipment and for property, plant and equipment not yet placed into service. We charge maintenance and repairs—both
planned major activities and less-costly, ongoing activities—to expense as incurred. We capitalize interest costs associated with the
construction of capital assets and amortize the costs over the assets’ useful lives. Depreciation expense is included in costs of sales;
selling, general and administrative expenses; and research and development expenses in the Consolidated Statements of Operations
based on the specific categorization and use of the underlying assets being depreciated.
We review property, plant and equipment to determine whether an event or change in circumstances indicates the carrying values of
the assets may not be recoverable. We base our evaluation on the nature of the assets, the future economic benefit of the assets, and
any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such
impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we
determine whether impairment has occurred through the use of an undiscounted cash flow analysis. If impairment has occurred, we
recognize a loss for the difference between the carrying amount and the fair value of the asset.
For purposes of impairment testing of long-lived assets, we have identified asset groups at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities. Generally, our asset groups are based on an
individual plant or operating facility level. In some circumstances, however, a combination of plants or operating facilities may be
considered the asset group due to interdependence of operational activities and cash flows.
Goodwill and Intangible Assets
Our intangible assets consist of (a) definite-lived assets subject to amortization such as developed technology, customer
relationships, certain in-service research and development, certain trademarks, backlog, and capitalized software intangible assets,
and (b) indefinite-lived assets not subject to amortization such as goodwill, certain trademarks, and certain in-process research and
development intangible assets. We record amortization of the definite-lived intangible assets over the estimated useful lives of the
related assets, which generally range from one year or less for backlog to more than 25 years for certain of our customer
relationships. We determine the amortization method for our definite-lived intangible assets based on the pattern in which the
economic benefits of the intangible asset are consumed. In the event we cannot reliably determine that pattern, we utilize a straight-
line amortization method.
We test our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment on an annual basis as of
our fiscal November month-end or when indicators of impairment exist. We base our estimates on assumptions we believe to be
reasonable, but which are not predictable with precision and therefore are inherently uncertain. Actual future results could differ
from these estimates.
The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of
whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such an evaluation is made
based on the weight of all available evidence and the significance of all identified events and circumstances that may influence the
fair value of a reporting unit. If it is more likely than not that the fair value is less than the carrying value, then a quantitative
assessment is required for the reporting unit, as described in the paragraph below. In 2019, we did not perform a qualitative
assessment over any of our reporting units.
For our annual impairment test in 2019, we performed a quantitative assessment for all ten of our reporting units included in
continuing operations. Under a quantitative assessment for goodwill impairment, we determine the fair value using the income
approach (using Level 3 inputs) as reconciled to our aggregate market capitalization. Under the income approach, we calculate the
fair value of a reporting unit based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds
the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the
reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based
on that difference. In addition to the income approach, we calculate the fair value of our reporting units under a market approach.
The market approach measures the fair value of a reporting unit through analysis of financial multiples of comparable businesses.
Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those
publicly-traded companies operating in the same or similar lines of business. The fair values of all ten reporting units tested under a
quantitative approach were in excess of the carrying values as of the impairment testing date, and as a result, the goodwill balances
for our continuing operations reporting units were not impaired in 2019. Furthermore, goodwill was not impaired in 2018 or 2017.
See Note 12 for further discussion.
We also evaluate indefinite lived intangible assets for impairment annually or at other times if events have occurred or
circumstances exist that indicate the carrying values of those assets may no longer be recoverable. We compare the fair value of the
asset with its carrying amount. If the carrying amount of the asset exceeds its fair value, we recognize an impairment loss in an
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amount equal to that excess. We did not recognize impairment charges for our indefinite lived intangible assets in 2019, 2018, or
2017. See Note 12 for further discussion.
We review intangible assets subject to amortization whenever an event or change in circumstances indicates the carrying values of
the assets may not be recoverable. We test intangible assets subject to amortization for impairment and estimate their fair values
using the same assumptions and techniques we employ on property, plant and equipment. We did not recognize any impairment
charges for amortizable intangible assets in 2019, 2018, or 2017.
Due to its overall financial performance during the year and discontinued operations classification, we performed interim
impairment tests on the Grass Valley reporting unit, which resulted in a total asset impairment of $521.4 million for the year ended
December 31, 2019. We determined the estimated fair values of the assets and of the reporting unit by calculating the present values
of their estimated future cash flows, which was based in part on the assumed proceeds from a divestiture of Grass Valley. See Note
12 for further discussion.
Disposals
During 2018, we sold a previously closed operating facility for net proceeds of $1.5 million and recognized a $0.6 million gain on
the sale.
During 2017, we sold our MCS business and a 50% ownership interest in Xuzhou Hirschmann Electronics Co. Ltd (the Hirschmann
JV) for a total purchase price of $40.2 million and recognized a loss on sale of the assets of $1.0 million, which was included in
selling, general and administrative expenses. This loss included $2.8 million of accumulated other comprehensive losses that were
recognized as a result of the sale. The $40.2 million of proceeds from the sale was collected during 2018. The MCS business was
part of the Industrial Solutions segment and operated in Germany and the United States. The Hirschmann JV was an equity method
investment located in China that was not included in an operating segment.
Pension and Other Postretirement Benefits
Our pension and other postretirement benefit costs and obligations are dependent on the various actuarial assumptions used in
calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets, health care cost
trend rates, mortality tables, and other factors. We base the discount rate assumptions on current investment yields on high-quality
corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook.
We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future
economic environment. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook,
and an assessment of likely long-term trends. Actual results that differ from our assumptions are accumulated and, if in excess of the
lesser of 10% of the projected benefit obligation or the fair market value of plan assets, are amortized over the estimated future
working life of the plan participants.
Accrued Sales Rebates
We grant incentive rebates to participating customers as part of our sales programs. The rebates are determined based on certain
targeted sales volumes. Rebates are paid quarterly or annually in either cash or receivables credits. Until we can process these
rebates through individual customer records, we estimate the amount of outstanding rebates and recognize them as accrued liabilities
and reductions in our gross revenues. We base our estimates on both historical and anticipated sales demand and rebate program
participation. We charge revisions to these estimates back to accrued liabilities and revenues in the period in which the facts that
give rise to each revision become known. Future market conditions and product transitions might require us to take actions to
increase sales rebates offered, possibly resulting in an incremental increase in accrued liabilities and an incremental reduction in
revenues at the time the rebate is offered. Accrued sales rebates at December 31, 2019 and 2018 totaled $37.2 million and $41.3
million, respectively.
Contingent Liabilities
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. A significant amount of judgment and use of estimates is required to quantify our
ultimate exposure in these matters. We review the valuation of these liabilities on a quarterly basis, and we adjust the balances to
account for changes in circumstances for ongoing and emerging issues.
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We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in
consultation with our environmental consultants and legal counsel, the amounts of which are not currently material. We expense
environmental compliance costs, which include maintenance and operating costs with respect to ongoing monitoring programs, as
incurred. We evaluate the range of potential costs to remediate environmental sites. The ultimate cost of site clean-up is difficult to
predict given the uncertainties of our involvement in certain sites, uncertainties regarding the extent of the required clean-up, the
availability of alternative clean-up methods, variations in the interpretation of applicable laws and regulations, the possibility of
insurance recoveries with respect to certain sites, and other factors.
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. Assessments regarding the ultimate cost of lawsuits require
judgments concerning matters such as the anticipated outcome of negotiations, the number and cost of pending and future claims,
and the impact of evidentiary requirements. 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.
Business Combination Accounting
We allocate the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values. The
excess of the consideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. We use all available
information to estimate fair values. We typically engage third party valuation specialists to assist in the fair value determination of
inventories, tangible long-lived assets, and intangible assets other than goodwill. The carrying values of acquired receivables and
accounts payable have historically approximated their fair values as of the business combination date. As necessary, we may engage
third party specialists to assist in the estimation of fair value for certain liabilities, such as deferred revenue or postretirement benefit
liabilities. We adjust the preliminary acquisition accounting, as necessary, typically up to one year after the acquisition closing date
as we obtain more information regarding asset valuations and liabilities assumed.
Revenue Recognition
We recognize revenue consistent with the principles as outlined in the following five step model: (1) identify the contract with the
customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract, and (5) recognize revenue when (or as) each performance obligation is satisfied.
See Note 3.
Gain from Patent Litigation
On July 5, 2011, the Company’s wholly-owned subsidiary, PPC, filed an action for patent infringement against Corning alleging that
Corning infringed two of PPC’s patents. In July 2015, a jury found that Corning willfully infringed both patents. Following a series
of appeals, we received a pre-tax amount of approximately $62.1 million from Corning on July 19, 2018. We recorded the $62.1
million of cash received as a pre-tax gain from patent litigation during 2018. Prior to 2018, we had not recognized any amounts in
our consolidated financial statements related to this matter. On September 27, 2018, Corning filed a petition for certiorari review by
the U.S. Supreme Court. On December 10, 2018, Corning’s certiorari review by the Supreme Court was denied, thus exhausting
their opportunities for further appellate relief.
Cost of Sales
Cost of sales includes our total cost of inventory sold during the period, including material, labor, production overhead costs,
variable manufacturing costs, and fixed manufacturing costs. Production overhead costs include operating supplies, applicable utility
expenses, maintenance costs, and scrap. Variable manufacturing costs include inbound, interplant, and outbound freight, inventory
shrinkage, and charges for excess and obsolete inventory. Fixed manufacturing costs include the costs associated with our
purchasing, receiving, inspection, warehousing, distribution centers, production and inventory control, and manufacturing
management. Cost of sales also includes the costs to provide maintenance and support and other professional services.
Shipping and Handling Costs
We recognize fees earned on the shipment of product to customers as revenues and recognize costs incurred on the shipment of
product to customers as a cost of sales.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses not directly related to the production of inventory. They include all
expenses related to selling and marketing our products, as well as the salary and benefit costs of associates performing the selling
and marketing functions. Selling, general and administrative expenses also include salary and benefit costs, purchased services, and
other costs related to our executive and administrative functions.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $14.7 million, $17.0 million, and $18.0 million for 2019, 2018,
and 2017, respectively.
Share-Based Compensation
We compensate certain employees and non-employee directors with various forms of share-based payment awards and recognize
compensation costs for these awards based on their fair values. We estimate the fair values of certain awards, primarily stock
appreciation rights (SARs), on the grant date using the Black-Scholes-Merton option-pricing formula, which incorporates certain
assumptions regarding the expected term of an award and expected stock price volatility. We develop the expected term assumption
based on the vesting period and contractual term of an award, our historical exercise and cancellation experience, our stock price
history, 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 historical price data for our common stock. We estimate the fair value of certain restricted stock units
with service vesting conditions and performance vesting conditions based on the grant date stock price. We estimate the fair value of
certain restricted stock units with market conditions using a Monte Carlo simulation valuation model with the assistance of a third
party valuation firm.
After calculating the aggregate fair value of an award, we use an estimated forfeiture rate to discount the amount of share-based
compensation cost expected to be recognized in our operating results over the service period of the award. We develop the forfeiture
assumption based on our historical pre-vesting cancellation experience.
Income Taxes
Income taxes are provided based on earnings reported for financial statement purposes. The provision for income taxes differs from
the amounts currently payable to taxing authorities because of the recognition of revenues and expenses in different periods for
income tax purposes than for financial statement purposes. Income taxes are provided as if operations in all countries, including the
U.S., were stand-alone businesses filing separate tax returns.
We recognize deferred tax assets resulting from tax credit carryforwards, net operating loss carryforwards, and deductible temporary
differences between taxable income on our income tax returns and pretax income on our financial statements. Deferred tax assets
generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when
expenses previously reported in our Consolidated Financial Statements become deductible for income tax purposes. A deferred tax
asset valuation allowance is required when some portion or all of the deferred tax assets may not be realized. At December 31, 2019
the valuation allowance of $50.4 million was primarily related to net operating losses and foreign tax credits that we do not expect to
realize.
Our effective tax rate is based on expected income, statutory tax rates, and tax planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and in evaluating our tax
positions. We establish accruals for uncertain tax positions when we believe that the full amount of the associated tax benefit may
not be realized. To the extent we were to prevail in matters for which accruals have been established or would be required to pay
amounts in excess of reserves, there could be a material effect on our income tax provisions in the period in which such
determination is made.
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S.
Internal Revenue Code. During 2019, the United States Treasury issued final and proposed regulations with respect to certain
aspects related to the Act. Additional guidance provided in these regulation resulted in a tax adjustment in the fourth quarter of 2019.
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The total tax provision expense in 2019 included a $10.0 million tax expense associated with the increase to the valuation allowance
against foreign tax credit carryovers that were no longer expect to be able to realize based upon the new proposed tax regulations.
See Note 17, Income Taxes, in the accompanying notes to our consolidated financial statements.
Current-Year Adoption of Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases ("ASU 2016-02"), a leasing standard for
both lessees and lessors that supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840,
"Leases." Under its core principle, a lessee will recognize a right-of-use (ROU) asset and lease liability on the balance sheet for
nearly all leased assets, and additional disclosures are required to enable users of financial statements to assess the amount, timing,
and uncertainty of cash flows arising from leases. We adopted ASU 2016-02 on January 1, 2019 using the permitted transition
method issued in July 2018, under ASU No. 2018-11 (“ASU 2018-11”), Leases: Targeted Improvements, which provides an
additional (and optional) transition method for adopting the new lease standard. Furthermore, we elected the following practical
expedients and accounting policy elections upon adoption: (i) the package of practical expedients as defined in ASU 2016-02, (ii)
the short-term lease accounting policy election, (iii) the practical expedient to not separate non-lease components from lease
components, and (iv) the easement practical expedient, which permits an entity to continue applying its current policy for
accounting for land easements that existed as of the effective date of ASU 2016-02. Excluding the impact of our Grass Valley
disposal group, the adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of
approximately $70.7 million and lease liabilities for operating leases of approximately $77.3 million on the Consolidated Balance
Sheet, with no material impact to the Consolidated Statements of Operations or Consolidated Cash Flow Statements. The difference
between the initial lease liabilities and the ROU assets is related primarily to previously existing lease liabilities. See Note 11 for
further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.
In August 2017, the FASB issued Accounting Standards Update No. ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The new guidance better aligns an entity’s risk management
activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for
qualifying hedging relationships and the presentation of hedge results. The new guidance also makes certain targeted improvements
to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements
and assessing hedge effectiveness. The standard is effective for fiscal years beginning after December 15, 2018. We adopted ASU
2017-12 effective January 1, 2019. The adoption had no impact on our results of operations.
In February 2018, the FASB issued ASU No. 2018-02 (“ASU 2018-02”), Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. ASU 2018-02 provides an option to allow reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The new guidance is effective
for annual and interim periods beginning after December 15, 2018. We adopted ASU 2018-02 effective January 1, 2019, and elected
to not reclassify the income tax effects of the Act from accumulated other comprehensive income to retained earnings. The adoption
had no impact on our results of operations.
In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Improvements to Nonemployee Share-Based Payment
Accounting. The amendments in ASU 2018-07 expand the scope of Topic 718, Compensation - Stock Compensation, to include
share-based payment transactions for acquiring goods and services from non-employees, and provide that non-employee share-based
payment awards be measured at their grant-date fair value and the probability of satisfying performance conditions be taken into
account when non-employee share-based payment awards contain such conditions. The standard is effective for fiscal years
beginning after December 15, 2018. We adopted ASU 2018-07 effective January 1, 2019. The adoption had no impact on our results
of operations.
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-
10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative,
overlapping, outdated or superseded. Additionally, the amendments expanded the disclosure requirements on the analysis of
stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders'
equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation
of the beginning balance to the ending balance of each period presented. This final rule was effective on November 5, 2018. We
implemented SEC Release No. 33-10532 effective January 1, 2019, which had no impact on our results of operations.
Pending Adoption of Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments - Credit Losses.
The main provisions of ASU 2016-13 provide financial statement users with more decision-useful information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date, and
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require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected
to be collected. The new standard will be effective for us beginning January 1, 2020. We expect the adoption will result in an
increase to our allowance for doubtful accounts for continuing operations of approximately $1.0 million, and an increase for
discontinued operations of approximately $2.0 million.
Note 3: Revenues
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and
continue to be reported in accordance with the accounting standards in effect for those periods. We recorded a net increase to
retained earnings of $2.6 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact
primarily related to sales commissions and software revenues within our Industrial Solutions segment.
Revenues are recognized when control of the promised goods or services is transferred to our customers and in an amount that
reflects the consideration we expect to be entitled to in exchange for those goods or services. Taxes collected from customers and
remitted to governmental authorities are not included in our revenues. We do not evaluate a contract for a significant financing
component when the time between cash collection and performance is less than one year.
The following tables present our revenues disaggregated by major product category (in thousands).
Year Ended December 31, 2019
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2018
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2017
Enterprise Solutions
Industrial Solutions
Total
Cable &
Connectivity
Networking,
Software & Security
Total Revenues
$
$
$
$
$
$
1,031,687 $
630,462
1,662,149 $
1,046,744 $
662,742
1,709,486 $
1,024,090 $
628,889
1,652,979 $
49,545 $
419,584
469,129 $
49,156 $
407,060
456,216 $
30,757 $
403,449
434,206 $
1,081,232
1,050,046
2,131,278
1,095,900
1,069,802
2,165,702
1,054,847
1,032,338
2,087,185
The following tables present our revenues disaggregated by geography, based on the location of the customer purchasing the
product (in thousands).
Americas
EMEA
APAC
Total Revenues
Year Ended December 31, 2019
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2018
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2017
Enterprise Solutions
Industrial Solutions
Total
135,734 $
274,028
409,762 $
135,241 $
290,538
425,779 $
134,270 $
280,785
415,055 $
115,301 $
168,644
283,945 $
121,785 $
159,474
281,259 $
118,303 $
145,116
263,419 $
1,081,232
1,050,046
2,131,278
1,095,900
1,069,802
2,165,702
1,054,847
1,032,338
2,087,185
$
$
$
$
$
$
830,197 $
607,374
1,437,571 $
838,874 $
619,790
1,458,664 $
802,274 $
606,437
1,408,711 $
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The following tables present our revenues disaggregated by products, including software products, and support and services (in
thousands).
Year Ended December 31, 2019
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2018
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2017
Enterprise Solutions
Industrial Solutions
Total
Products
Support & Services
Total Revenues
$
$
$
$
$
$
1,081,232 $
963,007
2,044,239 $
1,095,883 $
974,029
2,069,912 $
1,054,847 $
929,263
1,984,110 $
— $
87,039
87,039 $
17 $
95,773
95,790 $
— $
103,075
103,075 $
1,081,232
1,050,046
2,131,278
1,095,900
1,069,802
2,165,702
1,054,847
1,032,338
2,087,185
We generate revenues primarily by selling products that provide secure and reliable transmission of data, sound, and video for
mission critical applications. We also generate revenues from providing support and professional services. We sell our products to
distributors, end-users, installers, and directly to original equipment manufacturers. At times, we enter into arrangements that
involve the delivery of multiple performance obligations. For these arrangements, revenue is allocated to each performance
obligation based on its relative standalone selling price and recognized when or as each performance obligation is satisfied. Most of
our performance obligations related to the sale of products are satisfied at a point in time when control of the product is transferred
based on the shipping terms of the arrangement. Generally, we determine standalone selling price using the prices charged to
customers on a standalone basis.
The amount of consideration we receive and revenue we recognize varies due to rebates, returns, and price adjustments. We estimate
the expected rebates, returns, and price adjustments based on an analysis of historical experience, anticipated sales demand, and
trends in product pricing. We adjust our estimate of revenue at the earlier of when the most likely amount of consideration we expect
to receive changes or when the consideration becomes fixed. Adjustments to revenue for performance obligations satisfied in prior
periods was not significant during the year ended December 31, 2019.
The following table presents estimated and accrued variable consideration:
Accrued rebates
Accrued returns
Price adjustment recognized against gross accounts receivable
$
December 31, 2019
December 31, 2018
(in thousands)
37,170 $
10,974
28,672
41,312
9,137
24,976
Depending on the terms of an arrangement, we may defer the recognition of a portion of the consideration received because we have
to satisfy a future obligation. Consideration allocated to support services under a support and maintenance contract is typically paid
in advance and recognized ratably over the term of the service. Consideration allocated to professional services is recognized when
or as the services are performed depending on the terms of the arrangement. As of December 31, 2019, total deferred revenue was
$70.1 million, and of this amount, $54.3 million is expected to be recognized within the next twelve months, and the remaining
$15.8 million is long-term and will be recognized over a period greater than twelve months.
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Table of Contents
The following table presents deferred revenue activity (in thousands):
Balance at December 31, 2017
New deferrals
Revenue recognized
Balance at December 31, 2018
New deferrals
Revenue recognized
Balance at December 31, 2019
$
$
73,478
104,900
(106,020)
72,358
111,812
(114,100)
70,070
We expense sales commissions as incurred when the duration of the related revenue arrangement is one year or less. We capitalize
sales commissions in other current and long-lived assets on our balance sheet when the duration of the related revenue arrangement
is longer than one year, and we amortize it over the related revenue arrangement period. Total capitalized sales commissions was
$3.4 million as of December 31, 2019 and $2.9 million as of December 31, 2018. For the years ended December 31, 2019 and 2018,
we recognized $4.9 million and $4.7 million of sales commissions expense in selling, general, and administrative expenses,
respectively.
Note 4: Acquisitions
Special Product Company
On December 6, 2019, we purchased and assumed substantially all the assets, and certain specified liabilities of Special Product
Company (SPC) for a preliminary purchase price of $23.1 million. SPC, based in Kansas City, Kansas, is a leading designer,
manufacturer, and seller of outdoor cabinet products for optical fiber cable installations. The assets purchased and liabilities assumed
from SPC have been included in our Consolidated Financial Statements as of December 6, 2019, and are reported within the
Enterprise Solutions segment.
Opterna
We acquired 100% of the shares of Opterna International Corp. (Opterna) on April 15, 2019 for a preliminary purchase price, net of
cash acquired, of $51.7 million. Of the $51.7 million purchase price, $45.9 million was paid in 2019 with cash on hand. The
acquisition included a potential earnout, which is based upon future Opterna financial targets through April 15, 2021. The maximum
earnout consideration is $25.0 million, but based upon a third party valuation specialist using certain assumption in a discounted
cash flow model, the estimated fair value of the earnout included in the purchase price is $5.8 million. Opterna is an international
fiber optics solution business based in Sterling, Virginia which designs and manufactures a range of complementary fiber
connectivity, cabinet, and enclosure products used in optical networks. The results of Opterna have been included in our
Consolidated Financial Statements from April 15, 2019, and are reported within the Enterprise Solutions segment. Certain
subsidiaries of Opterna include noncontrolling interests. Because Opterna has a controlling financial interest in these subsidiaries,
they are consolidated into our financial statements. The results that are attributable to the noncontrolling interest holders are
presented as net income attributable to noncontrolling interests in the Consolidated Statements of Operations. An immaterial
amount of Opterna's annual revenues are generated from transactions with the noncontrolling interests. On October 25, 2019, we
purchased the noncontrolling interest of one subsidiary for a purchase price of $0.8 million; of which $0.4 million was paid at
closing and the remaining $0.4 million is to be paid in 2021. The following table summarizes the estimated, preliminary fair values
of the assets acquired and the liabilities assumed as of April 15, 2019 (in thousands):
55
Receivables
Inventory
Prepaid and other current assets
Property, plant, and equipment
Intangible assets
Goodwill
Deferred income taxes
Operating lease right-of-use assets
Other long-lived assets
Total assets acquired
Accounts payable
Accrued liabilities
Long-term deferred tax liability
Long-term operating lease liability
Other long-term liabilities
Total liabilities assumed
Net assets
Noncontrolling interest
Net assets attributable to Belden
$
$
$
$
$
$
5,308
7,470
566
1,328
28,000
35,007
69
2,204
2,070
82,022
4,847
4,346
6,817
1,923
7,153
25,086
56,936
5,195
51,741
The above purchase price allocation is preliminary, and is subject to revision as additional information about the fair value of lease
assets and liabilities as well as deferred taxes becomes available. A change in the estimated fair value of the net assets acquired will
change the amount of the purchase price allocable to goodwill.
During the fourth quarter 2019, we recorded measurement-period adjustments that decreased goodwill by approximately $0.6
million primarily for changes in the fair value of certain deferred tax liabilities. The impact of these adjustments to the consolidated
statement of operations was immaterial.
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 preliminary fair value 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 $5.3 million, which is equivalent to its gross contractual amount.
For the purpose of the above allocation, we based our estimate of fair value for the acquired inventory, intangible assets, and
noncontrolling interests on valuation studies 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 post acquisition
selling efforts. We used various valuation methods including discounted cash flows, lost income, excess earnings, and relief from
royalty to estimate the fair value of the identifiable intangible assets (Level 3 valuation).
Goodwill and other intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets
acquired and liabilities assumed. The goodwill is primarily attributable to expansion of product offerings in the optical fiber market.
Our tax basis in the acquired goodwill is zero. The intangible assets related to the acquisition consisted of the following:
56
Intangible assets subject to amortization
Developed technologies
Customer relationships
Sales backlog
Trademarks
Total intangible assets subject to amortization
Intangible assets not subject to amortization:
Goodwill
Total intangible assets not subject to amortization
Total intangible assets
Weighted average amortization period
$
$
$
$
$
Fair Value
(In thousands)
Amortization Period
(In years)
3,400
22,800
1,300
500
28,000
35,007
35,007
63,007
5
15
0.5
2.0
12.9
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. 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 and pattern of consumption of the intangible asset. The useful life for the customer relationship
intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life of the backlog intangible
asset was based on our estimate of when the ordered items would ship and control of the items transfers. The useful life for the
trademarks was based on the period of time we expect to continue to go to market using the trademarks.
Our consolidated revenues and income from continuing operations before taxes for the year ended December 31, 2019 included
$26.6 million and $2.0 million from Opterna, respectively. For the year ended December 31, 2019, Opterna's income before taxes
included $3.0 million of amortization of intangible assets, $5.6 million of acquisition integration costs, and $0.6 million of cost of
sales related to the adjustment of acquired inventory to fair value. Our consolidated income from continuing operations before taxes
for the year ended December 31, 2019 included $0.1 million of net income attributable to noncontrolling interest of Opterna.
The following table illustrates the unaudited pro forma effect on operating results as if the Opterna acquisition had been completed
January 1, 2018.
Revenues
Net income (loss) attributable to Belden common stockholders
Diluted income (loss) per share attributable to Belden common
stockholders
$
$
Years Ended December 31,
2018
2019
(In thousands, except per share data)
(Unaudited)
2,139,894 $
(389,957 )
2,213,781
123,546
(9.24) $
3.02
For purposes of the pro forma disclosures, the year ended December 31, 2018 includes expenses related to the acquisition, including
severance, restructuring, and acquisition costs; amortization of intangible assets; and cost of sales arising from the adjustment of
inventory to fair value of $5.5 million, $3.8 million, and $0.5 million, respectively.
The above unaudited pro forma information is presented for information purposes only and does not purport to represent what our
results of operations would have been had we completed the acquisition 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.
57
FutureLink
We acquired the FutureLink product line and related assets from Suttle, Inc. on April 5, 2019 for a purchase price of $5.0 million,
which was funded with cash on hand. The acquisition of FutureLink allows us to offer a more complete set of fiber product
offerings. The results from the acquisition of FutureLink have been included in our Condensed Consolidated Financial Statements
from April 5, 2019, and are reported within the Enterprise Solutions segment. The acquisition of FutureLink was not material to our
financial position or results of operations.
Note 5: Discontinued Operations
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.
During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the
assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley represents a strategic
shift that is expected to have a major impact on our operations and financial results. As a result, the Grass Valley disposal group,
which was included in our Enterprise Solutions segment, is now reported within discontinued operations. The Grass Valley disposal
group excludes certain Grass Valley pension liabilities that we expect to retain - see Note 28. We also ceased depreciating and
amortizing the assets of the disposal group once they met the held for sale criteria in the fourth quarter of 2019. We intend to
complete the sale of the Grass Valley disposal group during 2020.
We wrote down the carrying value of Grass Valley and recognized asset impairments totaling $521.4 million in 2019. The
impairment charge consisted of impairments to goodwill, customer relationships, and trademarks of $326.1 million, $14.4 million,
and $1.6 million, respectively, as well as an impairment of the disposal group of $179.3 million ($180.4 million translated at year-
end exchange rates). We determined the estimated fair values of the assets and of the reporting unit by calculating the present values
of their estimated future cash flows.
The following table summarizes the operating results of the disposal group for the years ended December 31, 2019, 2018, and 2017:
Revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Amortization of intangibles
Asset impairment of discontinued operations
Interest expense, net
Non-operating pension cost
Income (loss) before taxes
Years Ended December 31,
2019
2018
2017
(In thousands)
$
$
360,496 $
(208,173)
152,323
(93,796)
(37,172)
(12,782)
(521,441)
(819)
(221)
(513,908) $
419,666 $
(241,164)
178,502
(114,567)
(49,033)
(23,689)
—
(720)
(243)
(9,750) $
301,458
(169,025)
132,433
(71,280)
(45,582)
(13,808)
—
(250)
(153)
1,360
The disposal group recognized depreciation and amortization expense of approximately $23.7 million, $35.1 million, and $20.8
million during the years ended December 31, 2019, 2018, and 2017, respectively. The disposal group also had capital expenditures
of approximately $29.4 million, $22.6 million, and $14.9 million during the years ended December 31, 2019, 2018, and 2017,
respectively. Furthermore, the disposal group incurred stock-based compensation expense of $0.9 million, $1.4 million, and $1.5
million during the years ended December 31, 2019, 2018, and 2017, respectively. The disposal group did not have any significant
non-cash charges for investing activities during the years ended December 31, 2019, 2018, and 2017.
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The following table provides the major classes of assets and liabilities of the disposal group as of December 31, 2019 and 2018:
Assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other current assets
Property, plant and equipment, less accumulated depreciation
Operating lease right-of-use assets
Goodwill
Intangible assets, less accumulated amortization
Deferred income taxes
Other long-lived assets
Impairment of disposal group
Total Assets of discontinued operations
Liabilities:
Accounts payable
Accrued liabilities
Postretirement benefits
Deferred income taxes
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities of discontinued operations
$
$
$
$
December 31,
2019
2018
(In thousands)
18,405 $
117,386
55,002
35,187
61,233
16,902
26,707
143,459
57,469
21,652
(180,358)
373,044 $
52,425 $
83,349
6,224
2,740
20,459
5,082
170,279 $
13,156
129,983
51,416
25,167
55,010
—
350,777
151,162
29,559
16,613
—
822,843
55,148
91,880
5,043
3,834
—
8,737
164,642
The disposal group also had $42.3 million of accumulated other comprehensive losses as of December 31, 2019.
Note 6: Operating Segments and Geographic Information
We are organized around two global business platforms: Enterprise Solutions and Industrial Solutions. Each of the global business
platforms represents a reportable segment.
The segments design, manufacture, and market a portfolio of signal transmission solutions for mission critical applications used in a
variety of end markets. We sell the products manufactured by our segments through distributors or directly to systems integrators,
original equipment manufacturers (OEMs), end-users, and installers.
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.
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.
The results of our former equity method investment in the Hirschmann JV, which we sold effective December 31, 2017, were not
included in the corporate expense allocation.
59
Table of Contents
Operating Segment Information
Enterprise Solutions
Segment revenues
Affiliate revenues
Segment EBITDA
Depreciation expense
Amortization of intangibles
Amortization of software development intangible assets
Severance, restructuring, and acquisition integration costs
Purchase accounting effects of acquisitions
Acquisition of property, plant and equipment
Segment assets
Industrial Solutions
Segment revenues
Affiliate revenues
Segment EBITDA
Depreciation expense
Amortization of intangibles
Amortization of software development intangible assets
Severance, restructuring, and acquisition integration costs
Acquisition of property, plant and equipment
Segment assets
Total Segments
Segment revenues
Affiliate revenues
Segment EBITDA
Depreciation expense
Amortization of intangibles
Amortization of software development intangible assets
Severance, restructuring, and acquisition integration costs
Purchase accounting effects of acquisitions
Acquisition of property, plant and equipment
Segment assets
$
Years ended December 31,
2018
2019
2017
(In thousands)
1,081,232 $
4,221
162,276
20,765
23,500
175
11,050
592
42,897
527,189
1,095,900 $
6,085
190,910
19,374
22,255
71
14,863
1,690
42,938
479,324
1,054,847
5,091
196,554
19,255
37,245
—
28,146
6,133
34,613
473,429
2019
Years ended December 31,
2018
(In thousands)
2017
$
1,050,046 $
1,069,802 $
11
188,947
19,644
51,109
350
15,494
34,581
464,418
81
203,746
18,935
52,885
8
7,762
29,215
459,647
2019
Years ended December 31,
2018
(In thousands)
2017
1,032,338
67
208,875
19,369
52,943
—
13,747
13,319
464,683
2,087,185
5,158
405,429
38,624
90,188
—
41,893
6,133
47,932
938,112
2,165,702 $
6,166
394,656
38,309
75,140
79
22,625
1,690
72,153
938,971
$
2,131,278 $
4,232
351,223
40,409
74,609
525
26,544
592
77,478
991,607
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Table of Contents
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.
$
$
$
Total Segment Revenues
Deferred revenue adjustments
Consolidated Revenues
Total Segment EBITDA
Amortization of intangibles
Depreciation expense
Severance, restructuring, and acquisition integration costs (1)
Purchase accounting effects related to acquisitions (2)
Amortization of software development intangible assets
Loss on sale of assets (3)
Costs related to patent litigation
Gain from patent litigation
Income from equity method investment
Eliminations
Consolidated operating income
Interest expense, net
Non-operating pension benefit (cost)
Loss on debt extinguishment
Consolidated income from continuing operations before taxes
$
2019
Years Ended December 31,
2018
(In thousands)
2017
2,131,278 $
—
2,165,702 $
—
2,131,278 $
2,165,702 $
351,223 $
(74,609)
(40,409)
(26,544)
(592)
(525)
—
—
—
—
(1,337)
207,207
(55,814)
1,017
—
152,410 $
394,656 $
(75,140)
(38,309)
(22,625)
(1,690)
(79)
(94)
(2,634)
62,141
—
(2,218)
314,008
(60,839)
(99)
(22,990)
230,080 $
2,087,185
—
2,087,185
405,429
(90,188)
(38,624)
(41,893)
(6,133)
—
(1,013)
—
—
7,502
(1,439)
233,641
(82,651)
(561)
(52,441)
97,988
(1) See Note 14, Severance, Restructuring, and Acquisition Integration Activities, for details.
(2) In 2019, we collectively recognized $0.6 million of cost of sales related to purchase accounting adjustments of acquired inventory to fair
value for both our SPC and Opterna acquisitions. In 2018, we made a $1.7 million adjustment to increase the earn-out liability
associated with an acquisition. In 2017, we recognized $6.1 million of cost of sales related to the adjustment of acquired inventory
to fair value for our Thinklogical acquisition.
(3) In 2018 and 2017, we recognized a $0.1 million and $1.0 million loss on sale of assets, respectively, for the sale of our MCS business
and Hirschmann JV. See Note 2.
Below are reconciliations of other segment measures to the consolidated totals.
2019
Years Ended December 31,
2018
(In thousands)
2017
Total segment assets
Cash and cash equivalents
Goodwill
Intangible assets, less accumulated amortization
Deferred income taxes
Corporate assets
Assets of discontinued operations
Total assets
Total segment acquisition of property, plant and equipment
Corporate acquisition of property, plant and equipment
Total acquisition of property, plant and equipment
$
$
$
$
991,607 $
407,480
1,243,669
339,505
25,216
24,147
375,135
3,406,759 $
77,478 $
3,110
80,588 $
61
938,971 $
407,454
1,206,877
359,931
26,459
16,786
822,843
3,779,321 $
72,153 $
3,013
75,166 $
938,112
541,350
1,208,587
424,932
28,517
60,865
638,250
3,840,613
47,932
1,502
49,434
Table of Contents
Geographic Information
The Company attributes foreign sales based on the location of the customer purchasing the product. The table below summarizes net
sales and long-lived assets for the years ended December 31, 2019, 2018 and 2017 for the following countries: the U.S., Canada,
China, and Germany. No other individual foreign country’s net sales or long-lived assets are material to the Company.
United
States
Canada
China
Germany
All Other
Total
(In thousands, except percentages)
Year ended December 31, 2019
Revenues
Percent of total revenues
Long-lived assets
Year ended December 31, 2018
Revenues
Percent of total revenues
Long-lived assets
Year ended December 31, 2017
Revenues
Percent of total revenues
Long-lived assets
Major Customer
$ 1,271,628
60%
$ 152,214
$ 1,206,401
56%
$ 170,368
$ 1,254,758
60%
$ 210,292
$
$
$
$
$
$
170,683
8%
16,452
166,669
8%
13,352
167,466
8%
13,200
$
$
$
$
$
$
129,716
6%
40,247
107,582
5%
36,989
120,568
6%
34,647
$
$
$
$
$
$
5%
$ 453,637
21%
$ 101,179
4%
$ 584,359
27%
63,776
$
105,614
48,272
100,691
39,724
112,976
$ 431,417
21%
49,834
$
5%
37,875
$ 2,131,278
100%
$
358,364
$ 2,165,702
100%
$
324,209
$ 2,087,185
100%
$
345,848
Revenues generated from sales to the distributor Anixter International Inc., in both the Enterprise Solutions and Industrial Solutions
segments, were $285.0 million (13% of revenues), $309.0 million (14% of revenues), and $292.2 million (14% of revenues) for
2019, 2018, and 2017, respectively. Revenues generated from sales to both Anixter and WESCO combined were approximately
$328.2 million (15% of revenues), $361.7 million (17% of revenues), and $342.8 million (16% of revenues) for 2019, 2018, and
2017, respectively. At December 31, 2019, we had $10.2 million in accounts receivable outstanding from Anixter International Inc.
This represented approximately 3% of our total accounts receivable outstanding at December 31, 2019.
Note 7: Noncontrolling Interest
We have a 51% ownership percentage in a joint venture with Shanghai Hi-Tech Control System Co, Ltd (Hite). The purpose of the
joint venture is to develop and provide certain Industrial Solutions products and integrated solutions to customers in China. Belden
and Hite are committed to fund $1.53 million and $1.47 million, respectively, to the joint venture in the future. The joint venture is
determined to not have sufficient equity at risk; therefore, it is considered a variable interest entity. We have determined that Belden
is the primary beneficiary of the joint venture, due to both our ownership percentage and our control over the activities of the joint
venture that most significantly impact its economic performance based on the terms of the joint venture agreement with Hite.
Because Belden is the primary beneficiary of the joint venture, we have consolidated the joint venture in our financial statements.
The results of the joint venture attributable to Hite’s ownership are presented as net income (loss) attributable to noncontrolling
interest in the consolidated statements of operations. The joint venture is not material to our consolidated financial statements as of
or for the years ended December 31, 2019, 2018, or 2017.
We acquired Opterna in April 2019. Certain subsidiaries of Opterna include noncontrolling interests. Because we have a controlling
financial interest in these subsidiaries, they are consolidated into our financial statements. The results of these subsidiaries were
consolidated into our financial statements as of the acquisition date. The results that are attributable to the noncontrolling interest
holders are presented as net income attributable to noncontrolling interests in the Consolidated Statements of Operations. An
immaterial amount of Opterna's annual revenues are generated from transactions with the noncontrolling interests. On October 25,
2019, we purchased the noncontrolling interest of one subsidiary for a purchase price of $0.8 million; of which $0.4 million was
paid at closing and the remaining $0.4 million will be paid in 2021. The subsidiaries of Opterna that include noncontrolling interests
are not material to our consolidated financial statements as of or for the years ended December 31, 2019, 2018 or 2017.
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Note 8: Income Per Share
The following table presents the basis of the income per share computation:
2019
Years Ended December 31,
2018
(In thousands)
2017
Numerator:
Income from continuing operations
Less: Net income (loss) attributable to noncontrolling interest
$
Less: Preferred stock dividends
Income from continuing operations attributable to Belden common
stockholders
Add: Loss from discontinued operations, net of tax
Net income (loss) attributable to Belden common stockholders
$
Denominator:
Weighted average shares outstanding, basic
Effect of dilutive common stock equivalents
Weighted average shares outstanding, diluted
109,891 $
239
18,437
91,215
(486,667)
(395,452) $
42,203
213
42,416
167,144 $
(183)
34,931
132,396
(6,433)
125,963 $
40,675
281
40,956
102,607
(357)
34,931
68,033
(9,754)
58,279
42,220
423
42,643
Basic weighted average shares outstanding is used to calculate diluted loss per share when the numerator is a loss because using
diluted weighted average shares outstanding would be anti-dilutive.
For the years ended December 31, 2019, 2018, and 2017, diluted weighted average shares outstanding do not include outstanding
equity awards of 1.2 million, 0.9 million, and 0.5 million, respectively, because to do so would have been anti-dilutive. In addition,
for the years ended December 31, 2019, 2018, and 2017, diluted weighted average shares outstanding do not include outstanding
equity awards of 0.3 million, 0.3 million, and 0.2 million, respectively, because the related performance conditions have not been
satisfied. Furthermore, for the years ended December 31, 2019, 2018, and 2017, diluted weighted average shares outstanding do not
include the weighted average impact of preferred shares that are convertible into 3.7 million, 6.9 million, and 6.9 million common
shares, respectively, because deducting the preferred stock dividends from net income was more dilutive.
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.
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.
Note 9: Inventories
The major classes of inventories were as follows:
Raw materials
Work-in-process
Finished goods
Gross inventories
Excess and obsolete reserves
Net inventories
63
December 31,
2019
2018
(In thousands)
98,530 $
34,717
119,331
252,578
(21,245)
231,333 $
108,623
36,460
137,283
282,366
(17,364)
265,002
$
$
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Note 10: Property, Plant and Equipment
The carrying values of property, plant and equipment were as follows:
Land and land improvements
Buildings and leasehold improvements
Machinery and equipment
Computer equipment and software
Construction in process
Gross property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
Depreciation Expense
December 31,
2019
2018
(In thousands)
27,502 $
126,580
558,639
119,533
70,993
903,247
(557,329)
345,918 $
25,902
120,896
523,857
121,504
56,483
848,642
(537,682)
310,960
$
$
We recognized depreciation expense in income from continuing operations of $40.4 million, $38.3 million, and $38.6 million in
2019, 2018, and 2017, respectively.
Note 11: Leases
We have operating and finance leases for properties, including manufacturing facilities, warehouses, and office space; as well as
vehicles and certain equipment. We make certain judgments in determining whether a contract contains a lease in accordance with
ASU 2016-02. Our leases have remaining lease terms of less than 1 year to 16 years, some of which include options to extend the
lease for a period of up to 15 years and some include options to terminate the leases within 1 year. We do not assume renewals in our
determination of the lease term unless the renewals are deemed to be reasonably certain as of the commencement date of the lease.
Our lease agreements do not contain any material residual value guarantees or material variable lease payments.
We have entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded
on our balance sheet as of December 31, 2019, and the rent expense for short-term leases was not material.
We have certain property and equipment lease contracts that may contain lease and non-lease components, and we have elected to
utilize the practical expedient to account for these components together as a single combined lease component.
As the rate implicit in most of our leases is not readily determinable, we use the incremental borrowing rate to determine the present
value of the lease payments, which is unique to each leased asset, and is based upon the term of the lease, commencement date of
the lease, local currency of the leased asset, and the credit rating of the legal entity leasing the asset.
The components of lease expense were as follows:
Operating Lease Cost
Finance Lease Cost
Amortization of right-of-use asset
Interest on lease liabilities
Total finance lease cost
64
Year Ended
December 31, 2019
(In thousands)
$
$
$
14,622
142
22
164
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Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Supplemental balance sheet information related to leases was as follows:
Year Ended
December 31, 2019
(In thousands)
$
14,594
25
258
December 31, 2019
(In thousands, except lease
term and discount rate)
Operating leases:
Total operating lease right-of-use assets
Accrued liabilities
Long-term operating lease liabilities
Total operating lease liabilities
Finance leases:
Other long-lived assets, at cost
Accumulated depreciation
Other long-lived assets, net
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
$
$
$
$
$
The following table summarizes maturities of lease liabilities as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
$
$
65
62,251
13,900
55,652
69,552
823
(391)
432
6 years
3 years
6.9%
6.2%
19,086
16,988
14,128
11,598
9,032
16,655
87,487
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The following table summarizes maturities of lease liabilities as of December 31, 2018 (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
Note 12: Intangible Assets
The carrying values of intangible assets were as follows:
$
$
14,453
13,335
11,784
10,593
8,417
20,404
78,986
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Net
Carrying
Amount
$ 1,243,669 $
— $
1,243,669 $
1,206,877 $
— $
1,206,877
$
413,310 $
(331,696) $
81,614 $
297,595
(110,732)
56,393
10,702
11,335
(30,213)
(7,160)
(10,935)
186,863
26,180
3,542
400
399,095 $
258,798
54,897
10,708
9,567
(280,301) $
118,794
(94,557)
(24,443)
(5,336)
(9,567)
164,241
30,454
5,372
—
789,335
(490,736)
298,599
733,065
(414,204)
318,861
Goodwill
Definite-lived intangible assets subject to
amortization:
Developed technology
Customer relationships
Trademarks
In-service research and development
Backlog
Total intangible assets subject to
amortization
Indefinite-lived intangible assets not subject
to amortization:
Trademarks
In-process research and development
Total intangible assets not subject
to amortization
Intangible assets
$
830,241 $
(490,736) $
339,505 $
40,106
800
40,906
—
—
—
40,106
800
40,906
40,270
800
41,070
774,135 $
—
—
—
40,270
800
41,070
(414,204) $
359,931
Segment Allocation of Goodwill and Trademarks
The changes in the carrying amount of goodwill assigned to reporting units in our reportable segments are as follows:
Enterprise Solutions
Industrial Solutions
Consolidated
(In thousands)
Balance at December 31, 2017
Acquisitions and purchase accounting adjustments
Translation impact
Balance at December 31, 2018
Acquisitions and purchase accounting adjustments
Translation impact
Balance at December 31, 2019
432,601 $
2,443
(462)
434,582 $
38,209
(260)
472,531 $
775,986 $
—
(3,691)
772,295 $
—
(1,157)
771,138 $
1,208,587
2,443
(4,153)
1,206,877
38,209
(1,417)
1,243,669
$
$
$
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The changes in the carrying amount of indefinite-lived trademarks are as follows:
Balance at December 31, 2017
Translation impact
Balance at December 31, 2018
Translation impact
Balance at December 31, 2019
Impairment
Enterprise Solutions
Industrial Solutions
Consolidated
(In thousands)
$
$
$
31,063 $
—
31,063 $
—
31,063 $
9,681 $
(474)
9,207 $
(164)
9,043 $
40,744
(474)
40,270
(164)
40,106
The annual measurement date for our goodwill and indefinite-lived intangible assets impairment test is our fiscal November month-
end. For our 2019 goodwill impairment test, we performed a quantitative assessment for all ten of our reporting units included in
continuing operations and determined the estimated fair values of our reporting units by calculating the present values of their
estimated future cash flows using Level 3 inputs. We did not perform a qualitative assessment over our reporting units. We
determined that the fair values of the reporting units were in excess of the carrying values; therefore, we did not record any goodwill
impairment for the ten reporting units. We also did not recognize any goodwill impairment in 2018 or 2017 based upon the results
of our annual goodwill impairment testing.
During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the
assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley represents a strategic
shift that is expected to have a major impact on our operations and financial results. As a result, the Grass Valley disposal group,
which was included in our Enterprise Solutions segment, is now reported within discontinued operations. We also ceased
depreciating and amortizing the assets of the disposal group once they met the held for sale criteria in the fourth quarter of 2019.
During 2019, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $521.4 million, which
consisted of impairments to goodwill, customer relationships, and trademarks of $326.1 million, $14.4 million, and $1.6 million,
respectively, as well as an impairment of the disposal group of $179.3 million ($180.4 million translated at year-end exchange rates).
We determined the estimated fair values of the assets and of the reporting unit by calculating the present values of their estimated
future cash flows, which was based in part on the assumed proceeds from a divestiture of Grass Valley.
Similar to the quantitative goodwill impairment test, we determined the estimated fair values of our indefinite-lived trademarks by
calculating the present values of the estimated cash flows (using Level 3 inputs) attributable to the respective trademarks. We did not
recognize any trademark impairment charges in 2019, 2018, or 2017.
Amortization Expense
We recognized amortization expense in income from continuing operations of $74.6 million, $75.1 million, and $90.2 million in
2019, 2018, and 2017, respectively. We expect to recognize annual amortization expense of $65.3 million in 2020, $33.2 million in
2021, $30.3 million in 2022, $28.7 million in 2023, and $26.6 million in 2024 related to our intangible assets balance as of
December 31, 2019.
The weighted-average amortization period for our customer relationships, trademarks, developed technology, and in-service research
and development is 18.3, 8.5, 6.8, and 5.0 years, respectively.
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Note 13: Accrued Liabilities
The carrying values of accrued liabilities were as follows:
Wages, severance and related taxes
Current deferred revenue
Accrued rebates
Accrued interest
Employee benefits
Lease liabilities
Other (individual items less than 5% of total current liabilities)
Accrued liabilities
December 31,
2019
2018
(In thousands)
$
$
58,953 $
54,255
37,170
18,781
17,791
14,072
82,777
283,799 $
46,674
62,272
41,312
18,530
17,984
—
85,624
272,396
Note 14: Severance, Restructuring, and Acquisition Integration Activities
Cost Reduction Program: 2019
During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining
the organizational structure and investing in technology to drive productivity. We recognized approximately $19.6 million of
severance costs for this program during 2019. The costs were incurred by both of our segments, as well as our corporate office. The
cost reduction program is expected to deliver an estimated $40.0 million reduction in selling, general, and administrative expenses
on an annual basis, with some benefit in 2020, and the full benefit realized in 2021. We expect to incur approximately $10.0 million
for this program in 2020.
Opterna, FutureLink, and SPC Integration Program: 2019
In 2019, we began a restructuring program to integrate Opterna, FutureLink, and SPC with our existing businesses. The restructuring
and integration activities were focused on achieving desired cost savings by consolidating existing and acquired facilities and other
support functions. We recognized $6.1 million of severance and other restructuring costs for this program during 2019. The costs
were incurred by the Enterprise Solutions segment. We expect to incur an additional $5.0 million for this program in 2020.
Industrial Manufacturing Footprint Program: 2016-2018
In 2016, we began a program to consolidate our manufacturing footprint. The manufacturing consolidation is complete. We
recognized $17.7 million and $30.6 million of severance and other restructuring costs for this program during 2018 and 2017,
respectively, and $66.1 million cumulatively. The costs were incurred by the Enterprise Solutions and Industrial Solutions segments,
as the manufacturing locations involved in the program serve both platforms.
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The following table summarizes the costs by segment of the programs described above as well as other immaterial programs and
acquisition integration activities:
Year Ended December 31, 2019
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2018
Enterprise Solutions
Industrial Solutions
Total
Year Ended December 31, 2017
Enterprise Solutions
Industrial Solutions
Total
Severance
Other Restructuring
and Integration Costs
(In thousands)
Total Costs
$
$
$
$
$
$
5,260 $
15,494
20,754 $
548 $
240
788 $
4,165 $
676
4,841 $
5,790 $
—
5,790 $
14,314 $
7,523
21,837 $
23,981 $
13,071
37,052 $
11,050
15,494
26,544
14,862
7,763
22,625
28,146
13,747
41,893
The other restructuring and integration costs primarily consisted of equipment transfers, costs to consolidate operating and support
facilities, retention bonuses, relocation, travel, legal, and other costs. The majority of the other restructuring and integration costs
related to these actions were paid as incurred or are payable within the next 60 days.
The following table summarizes the costs of the various programs described above as well as other immaterial programs and
acquisition integration activities by financial statement line item in the Consolidated Statement of Operations:
Cost of sales
Selling, general and administrative expenses
Research and development expenses
Total
Accrued Severance
Years ended December 31,
2019
2018
2017
(In thousands)
$
$
3,425 $
23,119
—
26,544 $
17,962 $
4,546
117
22,625 $
32,480
9,308
105
41,893
Our accrued severance balance was $20.2 million, $1.7 million, and $3.4 million as of December 31, 2019, 2018 and 2017,
respectively. The $20.2 million accrued severance balance at December 31, 2019 relates to the new Cost Reduction program, for
which no cash payments were made during 2019; the majority of these amounts will be paid during 2020.
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Note 15: Long-Term Debt and Other Borrowing Arrangements
The carrying values of our long-term debt and other borrowing arrangements were as follows:
Revolving credit agreement due 2022
Senior subordinated notes:
3.875% Senior subordinated notes due 2028
3.375% Senior subordinated notes due 2027
4.125% Senior subordinated notes due 2026
2.875% Senior subordinated notes due 2025
Total senior subordinated notes
Less unamortized debt issuance costs
Long-term debt
Revolving Credit Agreement due 2022
December 31,
2019
2018
$
(In thousands)
— $
—
392,910
505,170
224,520
336,780
1,459,380
(19,896)
1,439,484 $
400,050
514,350
228,600
342,900
1,485,900
(22,700)
1,463,200
$
In 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 $400.0 million multi-currency asset-based revolving credit 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, and the Netherlands. The maturity date of the Revolver is 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%, depending upon our leverage position. We pay a commitment fee on our available borrowing capacity of 0.25%. In the event
we borrow more than 90% of our borrowing base, we are subject to a fixed charge coverage ratio covenant. In 2017, 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 also paid $2.3 million of fees to creditors and third parties that we will
amortize over the remaining term of the Revolver. As of December 31, 2019, we had no borrowings outstanding on the Revolver,
and our available borrowing capacity, including the assets of the Grass Valley disposal group, was $310.6 million.
Senior Subordinated Notes
In March 2018, we completed an offering for €350.0 million ($431.3 million at issuance) aggregate principal amount of 3.875%
senior subordinated notes due 2028 (the 2028 Notes). The carrying value of the 2028 Notes as of December 31, 2019 is $392.9
million. The 2028 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2028
Notes rank equal in right of payment with our senior subordinated notes due 2027, 2026, and 2025 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 March 15 and September 15 of each year, which commenced on September 15, 2018.
We paid approximately $7.5 million of fees associated with the issuance of the 2028 Notes, which are being amortized over the life
of the 2028 Notes using the effective interest method. We used the net proceeds from this offering and cash on hand to repurchase
the 2023 and 2024 Notes - see further discussion below.
In July 2017, we completed an offering for €450.0 million ($509.5 million at issuance) aggregate principal amount of 3.375% senior
subordinated notes due 2027 (the 2027 Notes). The carrying value of the 2027 Notes as of December 31, 2019 is $505.2 million.
The 2027 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2027 Notes rank
equal in right of payment with our senior subordinated notes due 2028, 2026, and 2025 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 January 15 and July 15 of each year, which commenced on January 15, 2018. We paid approximately $8.8
million of fees associated with the issuance of the 2027 Notes, which are being amortized over the life of the 2027 Notes using the
effective interest method.
In October 2016, we completed an offering for €200.0 million ($222.2 million at issuance) aggregate principal amount of 4.125%
senior subordinated notes due 2026 (the 2026 Notes). The carrying value of the 2026 Notes as of December 31, 2019 is $224.5
million. The 2026 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The notes
rank equal in right of payment with our senior subordinated notes due 2028, 2027, and 2025 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
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is payable semiannually on April 15 and October 15 of each year, which commenced on April 15, 2017. We paid approximately $3.9
million of fees associated with the issuance of the 2026 Notes, which are being amortized over the life of the 2026 Notes using the
effective interest method.
In September 2017, we completed an offering for €300.0 million ($357.2 million at issuance) aggregate principal amount of 2.875%
senior subordinated notes due 2025 (the 2025 Notes). The carrying value of the 2025 Notes as of December 31, 2019 is $336.8
million. The 2025 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2025
Notes rank equal in right of payment with our senior subordinated notes due 2028, 2027, and 2026 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 March 15 and September 15 of each year, which commenced on March 15, 2018. We paid
approximately $6.2 million of fees associated with the issuance of the 2025 Notes, which are being amortized over the life of the
2025 Notes using the effective interest method.
The senior subordinated notes due 2025, 2026, 2027 and 2028 are redeemable after September 15, 2020, October 15, 2021, July 15,
2022, and March 15, 2023, respectively, at the following redemption prices as a percentage of the face amount of the notes:
2025
Senior Subordinated Notes due
2026
2027
2028
Year
Percentage
Year
Percentage
Year
Percentage
Year
Percentage
2020
2021
2022 and
thereafter
101.438% 2021
100.719% 2022
100.000% 2023
2024 and
thereafter
102.063% 2022
101.375% 2023
100.688% 2024
100.000%
2025 and
thereafter
101.688% 2023
101.125% 2024
100.563% 2025
100.000%
2026 and
thereafter
101.938%
101.292%
100.646%
100.000%
Fair Value of Long-Term Debt
The fair value of our senior subordinated notes as of December 31, 2019 was approximately $1,532.7 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 $1,459.4 million as of December 31, 2019.
Maturities
Maturities on outstanding long-term debt and other borrowings during each of the five years subsequent to December 31, 2019 are
as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
$
$
—
—
—
—
—
1,459,380
1,459,380
Note 16: Net Investment Hedge
All of our euro denominated notes were issued by Belden Inc., a USD functional currency entity. As of December 31, 2019, all of
our outstanding foreign denominated debt is designated as a net investment hedge on the foreign currency risk of our net investment
in our euro foreign operations. The objective of the hedge is to protect the net investment in the foreign operations against adverse
changes in the euro exchange rate. The transaction gain or loss is reported in the translation adjustment section of other
comprehensive income, which was a gain of $26.6 million, a gain of $87.5 million, and a loss of $56.2 million for the years ended
December 31, 2019, 2018, and 2017, respectively.
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Note 17: Income Taxes
Income before taxes:
United States operations
Foreign operations
Income before taxes
Income tax expense (benefit):
Currently payable
United States federal
United States state and local
Foreign
Deferred
United States federal
United States state and local
Foreign
$
$
$
2019
Years ended December 31,
2018
(In thousands)
2017
42,833 $
109,577
152,410 $
115,500 $
114,580
230,080 $
80,048
17,940
97,988
21,893 $
3,090
13,859
38,842
7,567
(1,205)
(2,685)
3,677
31,730 $
3,912
16,968
52,610
7,220
(31)
3,137
10,326
62,936 $
(2,751)
336
26,807
24,392
(17,741)
(7,115)
(4,155)
(29,011)
(4,619)
Income tax expense (benefit)
$
42,519 $
Effective income tax rate reconciliation from continuing operations:
United States federal statutory rate
State and local income taxes
Impact of change in tax contingencies
Foreign income tax rate differences
Impact of change in deferred tax asset valuation allowance
Impact of non-taxable translation gain
Impact of non-taxable interest income
Domestic permanent differences and tax credits
Impact of tax reform
Years Ended December 31,
2018
2017
2019
21.0 %
1.2 %
— %
(8.6)%
9.2 %
— %
— %
5.1 %
— %
27.9 %
21.0 %
1.5 %
(0.7)%
(1.0)%
0.3 %
— %
— %
1.9 %
4.4 %
27.4 %
35.0 %
0.7 %
1.1 %
15.1 %
0.7 %
(27.7)%
(5.6)%
(49.0)%
25.0 %
(4.7)%
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S.
Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax
years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial
tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31,
2017. In accordance with the Act, we recorded $24.5 million as an additional income tax expense in the fourth quarter of 2017, the
period in which the legislation was enacted. The total income tax expense included a $41.6 million tax benefit for the
remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax
expense on deemed repatriation of $30.8 million and a valuation allowance of $35.3 million recorded against foreign tax credit
carryovers that we no longer expect to be able to realize based upon the new tax law.
Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when
a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to
complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for
purposes of SAB 118. As such, we completed our analysis based on legislative updates relating to the Act which resulted in an
additional SAB 118 tax expense of $2.9 million in the fourth quarter of 2018 and a total tax expense of $10.0 million for the year
ended December 31, 2018. The total tax provision expense included an $8.0 million tax expense associated with an increase to the
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valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law, a
$1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, a $1.1 million
tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of covered
employees, and a $0.4 million income tax benefit associated with an adjustment to the remeasurement of certain deferred tax assets
and liabilities.
During 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects related to the Tax Cuts
and Jobs Acts of 2017. Additional guidance provided in these regulations resulted in a tax adjustment in the fourth quarter of 2019.
The total tax provision expense in 2019 included $10.0 million tax expense associated with the increase to the valuation allowance
against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new proposed tax regulations.
If we were to repatriate 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. However, it is our assertion to permanently reinvest the earnings of our
non-U.S. subsidiaries in those operations and for continued non-U.S. growth opportunities. As a result, as of December 31, 2019, we
have not made a provision for U.S. or additional foreign withholding taxes.
Foreign tax rate differences resulted in an income tax expense (benefit) of $(13.1) million, $(2.4) million, and $14.7 million in 2019,
2018, and 2017, respectively. Additionally, in 2019, 2018 and 2017, our income tax expense was reduced by $3.9 million, $3.0
million, and $3.5 million, respectively, due to a tax holiday for our operations in St. Kitts. The tax holiday in St. Kitts is scheduled to
expire in 2022.
Components of deferred income tax balances:
Deferred income tax liabilities:
Plant, equipment, and intangibles
Deferred income tax assets:
Postretirement, pensions, and stock compensation
Reserves and accruals
Net operating loss and tax credit carryforwards
Valuation allowances
December 31,
2019
2018
(In thousands)
$
(96,254) $
(98,141)
30,338
16,371
76,456
(50,420)
72,745
(23,509) $
27,549
20,641
79,703
(39,402)
88,491
(9,650)
Net deferred income tax liability
$
During 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects related to the Tax Cuts
and Jobs Act of 2017. Additional guidance provided in these regulations resulted in a change in our valuation allowance assessment
in the fourth quarter of 2019. The increase in deferred tax valuation allowances is primarily due to the valuation allowance against
foreign tax credit carryovers that we no longer expect to be able to realize based upon the new proposed tax regulations.
As of December 31, 2019, we had $216.6 million of gross net operating loss carryforwards and $47.1 million of tax credit
carryforwards. Unless otherwise utilized, net operating loss carryforwards will expire upon the filing of the tax returns for the
following respective years: $6.7 million in 2019, $22.6 million between 2020 and 2024, and $142.3 million between 2025 and 2039.
Net operating losses with an indefinite carryforward period total $45.0 million. Of the $216.6 million in net operating loss
carryforwards, we have determined, based on the weight of all available evidence, both positive and negative, that we will utilize
$150.5 million of these net operating loss carryforwards within their respective expiration periods. A valuation allowance has been
recorded on the remaining portion of the net operating loss carryforwards.
Unless otherwise utilized, tax credit carryforwards of $47.1 million will expire as follows: $2.1 million between 2020 and 2024,
$39.8 million between 2025 and 2039. Tax credit carryforwards with an indefinite carryforward period total $5.2 million. We have
determined, based on the weight of all available evidence, both positive and negative, that we will utilize $8.3 million of these tax
credit carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of
the tax credit carryforwards.
The following tables summarize our net operating loss carryforwards and tax credit carryforwards as of December 31, 2019 by
jurisdiction:
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Australia
Germany
Japan
Luxembourg
Netherlands
Other
United Kingdom
United States - Federal and various states
Total
United States
Canada
Total
Net Operating Loss
Carryforwards
(In thousands)
9,589
16,768
330
86
14,165
57,567
10,854
107,280
216,639
Tax Credit Carryforwards
(In thousands)
45,877
1,187
47,064
$
$
$
$
In 2019, we recognized a net $0.2 million increase to reserves for uncertain tax positions. A reconciliation of the beginning and
ending amounts of unrecognized tax benefits is as follows:
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years - Settlement
Reduction for tax positions of prior years - Statute of limitations
Balance at end of year
2019
2018
(In thousands)
6,591 $
488
—
(300)
—
6,779 $
6,881
749
1,292
(1,571)
(760)
6,591
$
$
The balance of $6.8 million at December 31, 2019, reflects tax positions that, if recognized, would impact our effective tax rate.
As of December 31, 2019, we believe it is reasonably possible that $0.4 million of unrecognized tax benefits will change within the
next twelve months primarily attributable to the expected completion of tax audits in the U.S.
Our practice is to recognize interest and penalties related to uncertain tax positions in interest expense and operating expenses,
respectively. We do not have any accrued amounts for the payment of interest and penalties as of December 31, 2019 and 2018.
Our federal tax return for the tax years 2015 and later remain subject to examination by the Internal Revenue Service. Our state and
foreign income tax returns for the tax years 2011 and later remain subject to examination by various state and foreign tax authorities.
Note 18: Pension and Other Postretirement Benefits
We sponsor defined benefit pension plans and defined contribution plans that cover substantially all employees in Canada, the
Netherlands, the United Kingdom, the U.S., and certain employees in Germany. Certain defined benefit plans in the United
Kingdom are frozen and additional benefits are not being earned by the participants. We closed the U.S. defined benefit pension plan
to new entrants effective January 1, 2010. Employees who were not active participants in the U.S. defined benefit pension plan on
December 31, 2009, are not eligible to participate in the plan. During 2017, we sold our MCS business and its associated pension
liabilities. Annual contributions to retirement plans equal or exceed the minimum funding requirements of applicable local
regulations. The assets of the funded pension plans we sponsor are maintained in various trusts and are invested primarily in equity
and fixed income securities.
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Benefits provided to employees under defined contribution plans include cash contributions by the Company based on either hours
worked by the employee or a percentage of the employee’s compensation. Defined contribution expense for 2019, 2018, and 2017
was $12.1 million, $11.8 million, and $11.4 million, respectively.
We sponsor unfunded postretirement medical and life insurance benefit plans for certain of our employees in Canada and the U.S.
The medical benefit portion of the U.S. 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.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets as well as a
statement of the funded status and balance sheet reporting for these plans.
Years Ended December 31,
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Participant contributions
Actuarial gain (loss)
Acquisitions
Settlements
Plan amendments
Foreign currency exchange rate changes
Benefits paid
Benefit obligation, end of year
Years Ended December 31,
Change in plan assets:
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Plan participant contributions
Acquisitions
Settlements
Foreign currency exchange rate changes
Benefits paid
Fair value of plan assets, end of year
Funded status, end of year
Amounts recognized in the balance sheets:
Prepaid benefit cost
Accrued benefit liability, current
Accrued benefit liability, noncurrent
Net funded status
Pension Benefits
2019
2018
Other Benefits
2019
2018
(In thousands)
(412,880) $
(3,668)
(12,261)
(86)
(39,329)
—
49
—
(9,890)
16,713
(461,352) $
(266,515) $
(4,579)
(11,480)
(85)
14,968
(185,692)
7,054
(2,822)
23,439
12,832
(412,880) $
(26,143) $
(35)
(960)
(4)
(2,374)
—
—
—
(1,260)
1,306
(29,470) $
(30,333)
(47)
(945)
(6)
1,681
—
—
—
2,020
1,487
(26,143)
Pension Benefits
Other Benefits
2019
2018
2019
2018
(In thousands)
311,509 $
45,896
5,673
86
—
—
9,275
(16,713)
355,726 $
198,000 $
(8,366)
5,363
85
153,919
(7,054)
(17,606)
(12,832)
311,509 $
— $
—
1,302
4
—
—
—
(1,306)
— $
—
—
1,481
6
—
—
—
(1,487)
—
(105,626) $
(101,371) $
(29,470) $
(26,143)
5,542 $
(3,000)
(108,168)
(105,626) $
4,801 $
(3,162)
(103,010)
(101,371) $
— $
(1,411)
(28,059)
(29,470) $
—
(1,405)
(24,738)
(26,143)
$
$
$
$
$
$
$
The accumulated benefit obligation for all defined benefit pension plans was $456.9 million and $407.0 million at December 31,
2019 and 2018, respectively.
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The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with a projected
benefit obligation in excess of plan assets were $404.9 million, $400.4 million, and $293.7 million, respectively, as of
December 31, 2019 and were $363.1 million, $357.4 million, and $256.9 million, respectively, as of December 31, 2018.
The accumulated benefit obligation and fair value of plan assets for other postretirement benefit plans with an accumulated benefit
obligation in excess of plan assets were $29.5 million and $0 million, respectively, as of December 31, 2019 and were $26.1 million
and $0 million, respectively, as of December 31, 2018.
The following table provides the components of net periodic benefit costs for the plans.
Years Ended December 31,
2019
2018
2017
2019
2018
2017
Pension Benefits
Other Benefits
(In thousands)
Components of net periodic benefit cost:
Service cost
Interest cost
$
3,668 $
4,579 $
4,767 $
12,261
11,480
7,551
Expected return on plan assets
(15,699)
(16,389)
(10,642)
Amortization of prior service cost (credit)
Settlement loss (gain)
Net loss (gain) recognition
169
(7)
1,432
(42)
1,342
2,775
(41)
(8)
2,562
Net periodic benefit cost
$
1,824 $
3,745 $
4,189 $
35 $
960
—
—
—
(133 )
862 $
47 $
945
49
1,139
—
—
—
—
(12)
980 $
1,188
We recorded settlement losses totaling $1.3 million during 2018. The settlement losses were the result of lump-sum payments to
participants that exceeded the sum of the pension plan's respective annual service cost and interest cost amounts.
The following table presents the assumptions used in determining the benefit obligations and the net periodic benefit cost amounts.
Weighted average assumptions for benefit obligations at
year end:
Discount rate
Salary increase
Cash balance interest credit rate
Weighted average assumptions for net periodic cost for the
year:
Discount rate
Salary increase
Cash balance interest credit rate
Expected return on assets
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year
Rate that the cost trend rate gradually declines to
Year that the rate reaches the rate it is assumed to
remain at
Pension Benefits
Years Ended December 31,
Other Benefits
Years Ended December 31,
2019
2018
2019
2018
2.2%
3.5%
4.0%
3.1%
3.6%
4.7%
5.0%
N/A
N/A
N/A
3.1%
3.6%
4.7%
2.8%
3.6%
4.7%
5.5%
N/A
N/A
N/A
2.9 %
N/A
N/A
3.7 %
N/A
N/A
N/A
5.6 %
5.0 %
3.7%
N/A
N/A
3.3%
N/A
N/A
N/A
5.8%
5.0%
2023
2025
Plan assets are invested using a total return investment approach whereby a mix of equity securities and fixed income securities are
used to preserve asset values, diversify risk, and achieve our target investment return benchmark. Investment strategies and asset
allocations are based on consideration of the plan liabilities, the plan’s funded status, and our financial condition. Investment
performance and asset allocation are measured and monitored on an ongoing basis.
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Plan assets are managed in a balanced portfolio comprised of two major components: an asset growth portion and an asset protection
portion. The expected role of asset growth investments is to maximize the long-term real growth of assets, while the role of asset
protection investments is to generate current income, provide for more stable periodic returns, and provide some protection against a
permanent loss of capital.
Absent regulatory or statutory limitations, the target asset allocation for the investment of the assets for our ongoing pension plans is
30-50% in asset protection investments and 50-70% in asset growth investments and for our pension plans where the majority of the
participants are in payment or terminated vested status is 50-75% in asset protection investments and 25-50% in asset growth
investments. Asset growth investments include a diversified mix of U.S. and international equity, primarily invested through
investment funds. Asset protection investments include government securities and investment grade corporate bonds, primarily
invested through investment funds and group insurance contracts. We develop our expected long-term rate of return assumptions
based on the historical rates of returns for securities and instruments of the type in which our plans invest.
The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the invested assets and future
assets to be invested to provide for the benefits included in the projected benefit obligation. We use historic plan asset returns
combined with current market conditions to estimate the rate of return. The expected rate of return on plan assets is a long-term
assumption based on an analysis of historical and forward looking returns considering the plan’s actual and target asset mix.
The following table presents the fair values of the pension plan assets by asset category.
December 31, 2019
December 31, 2018
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Fair Market
Value at
December
31, 2019
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Market
Value at
December
31, 2018
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In thousands)
(In thousands)
Asset Category:
Equity securities(a)
U.S. equities fund $
Non-U.S. equities
fund
131,563 $
2,793 $
— $
— $
96,417 $
1,465 $
54,496
5,949
—
47,274
5,755
Debt securities(b)
Government bond
fund
Corporate bond
fund
Fixed income
fund(c)
Other
investments(d)
Cash & equivalents
Total
74,219
40,940
35,895
—
—
—
9,462
9,151
355,726 $
$
—
167
8,909 $
745
9,854
33,701
—
—
—
—
—
—
—
—
66,439
39,366
41,167
17,274
3,572
—
—
—
—
136
7,356 $
— $
—
1,253
7,116
39,340
—
—
47,709 $
—
—
—
—
—
—
—
—
44,300 $
— $
311,509 $
(a) This category includes investments in actively managed and indexed investment funds that invest in a diversified pool of
equity securities of companies located in the U.S., Canada, Western Europe and other developed countries throughout the
world. The funds are valued using the net asset value method in which an average of the market prices for the underlying
investments is used to value the fund. Equity securities held in separate accounts are valued based on observable quoted
prices on active exchanges. Funds which are valued using the net asset value method are not included in the fair value
hierarchy.
(b) This category includes investments in investment funds that invest in U.S. treasuries; other national, state and local
government bonds; and corporate bonds of highly rated companies from diversified industries. The funds are valued using
the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.
Funds valued using the net asset value method are not included in the fair value hierarchy.
(c) This category includes guaranteed insurance contracts and annuity policies.
(d) This category includes investments in hedge funds that pursue multiple strategies in order to provide diversification and
balance risk/return objectives, real estate funds, and private equity funds. Funds valued using the net asset method are not
included in the fair value hierarchy.
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Table of Contents
The plans do not invest in individual securities. All investments are through well diversified investment funds. As a result, there are
no significant concentrations of risk within the plan assets.
The following table reflects the benefits as of December 31, 2019 expected to be paid in each of the next five years and in the
aggregate for the five years thereafter from our pension and other postretirement plans. Because our other postretirement plans are
unfunded, the anticipated benefits with respect to these plans will come from our own assets. Because our pension plans are
primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these
plans.
2020
2021
2022
2023
2024
2025-2029
Total
Pension
Plans
Other
Plans
(In thousands)
22,952 $
22,159
22,595
24,115
22,397
109,442
223,660 $
1,431
1,442
1,450
1,453
1,461
7,447
14,684
$
$
We anticipate contributing $6.1 million and $1.4 million to our pension and other postretirement plans, respectively, during 2020.
The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic
benefit cost at December 31, 2019 and the changes in these amounts during the year ended December 31, 2019 are as follows.
Components of accumulated other comprehensive loss:
Net actuarial loss (gain)
Net prior service cost
Changes in accumulated other comprehensive loss:
Net actuarial loss (gain), beginning of year
Amortization of actuarial gain (loss)
Actuarial loss
Asset gain
Settlement gain recognized
Currency impact
Net actuarial loss (gain), end of year
Prior service cost, beginning of year
Amortization of prior service cost
Currency impact
Prior service cost, end of year
78
Pension
Benefits
Other
Benefits
(In thousands)
56,746 $
2,661
59,407 $
(600)
—
(600)
Pension
Benefits
Other
Benefits
(In thousands)
48,395 $
(1,432)
39,329
(30,197)
7
644
56,746 $
2,725 $
(169)
105
2,661 $
(3,047)
133
2,374
—
—
(60)
(600)
—
—
—
—
$
$
$
$
$
$
Table of Contents
Note 19: Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
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
(In thousands)
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2017
$
(69,691) $
(28,335) $
(98,026)
Other comprehensive gain (loss) loss attributable
to Belden before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current period other comprehensive gain (loss)
attributable to Belden
Balance at December 31, 2018
Other comprehensive gain (loss) attributable to
Belden before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive gain (loss)
attributable to Belden
Balance at December 31, 2019
$
27,809
—
27,809
(41,882)
23,657
—
(7,813)
3,123
(4,690)
(33,025)
(13,281)
1,113
23,657
(18,225) $
(12,168)
(45,193) $
19,996
3,123
23,119
(74,907)
10,376
1,113
11,489
(63,418)
The following table summarizes the effects of reclassifications from accumulated other comprehensive income (loss):
Amortization of pension and other postretirement benefit plan items:
Settlement gain
Actuarial losses
Prior service cost
Total before tax
Tax benefit
Total net of tax
Amount Reclassified from
Accumulated Other
Comprehensive Income
(In thousands)
Affected Line Item in the
Consolidated Statements
of Operations and
Comprehensive Income
$
$
(7)
1,299
169
1,461
(348)
1,113
(1)
(1)
(1)
(1) The amortization of these accumulated other comprehensive income (loss) components are included in the computation of
net periodic benefit costs (see Note 16).
Note 20: Share-Based Compensation
Compensation cost charged against income, primarily selling, general and administrative expense, and the income tax benefit
recognized for our share-based compensation arrangements is included below:
Total share-based compensation cost
Income tax benefit
Years Ended December 31,
2019
2018
2017
(In thousands)
$
16,802 $
3,999
17,143 $
4,080
13,144
4,995
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We currently have outstanding stock appreciation rights (SARs), restricted stock units with service vesting conditions, restricted
stock units with performance vesting conditions, and restricted stock units with market conditions. We grant SARs with an exercise
price equal to the closing market price of our common stock on the grant date. Generally, SARs may be converted into shares of our
common stock in equal amounts on each of the first three anniversaries of the grant date and expire 10 years from the grant date.
Certain awards provide for accelerated vesting in certain circumstances, including following a change in control of the Company.
Restricted stock units with service conditions generally vest 3-5 years from the grant date. Restricted stock units issued based on the
attainment of the performance conditions generally vest on the second or third anniversary of their grant date. Restricted stock units
issued based on the attainment of market conditions generally vest on the third anniversary of their grant date.
We recognize compensation cost for all awards based on their fair values. The fair values for SARs are estimated on the grant date
using the Black-Scholes-Merton option-pricing formula which incorporates the assumptions noted in the following table. Expected
volatility is based on historical volatility, and expected term is based on historical exercise patterns of SAR holders. The fair value of
restricted stock units with service vesting conditions or performance vesting conditions is the closing market price of our common
stock on the date of grant. We estimate the fair value of certain restricted stock units with market conditions using a Monte Carlo
simulation valuation model with the assistance of a third party valuation firm. Compensation costs for awards with service
conditions are amortized to expense using the straight-line method. Compensation costs for awards with performance conditions and
graded vesting are amortized to expense using the graded attribution method.
Years Ended December 31,
2019
2018
2017
(In thousands, except weighted average fair
value and assumptions)
$
$
$
Weighted-average fair value of SARs and options granted
Total intrinsic value of SARs converted and options exercised
Tax benefit related to share-based compensation
Weighted-average fair value of restricted stock shares and units granted
Total fair value of restricted stock shares and units vested
Expected volatility
Expected term (in years)
Risk-free rate
Dividend yield
22.31
354
101
64.61
10,325
35.05%
5.7
2.56%
0.32%
25.19
2,263
113
72.54
5,740
33.16%
5.6
2.70%
0.27%
27.31
7,156
967
79.96
10,355
36.89%
5.6
2.01%
0.27%
Outstanding at January 1, 2019
Granted
Exercised or converted
Forfeited or expired
Outstanding at December 31, 2019
Vested or expected to vest at
December 31, 2019
Exercisable or convertible at
December 31, 2019
Number
1,289 $
237
(49)
(110)
1,367 $
1,349
$
936
SARs and Stock Options
Restricted Shares and Units
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Number
(In thousands, except exercise prices, fair values, and contractual terms)
Aggregate
Intrinsic Value
Weighted-
Average
Grant-Date
Fair Value
65.58
61.71
48.27
71.73
65.04
65.01
63.88
627 $
353
(170)
(73)
737 $
71.66
64.61
58.73
70.30
68.31
6.2 $
6.1 $
5.1
(13,727)
(13,498)
(8,312)
At December 31, 2019, the total unrecognized compensation cost related to all nonvested awards was $28.2 million. That cost
is expected to be recognized over a weighted-average period of 2.0 years.
Historically, we have issued treasury shares, if available, to satisfy award conversions and exercises.
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Note 21: Preferred Stock
In 2016, we issued 5.2 million depositary shares, each of which represented 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. We received approximately
$501 million of net proceeds from this offering, which were used for general corporate purposes. On July 15, 2019, all outstanding
Preferred Stock was automatically converted into shares of Belden common stock at the conversion rate of 132.50, resulting in the
issuance of approximately 6.9 million shares of Belden common stock. Upon conversion, the Preferred Stock was automatically
extinguished and discharged, is no longer deemed outstanding for all purposes, and delisted from trading on the New York Stock
Exchange. For the years ended December 31, 2019, 2018 and 2017, dividends on the Preferred Stock were $18.4 million, $34.9
million, and $34.9 million, respectively.
Note 22: Stockholder Rights Plan
On March 27, 2018, our Board of Directors authorized the redemption of all outstanding preferred share purchase rights issued
pursuant to the then existing Rights Agreement. Under the former Rights Agreement, one right was attached to each outstanding
share of common stock. The rights were redeemed at a redemption price of $0.01 per right, resulting in a total payment of $0.4
million to the holders of the rights as of the close of business on March 27, 2018.
Note 23: Share Repurchases
On May 25, 2017, our Board of Directors authorized a share repurchase program, which allowed 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 was funded with cash on hand and cash flows from operating activities. During
2018, we repurchased 2.7 million shares of our common stock under the program for an aggregate cost of $175.0 million and an
average price per share of $64.94. During 2017, we repurchased 0.3 million shares of our common stock under the program for an
aggregate cost of $25.0 million and an average price per share of $79.75. We utilized all $200.0 million authorized under this share
repurchase program.
On November 29, 2018, our Board of Directors authorized another share repurchase program, which allows us to purchase up to
$300.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with
applicable securities laws and other restrictions. During 2018, we did not repurchase any shares of our common stock under this
program. During 2019, we repurchased 0.9 million shares of our common stock under the program for an aggregate cost of $50.0
million and an average price per share of $56.19.
Note 24: Market Concentrations and Risks
Concentrations of Credit
We sell our products to many customers in several markets across multiple geographic areas. The ten largest customers, of which six
are distributors, constitute in aggregate approximately 39%, 40%, and 40% of revenues in 2019, 2018, and 2017, respectively.
Unconditional Commodity Purchase Obligations
At December 31, 2019, we were committed to purchase approximately 1.6 million pounds of copper at an aggregate fixed cost of
$4.4 million. At December 31, 2019, this fixed cost was $0.1 million less than the market cost that would be incurred on a spot
purchase of the same amount of copper. The aggregate market cost was based on the current market price of copper obtained from
the New York Mercantile Exchange.
Labor
Approximately 25% of our labor force is covered by collective bargaining agreements at various locations around the world.
Approximately 22% of our labor force is covered by collective bargaining agreements that we expect to renegotiate during 2020.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, and debt instruments.
The carrying amounts of cash and cash equivalents, trade receivables, and trade payables at December 31, 2019 are considered
representative of their respective fair values. The fair value of our senior subordinated notes at December 31, 2019 and 2018 was
approximately $1,532.7 million and $1,485.0 million, respectively, 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
$1,459.4 million and $1,485.9 million as of December 31, 2019 and 2018, respectively.
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Note 25: Contingent Liabilities
General
Various claims are asserted against us in the ordinary course of business including those pertaining to income tax examinations,
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, operating
results, or cash flow.
Letters of Credit, Guarantees and Bonds
At December 31, 2019, we were party to unused standby letters of credit, bank guarantees, and surety bonds totaling $11.2 million,
$4.5 million, and $3.3 million, respectively. These commitments are generally issued to secure obligations we have for a variety of
commercial reasons, such as workers compensation self-insurance programs in several states and the importation and exportation of
product.
Note 26: Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
Income tax refunds received
Income taxes paid
Interest paid
2019
Years Ended December 31,
2018
(In thousands)
2017
$
4,695 $
3,920 $
4,031
(32,249)
(79,047)
(40,760)
(51,160)
(52,147)
(48,519)
82
Table of Contents
Note 27: Quarterly Operating Results (Unaudited)
Our quarterly operating results summarized below are for continuing operations, and have been recast to exclude the results of
our disposal group.
2019
1st
Number of days in quarter
Revenues
Gross profit
Operating income
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Less: Net incomce (loss) attributable to noncontrolling
interest
Net income (loss) attributable to Belden
Less: Preferred stock dividends
Net income (loss) attributable to Belden common
stockholders
Basic income (loss) per share attributable to Belden
common stockholders:
Continuing operations attributable to Belden common
stockholders
Discontinued operations attributable to Belden
common stockholders
Net income (loss) attributable to Belden common
stockholders
Diluted income (loss) per share attributable to Belden
stockholders:
Continuing operations attributable to Belden common
stockholders
Discontinued operations attributable to Belden
common stockholders
Net income (loss) attributable to Belden common
stockholders
$
$
$
$
$
2nd
3rd
(In thousands, except days and per share amounts)
90
4th
91
91
Year
500,140 $
186,856
47,490
27,935
(2,757)
25,178
548,352 $
205,072
58,775
41,395
895
42,290
533,098 $
198,805
57,542
38,031
(335,046)
(297,015)
93
365
549,688 $ 2,131,278
793,505
202,772
207,207
43,400
109,891
2,530
(486,667)
(149,759)
(376,776)
(147,229)
(24)
25,202
8,733
90
42,200
8,733
(6)
(297,009)
971
179
(147,408)
—
239
(377,015)
18,437
16,469
33,467
(297,980)
(147,408)
(395,452)
0.48 $
0.82 $
0.83
$
0.05 $
2.16
(0.07)
0.02
(7.54)
(3.29)
(11.53)
0.42 $
0.84 $
(6.70) $
(3.24) $
(9.37)
0.48 $
0.82 $
0.83
$
0.05 $
2.15
(0.07)
0.02
(7.54)
(3.29)
(11.53)
0.42 $
0.84 $
(6.70) $
(3.24) $
(9.37)
Included in income from continuing operations in the first, second, third, and fourth quarters of 2019 are severance, restructuring,
and integration costs of $0.0 million, $2.5 million, $3.0 million, and $21.0 million, respectively.
83
Table of Contents
2018
1st
Number of days in quarter
Revenues
Gross profit
Operating income
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Less: Net loss attributable to noncontrolling interest
Net income attributable to Belden
Less: Preferred stock dividends
Net income (loss) attributable to Belden common
stockholders
Basic income (loss) per share attributable to Belden
common stockholders:
Continuing operations attributable to Belden common
stockholders
Discontinued operations attributable to Belden
common stockholders
Net income (loss) attributable to Belden common
stockholders
Diluted income (loss) per share attributable to Belden
stockholders:
Continuing operations attributable to Belden common
stockholders
Discontinued operations attributable to Belden
common stockholders
Net income (loss) attributable to Belden common
stockholders
$
$
$
$
$
2nd
3rd
(In thousands, except days and per share amounts)
91
4th
91
91
Year
498,715 $
186,359
44,878
3,855
(1,285)
2,570
(48)
2,618
8,733
560,898 $
212,057
68,706
40,278
(11,486)
28,792
(77)
28,869
8,733
554,037 $
214,501
129,160
87,046
(1,188)
85,858
(23)
85,881
8,732
92
365
552,052 $ 2,165,702
829,911
216,994
314,008
71,264
167,144
35,965
(6,433)
7,526
160,711
43,491
(183)
(35)
160,894
43,526
34,931
8,733
(6,115)
20,136
77,149
34,793
125,963
(0.12) $
0.77 $
1.64
$
0.68 $
3.25
(0.03)
(0.28)
(0.03)
0.19
(0.16)
(0.15) $
0.49 $
1.90
$
0.87 $
3.10
(0.12) $
0.77 $
1.64
$
0.68 $
3.23
(0.03)
(0.28)
(0.03)
0.19
(0.16)
(0.15) $
0.49 $
1.62
$
0.87 $
3.08
Included in income from continuing operations in the first, second, third, and fourth quarters of 2018 are severance, restructuring,
and integration costs of $11.2 million, $4.6 million, $4.6 million, and $2.2 million, respectively.
Note 28: Subsequent Events
On February 4, 2020, we entered into a Securities and Asset Purchase Agreement (the “Agreement”) with BDC Media Acquisition
LLC, an affiliate of Black Dragon Capital Investment Management, LLC (the “Buyer”), pursuant to which we agreed to sell our
Grass Valley live media business (the “Business”) to the Buyer. The Agreement provides for us to receive $140 million in cash, a
subordinated note with an initial face amount of $213 million (less the amount of certain pension liabilities being assumed by the
Buyer), and a possible earn-out of up to $150 million in the event that the Buyer is able to earn an agreed-upon return on its equity
investment. The subordinated note earns interest in-kind at the rate of 10% per annum. The note is contemplated to be a five-year
instrument, but that term is subject to extension if the Buyer’s senior indebtedness is extended beyond December 31, 2025. The
Agreement requires that, prior to closing, we transfer the Business’ U.K. pension obligations to one of our non-Grass Valley
subsidiaries, obtain any required approvals in connection with that transfer, and fulfill various other closing conditions. We expect
the sale to close in the first half of 2020.
We signed a settlement agreement with the sellers ("Claimant") of Snell Advanced Media (SAM) on January 30, 2019 for claims
arising over the timing of the earnout consideration outlined in the purchase agreement. SAM was acquired on February 8, 2018 and
is included in the Grass Valley disposal group. As part of the settlement, the parties agreed that the earnout consideration would be
payable during the first quarter 2020, unless earlier payment is required as per the terms of the purchase agreement, and Belden
would immediately pay the Claimant $0.9 million for interest and fees incurred, which we recognized in selling, general, and
administrative expenses in our 2018 financial statements. On January 16, 2020, we paid the sellers the full earnout consideration of
$31.4 million.
84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Securities Exchange Act Rules 13a-15(e) and 15d-15(e), our management, under the supervision of our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. As permitted, that
evaluation excluded the business operations of Opterna, FutureLink, and SPC which were all acquired in 2019. The acquired
business operations excluded from our evaluation constituted approximately 4% of our total assets as of December 31, 2019 and 1%
of our revenues and operating income for the year ended December 31, 2019. The operations of the acquired business will be
included in our 2020 evaluation. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of December 31, 2019.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act
of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company;
and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its
inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements
may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations
are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though
not eliminate, this risk.
The Company’s management assessed the effectiveness of the Company’s internal controls over financial reporting as of
December 31, 2019. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework.
Based on that assessment, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2019, the
Company’s internal control over financial reporting was effective.
Our internal controls over financial reporting as of December 31, 2019 have been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report that follows.
Changes to Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the year ended December 31, 2019 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
85
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Belden Inc.
Opinion on Internal Control over Financial Reporting
We have audited Belden Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the
COSO criteria). In our opinion, Belden Inc. (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Opterna, FutureLink, and
Special Product Company, which are included in the 2019 consolidated financial statements of the Company and constituted 4% of total
assets as of December 31, 2019 and 1% of revenues and operating income for the year then ended. Our audit of internal control over
financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Opterna,
FutureLink, and Special Product Company.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of Belden Inc. as of December 31, 2019 and 2018, and the related consolidated statements of operations,
comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the
related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 11, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
St. Louis, Missouri
February 11, 2020
86
Table of Contents
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding directors is incorporated herein by reference to “Item I-Election of Directors,” as described in the Proxy
Statement. Information regarding executive officers is set forth in Part I herein under the heading “Executive Officers.” The
additional information required by this Item is incorporated herein by reference to “Corporate Governance” (opening paragraph and
table), “Corporate Governance-Audit Committee,” “Ownership Information-Delinquent Section 16(a) Reports,” “Corporate
Governance-Corporate Governance Documents” and “Other Matters-Stockholder Proposals for the 2020 Annual Meeting,” as
described in the Proxy Statement.
Item 11. Executive Compensation
Incorporated herein by reference to “Executive Compensation,” “Corporate Governance-Director Compensation,” “Corporate
Governance-Related Party Transactions and Compensation Committee Interlocks” and “Corporate Governance-Board Leadership
Structure and Role in Risk Oversight” as described in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Incorporated herein by reference to “Ownership Information-Equity Compensation Plan Information on December 31, 2019” and
“Ownership Information-Stock Ownership of Certain Beneficial Owners and Management” as described in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to “Corporate Governance-Related Party Transactions and Compensation Committee Interlocks”
and “Corporate Governance” (paragraph following the table) as described in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference to “Public Accounting Firm Information-Fees to Independent Registered Public Accountants for
2019 and 2018” and “Public Accounting Firm Information-Audit Committee’s Pre-Approval Policies and Procedures” as described
in the Proxy Statement.
87
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Report:
1.
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018
Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2019
Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended
December 31, 2019
Consolidated Cash Flow Statements for Each of the Three Years in the Period Ended December 31, 2019
Consolidated Stockholders’ Equity Statements for Each of the Three Years in the Period Ended December 31,
2019
Notes to Consolidated Financial Statements
2.
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
Beginning
Balance
Charged to
Costs and
Expenses
Divestitures/
Acquisitions
Charge
Offs
Recoveries
Currency
Movement
Ending
Balance
(In thousands)
Accounts Receivable—
Allowance for Doubtful
Accounts:
2019
2018
2017
Inventories—
Excess and Obsolete
Allowances:
2019
2018
2017
Deferred Income Tax Asset—
Valuation Allowance:
2019
2018
2017
$
$
$
3,137 $
3,709
5,112
17,364 $
19,887
21,301
39,402 $
47,636
13,124
159 $
368 $
(969) $
353
898
—
38
(567)
(1,644)
(86) $
(176)
(465)
(40) $
(182)
(230)
2,569
3,137
3,709
6,403 $
452 $
(2,333) $
(606) $
(35) $
2,801
2,217
—
2,628
(2,464)
(5,292)
(2,675)
(1,685)
(185)
718
21,245
17,364
19,887
12,358 $
330 $
— $
15,626
37,670
(2)
—
(22,577)
(2,675)
(1,629) $
(928)
(1,047)
(41) $
(353)
564
50,420
39,402
47,636
All other financial statement schedules not included in this Annual Report on Form 10-K are omitted because they are
not applicable.
88
Table of Contents
3.
Exhibits
The following exhibits are filed herewith or incorporated herein by reference, as indicated. Documents indicated by an asterisk (*)
identify each management contract or compensatory plan.
Exhibit
Number
Description of Exhibit
The filings referenced for incorporation by
reference are Company (Belden Inc.) filings unless
noted to be those of Belden 1993 Inc.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
Certificate of Incorporation, as amended
February 29, 2008 Form 10-K, Exhibit 3.1
Amended and Restated Bylaws
May 31, 2016 Form 8-K, Exhibit 3.1
Indenture relating to 4.125% Senior Subordinated
Notes due 2026
First Supplemental Indenture relating to 4.125%
Senior Subordinated Notes due 2026
Indenture relating to 3.375% Senior Subordinated
Notes due 2027
Indenture relating to 2.875% Senior Subordinated
Notes due 2025
Indenture relating to 3.875% Senior Subordinated
Notes due 2028
October 11, 2016 Form 8-K, Exhibit 4.1
June 26, 2017 Form 8-K, Exhibit 4.22
July 10, 2017 Form 8-K, Exhibit 4.1
September 22, 2017 Form 8-K, Exhibit 4.1
March 16, 2018 Form 8-K, Exhibit 4.1
Trademark License Agreement
November 15, 1993 Form 10-Q of Belden 1993
Inc., Exhibit 10.2
CDT 2001 Long-Term Performance Incentive Plan,
as amended
Belden Inc. 2011 Long Term Incentive Plan, as
amended
April 6, 2009 Proxy Statement, Appendix I
April 6,2016 Proxy Statement, Appendix II
Form of Stock Appreciation Rights Award
August 3, 2016 Form 10-Q, Exhibit 10.1
Form of Performance Stock Units Award
August 3, 2016 Form 10-Q, Exhibit 10.2
Form of Restricted Stock Units Award
May 6, 2014 Form 10-Q, Exhibit 10.3
Belden Inc. Annual Cash Incentive Plan, as
amended and restated
2004 Belden CDT Inc. Non-Employee Director
Deferred Compensation Plan
February 29, 2012 Form 10-K, Exhibit 10.16
December 21, 2004 Form 8-K, Exhibit 10.1
Belden Wire & Cable Company (BWC)
Supplemental Excess Defined Benefit Plan
March 22, 2002 Form 10-K of Belden 1993 Inc.,
Exhibit 10.14
First Amendment to Belden Wire & Cable
Company (BWC) Supplemental Excess Defined
Benefit Plan
Second Amendment to Belden Wire & Cable
Company (BWC) Supplemental Excess Defined
Benefit Plan
Third Amendment to Belden Wire & Cable
Company (BWC) Supplemental Excess Defined
Benefit Plan
March 22, 2002 Form 10-K of Belden 1993 Inc.,
Exhibit 10.15
March 14, 2003 Form 10-K of Belden 1993 Inc.,
Exhibit 10.21
November 15, 2004 Form 10-Q, Exhibit 10.50
BWC Supplemental Excess Defined Contribution
Plan
March 22, 2002 Form 10-K of Belden 1993 Inc.,
Exhibit 10.16
89
Table of Contents
Exhibit
Number
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
Description of Exhibit
The filings referenced for incorporation by
reference are Company (Belden Inc.) filings unless
noted to be those of Belden 1993 Inc.
First Amendment to BWC Supplemental Excess
Defined Contribution Plan
March 22, 2002 Form 10-K of Belden 1993 Inc.,
Exhibit 10.17
Second Amendment to BWC Supplemental Excess
Defined Contribution Plan
Third Amendment to BWC Supplemental Excess
Defined Contribution Plan
2003 Form 10-K of Belden 1993 Inc., Exhibit 10.24
November 15, 2004 Form 10-Q, Exhibit 10.51
Trust Agreement
November 15, 2004 Form 10-Q, Exhibit 10.52
First Amendment to Trust Agreement
November 15, 2004 Form 10-Q, Exhibit 10.53
Trust Agreement
November 15, 2004 Form 10-Q, Exhibit 10.54
First Amendment to Trust Agreement
November 15, 2004 Form 10-Q, Exhibit 10.55
Amended and Restated Executive Employment
Agreement with John Stroup
First Amendment to Amended and Restated
Executive Employment Agreement with John
Stroup
Amended and Restated Executive Employment
Agreement with Henk Derksen
April 7, 2008 Form 8-K, Exhibit 10.1
December 17, 2008 Form 8-K, Exhibit 10.1
January 5, 2012 Form 8-K, Exhibit 10.1
10.24*
Executive Employment Agreement with Doug Zink
November 6, 2013 Form 10-Q, Exhibit 10.1
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32
10.33
14.1
21.1
23.1
Executive Employment Agreement with Roel
Vestjens
Executive Employment Agreement with Brian
Anderson
Executive Employment Agreement with Dean
McKenna
Executive Employment Agreement with Paul
Turner
Executive Employment Agreement with Leo
Kulmaczewski
Executive Employment Agreement with Ashish
Chand
Form of Indemnification Agreement with each of
the Directors and Brian Anderson, Ashish Chand,
Henk Derksen, Dean McKenna, John Stroup, Paul
Turner, Roel Vestjens, and Doug Zink
August 5, 2014 Form 10-Q, Exhibit 10.2
May 5, 2015 Form 10-Q, Exhibit 10.1
August 4, 2015 Form 10-Q Exhibit 10.1
February 13, 2018 Form 10-K Exhibit 10.31
November 5, 2018 Form 10-Q Exhibit 10.1
August 5, 2019 Form 10-Q Exhibit 10.1
March 1, 2007 Form 10-K, Exhibit 10.39
Amended and Restated Credit Agreement
May 22, 2017, Form 8-K, Exhibit 10.1
March 8, 2018 Form 8-K, Exhibit 10.1
Purchase Agreement by and among Belden Inc., the
Guarantors named therein and Deutsche Bank AG
Code of Ethics
August 26, 2016 Form 8-K, Exhibit 14.1
List of Subsidiaries of Belden Inc.
Consent of Ernst & Young LLP
90
Filed herewith
Filed herewith
The filings referenced for incorporation by
reference are Company (Belden Inc.) filings unless
noted to be those of Belden 1993 Inc.
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Table of Contents
Exhibit
Number
24.1
31.1
31.2
32.1
32.2
101
104
Description of Exhibit
Powers of Attorney from Members of the Board of
Directors
Rule 13a-14(a)/15d-14(a) Certification of the Chief
Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of the Chief
Financial Officer
Section 1350 Certification of the Chief Executive
Officer
Section 1350 Certification of the Chief Financial
Officer
The following financial statements from the
Company's Annual Report on Form 10-K for the
year ended December 31, 2019, formatted in Inline
XBRL: (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations, (iii)
Consolidated Statements of Comprehensive
Income, (iv) Consolidated Cash Flow Statements,
(v) Consolidated Statements of Stockholders'
Equity and (vi) Notes to Consolidated Financial
Statements, tagged as blocks of text and including
detailed
The cover page from the Company's Annual Report
on Form 10-K for the year ended December 31,
2019, formatted in Inline XBRL
* Management contract or compensatory plan
Copies of the above Exhibits are available to shareholders at a charge of $0.25 per page, minimum order of $10.00. Direct requests
to:
Belden Inc., Attention: Corporate Secretary
1 North Brentwood Boulevard, 15th Floor
St. Louis, Missouri 63105
91
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 11, 2020
BELDEN INC.
By
/s/ JOHN S. STROUP
John S. Stroup
President, Chief Executive Officer, and
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ JOHN S. STROUP
John S. Stroup
/s/ HENK DERKSEN
Henk Derksen
/s/ DOUGLAS R. ZINK
Douglas R. Zink
/s/ DAVID ALDRICH*
David Aldrich
/s/ LANCE C. BALK*
Lance C. Balk
/s/ STEVEN BERGLUND*
Steven Berglund
/s/ DIANE D. BRINK*
Diane D. Brink
/s/ JUDY L. BROWN*
Judy L. Brown
/s/ BRYAN C. CRESSEY*
Bryan C. Cressey
/s/ JONATHAN KLEIN*
Jonathan Klein
/s/ GEORGE MINNICH*
George Minnich
/s/ JOHN S. STROUP
*By John S. Stroup, Attorney-in-fact
President, Chief Executive Officer, and Chairman
February 11, 2020
Senior Vice President, Finance, and Chief Financial Officer
February 11, 2020
Vice President and Chief Accounting Officer
February 11, 2020
Lead Independent Director
February 11, 2020
February 11, 2020
February 11, 2020
February 11, 2020
February 11, 2020
February 11, 2020
February 11, 2020
February 11, 2020
Director
Director
Director
Director
Director
Director
Director
92