NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include Belden Inc. and all of its subsidiaries (the Company, us, we, or our). We eliminate all significant affiliate accounts and transactions in consolidation.
The accompanying Condensed Consolidated Financial Statements presented as of any date other than
December 31, 2016
:
|
|
•
|
Are prepared from the books and records without audit, and
|
|
|
•
|
Are prepared in accordance with the instructions for Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States for complete statements, but
|
|
|
•
|
Include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements.
|
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Supplementary Data contained in our 2016 Annual Report on Form 10-K.
Business Description
We are a signal transmission solutions provider built around
four
global business platforms – Broadcast Solutions, Enterprise Solutions, Industrial Solutions, and Network Solutions. Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.
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, which was April 2, 2017, the 92nd day of our fiscal year 2017. Our fiscal second and third quarters each have 91 days. The
nine
months ended
October 1, 2017
and
October 2, 2016
included
274
and 276 days, respectively.
Reclassifications
We have made certain reclassifications to the 2016 Condensed Consolidated Financial Statements for our segment change with no impact to reported net income in order to conform to the 2017 presentation. See Note 4.
Operating Segments
To leverage the Company's strengths in networking, IoT, and cybersecurity technologies, effective January 1, 2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments. The formation is a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications. We have revised the prior period segment information to conform to the change in the composition of these reportable segments. In connection with this change, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of
10
years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of
$0.8 million
and
$2.4 million
for the three and nine months ended October 1, 2017, respectively.
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:
|
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•
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
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•
|
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
|
|
|
•
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
As of and during the
three and nine
months ended
October 1, 2017
and
October 2, 2016
, we utilized Level 1 inputs to determine the fair value of cash equivalents, and we utilized Level 2 and Level 3 inputs to determine the fair value of net assets acquired in business combinations (see Note 2). We did not have any transfers between Level 1 and Level 2 fair value measurements during the
nine
months ended
October 1, 2017
and
October 2, 2016
.
Cash and Cash Equivalents
We classify cash on hand and deposits in banks, including commercial paper, money market accounts, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. We periodically have cash equivalents consisting of short-term money market funds and other investments. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations. We do not enter into investments for trading or speculative purposes. As of
October 1, 2017
, we did not have any significant cash equivalents.
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. We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in consultation with our environmental consultants and legal counsel. We are, from time to time, subject to routine litigation incidental to our business. These lawsuits primarily involve claims for damages arising out of the use of our products, allegations of patent or trademark infringement, and litigation and administrative proceedings involving employment matters and commercial disputes. Based on facts currently available, we believe the disposition of the claims that are pending or asserted will not have a materially adverse effect on our financial position, results of operations, or cash flow.
As of
October 1, 2017
, we were party to standby letters of credit, surety bonds, and bank guaranties totaling
$7.8 million
,
$2.4 million
, and
$2.0 million
, respectively.
Contingent Gain
On July 5, 2011, our wholly-owned subsidiary, PPC Broadband, Inc. (PPC), filed an action for patent infringement against Corning Optical Communications RF LLC (Corning). The complaint alleged that Corning infringed
two
of PPC’s patents. In July 2015, a jury found that Corning willfully infringed both patents. In November 2016, following a series of post-trial motions, the trial judge issued rulings for a total judgment in our favor of approximately
$61.3 million
. In December 2016, Corning appealed the case to the U.S. Court of Appeals for the Federal Circuit, and that appeal remains pending. We have not recorded any amounts in our consolidated financial statements related to this matter due to the pendency of the appeal.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (1) persuasive evidence of an arrangement exists, (2) price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. At times, we enter into arrangements that involve the delivery of multiple elements. For these arrangements, when the elements can be separated, the revenue is allocated to each deliverable based on that element’s relative selling price and recognized based on the period of delivery for each element. Generally, we determine relative selling price using vendor specific objective evidence (VSOE) of fair value.
We record revenue net of estimated rebates, price allowances, invoicing adjustments, and product returns. We record revisions to these estimates in the period in which the facts that give rise to each revision become known. Taxes collected from customers and remitted to governmental authorities are not included in our revenues.
We have certain products subject to the accounting guidance on software revenue recognition. For such products, software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, collection is probable and VSOE of the fair value of undelivered elements exists. As substantially all of the software licenses are sold in multiple-element arrangements that include either support and maintenance or both support and maintenance and professional services, we use the residual method to determine the amount of software license revenue to be recognized. Under the residual method, consideration is allocated to undelivered elements based upon VSOE of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as software license revenue. We have established VSOE of the fair value of support and maintenance, subscription-based software licenses, and professional services. Software license revenue is generally recognized upon delivery of the software if all revenue recognition criteria are met.
Revenue allocated to support services under our support and maintenance contracts is typically paid in advance and recognized ratably over the term of the service. Revenue allocated to subscription-based software and remote ongoing operational services is also paid in advance and recognized ratably over the term of the service. Revenue allocated to professional services, including remote implementation services, is recognized as the services are performed.
Subsequent Events
We have evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure.
Pending Adoption of Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09), which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. We plan to adopt ASU 2014-09 on January 1, 2018, using the modified retrospective method of adoption. Our overall, initial assessment indicates that the impact of adopting ASU 2014-09 on our consolidated financial statements will not be material. We do not expect significant changes in the timing or method of revenue recognition for any of our material revenue streams. We are currently completing detailed contract reviews to determine if any adjustments are necessary to our existing accounting policies and to support our overall, initial assessment. We believe the most significant impact of adopting ASU 2014-09 will be on our disclosures regarding revenue recognition. We will continue our evaluation of ASU 2014-09, including new or emerging interpretations of the standard, through the date of adoption.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
(ASU 2016-02), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard will be effective for us beginning January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
(ASU 2016-16), which requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the standard eliminates the exception to the recognition of current and deferred income taxes for an intra-entity asset transfer other than for inventory until the asset has been sold to an outside party. The new standard will be effective for us beginning January 1, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2016-16 will have on our consolidated financial statements and related disclosures.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07,
Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
(ASU 2017-07), which requires an entity to report the service cost component in the same line item or items as other compensation costs arising from the service rendered by their employees during the period. The other components of net benefit cost are required to be presented in the Statement of Operations separately from the service cost component after Operating Income. Additionally, only the service cost component will be eligible for capitalization, when applicable. The standard requires the amendments to be applied retrospectively for the presentation of the service cost component and the other cost components of net periodic pension cost and net periodic OPEB cost in the Statement of Operations and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension and OPEB costs. The new standard will be effective for us beginning January 1, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2017-07 will have on our consolidated financial statements and related disclosures.
Note 2: Acquisitions
Thinklogical Holdings, LLC
We acquired
100%
of the outstanding ownership interest in Thinklogical Holdings, LLC (Thinklogical) on May 31, 2017 for cash of
$171.3 million
. Thinklogical designs, manufactures, and markets high-bandwidth fiber matrix switches, video, and keyboard/video/mouse extender solutions, camera extenders, and console management solutions. Thinklogical is headquartered in Connecticut. The results of Thinklogical have been included in our Consolidated Financial Statements from May 31, 2017, and are reported within the Broadcast Solutions segment. The following table summarizes the estimated, preliminary fair value of the assets acquired and the liabilities assumed as of May 31, 2017 (in thousands):
|
|
|
|
|
|
Cash
|
|
$
|
5,376
|
|
Receivables
|
|
4,355
|
|
Inventory
|
|
16,424
|
|
Prepaid and other current assets
|
|
320
|
|
Property, plant, and equipment
|
|
4,289
|
|
Intangible assets
|
|
76,400
|
|
Goodwill
|
|
68,394
|
|
Total assets acquired
|
|
$
|
175,558
|
|
|
|
|
Accounts payable
|
|
$
|
1,231
|
|
Accrued liabilities
|
|
1,353
|
|
Deferred revenue
|
|
1,702
|
|
Total liabilities assumed
|
|
$
|
4,286
|
|
|
|
|
Net assets
|
|
$
|
171,272
|
|
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the preliminary fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.
The preliminary fair value of acquired receivables is
$4.4 million
, which is equivalent to its gross contractual amount.
For purposes of the above allocation, we based our estimate of the preliminary fair value for the acquired inventory, intangible assets, and deferred revenue on a preliminary valuation study performed by a third party valuation firm. We have estimated a preliminary fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. We used various valuation methods including discounted cash flows, lost income, excess earnings, and relief from royalty to estimate the preliminary fair value of the identifiable intangible assets and deferred revenue (Level 3 valuation).
Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the Thinklogical acquisition primarily consist of utilizing Belden's fiber and connectivity portfolio with Thinklogical's connections between matrix switch, control systems, transmitters and source to expand our product portfolio across our segments to both existing and new customers. Our tax basis in the acquired goodwill is approximately
$41.0 million
and is deductible for tax purposes over a period of
15
years up to the amount of the tax basis. The intangible assets related to the acquisition consisted of the following:
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|
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|
|
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Fair Value
|
|
Amortization Period
|
|
|
(In thousands)
|
|
(In years)
|
Intangible assets subject to amortization:
|
|
|
|
|
Developed technologies
|
|
$
|
65,200
|
|
|
10.0
|
Customer relationships
|
|
6,600
|
|
|
8.0
|
Trademarks
|
|
3,100
|
|
|
10.0
|
Sales backlog
|
|
1,500
|
|
|
0.3
|
Total intangible assets subject to amortization
|
|
$
|
76,400
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
Goodwill
|
|
$
|
68,394
|
|
|
n/a
|
Total intangible assets not subject to amortization
|
|
$
|
68,394
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
144,794
|
|
|
|
Weighted average amortization period
|
|
|
|
9.6
|
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the customer relationship intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period and pattern of consumption of the intangible asset. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship.
Our consolidated revenues and consolidated loss before taxes for the three months ended October 1, 2017 included revenues of
$11.6 million
and a loss before taxes of
$2.7 million
, respectively, from Thinklogical. Our consolidated revenues and consolidated income before taxes for the nine months ended October 1, 2017 included revenues of
$21.8 million
and a loss before taxes of
$1.7 million
, respectively, from Thinklogical.
The following table illustrates the unaudited pro forma effect on operating results as if the Thinklogical acquisition had been completed as of January 1, 2016.
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|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 1, 2017
|
|
October 2, 2016
|
|
October1, 2017
|
|
October 2, 2016
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
(Unaudited)
|
Revenues
|
|
$
|
621,745
|
|
|
$
|
616,760
|
|
|
$
|
1,792,614
|
|
|
$
|
1,772,202
|
|
Net income (loss) attributable to Belden common stockholders
|
|
(5,128
|
)
|
|
34,564
|
|
|
37,097
|
|
|
85,588
|
|
Diluted income (loss) per share attributable to Belden common stockholders
|
|
$
|
(0.12
|
)
|
|
$
|
0.81
|
|
|
$
|
0.87
|
|
|
$
|
2.01
|
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the 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.
M2FX
We acquired
100%
of the shares of M2FX Limited (M2FX) on January 7, 2016 for a purchase price of
$19.0 million
. M2FX is a manufacturer of fiber optic cable and fiber protective solutions for broadband access and telecommunications networks. M2FX is located in the United Kingdom. The results of M2FX have been included in our Consolidated Financial Statements from January 7, 2016, and are reported within the Broadcast Solutions segment. The M2FX acquisition was not material to our financial position or results of operations.
Note 3: Assets Held for Sale
We classify assets and liabilities as held for sale (disposal group) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. We also consider whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When we classify a disposal group as held for sale, we test for impairment. An impairment charge is recognized when the carrying value of the disposal group exceeds the estimated fair value, less costs to sell. We also cease depreciation and amortization for assets classified as held for sale.
During the fourth quarter of 2016, we committed to a plan to sell our MCS business and Hirschmann JV and determined that we met all of the criteria to classify the assets and liabilities of these businesses as held for sale. The MCS business is part of the Industrial Solutions segment and the Hirschmann JV is an equity method investment that is not included in an operating segment. The MCS business operates in Germany and the United States, and the Hirschmann JV is an equity method investment located in China. During the fourth quarter of 2016, we reached an agreement in principle to sell this disposal group for a total sales price of
$39 million
. The carrying value of the disposal group exceeded the fair value less costs to sell, which we determined based on the expected sales price, by
$23.9 million
. Therefore, we recognized an impairment charge equal to this amount in the fourth quarter of 2016. During the first quarter of 2017, we signed a definitive sales agreement for a purchase price of
$39 million
, and we expect the sale to be completed in the fourth quarter of 2017. The following table provides the major classes of assets and liabilities classified as held for sale as of October 1, 2017 and December 31, 2016. In addition, the disposal group had
$5.1 million
and
$15.7 million
of accumulated other comprehensive losses at October 1, 2017 and December 31, 2016, respectively.
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|
|
|
|
|
|
|
|
|
October 1, 2017
|
|
December 31, 2016
|
|
|
|
(In thousands)
|
Receivables, net
|
$
|
5,937
|
|
|
$
|
4,551
|
|
Inventories, net
|
4,302
|
|
|
2,848
|
|
Other current assets
|
1,101
|
|
|
1,131
|
|
Property, plant, and equipment, less accumulated depreciation
|
2,348
|
|
|
1,946
|
|
Intangible assets, less accumulated amortization
|
4,589
|
|
|
4,405
|
|
Goodwill
|
5,477
|
|
|
5,477
|
|
Other long-lived assets
|
36,130
|
|
|
26,766
|
|
Total assets of disposal group
|
59,884
|
|
|
47,124
|
|
Impairment of assets held for sale
|
(23,931
|
)
|
|
(23,931
|
)
|
Total assets held for sale
|
$
|
35,953
|
|
|
$
|
23,193
|
|
Accrued liabilities
|
$
|
1,325
|
|
|
$
|
1,288
|
|
Postretirement benefits
|
407
|
|
|
448
|
|
Total liabilities held for sale
|
$
|
1,732
|
|
|
$
|
1,736
|
|
Note 4: Operating Segments
We are organized around
four
global business platforms: Broadcast Solutions, Enterprise Solutions, Industrial Solutions, and Network Solutions. Each of the global business platforms represents a reportable segment.
To leverage the Company's strengths in networking, IoT, and cybersecurity technologies, effective January 1, 2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments. The formation of this new segment is a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications. We have revised the prior period segment information to conform to the change in the composition of these reportable segments. This change had no impact to our reporting units for purposes of goodwill impairment testing.
Beginning in 2017, sales of certain audio-visual cable that had previously been reported in our Broadcast Solutions segment are now reported in our Enterprise Solutions segment. As the annual revenues associated with this product line are not material, we have not revised the prior period segment information.
The key measures of segment profit or loss reviewed by our chief operating decision maker are Segment Revenues and Segment EBITDA. Segment Revenues represent non-affiliate revenues and include revenues that would have otherwise been recorded by acquired businesses as independent entities but were not recognized in our Consolidated Statements of Operations due to the effects of purchase accounting and the associated write-down of acquired deferred revenue to fair value. Segment EBITDA excludes certain items, including depreciation expense; amortization of intangibles; asset impairment; severance, restructuring, and acquisition integration costs; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value; and other costs. We allocate corporate expenses to the segments for purposes of measuring Segment EBITDA. Corporate expenses are allocated on the basis of each segment’s relative EBITDA prior to the allocation.
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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast
Solutions
|
|
Enterprise
Solutions
|
|
Industrial
Solutions
|
|
Network Solutions
|
|
Total
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
As of and for the three months ended October 1, 2017
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
193,753
|
|
|
$
|
167,089
|
|
|
$
|
160,471
|
|
|
$
|
100,432
|
|
|
$
|
621,745
|
|
Affiliate revenues
|
|
129
|
|
|
1,419
|
|
|
332
|
|
|
—
|
|
|
1,880
|
|
Segment EBITDA
|
|
35,671
|
|
|
26,409
|
|
|
30,545
|
|
|
24,906
|
|
|
117,531
|
|
Depreciation expense
|
|
4,088
|
|
|
2,740
|
|
|
3,285
|
|
|
1,570
|
|
|
11,683
|
|
Amortization expense
|
|
13,482
|
|
|
438
|
|
|
646
|
|
|
12,596
|
|
|
27,162
|
|
Severance, restructuring, and acquisition integration costs
|
|
3,056
|
|
|
6,253
|
|
|
6,840
|
|
|
530
|
|
|
16,679
|
|
Purchase accounting effects of acquisitions
|
|
2,922
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,922
|
|
Segment assets
|
|
373,848
|
|
|
284,327
|
|
|
291,984
|
|
|
108,554
|
|
|
1,058,713
|
|
As of and for the three months ended October 2, 2016
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
196,173
|
|
|
$
|
156,658
|
|
|
$
|
149,847
|
|
|
$
|
99,790
|
|
|
$
|
602,468
|
|
Affiliate revenues
|
|
46
|
|
|
1,587
|
|
|
511
|
|
|
13
|
|
|
2,157
|
|
Segment EBITDA
|
|
36,545
|
|
|
27,294
|
|
|
23,649
|
|
|
24,448
|
|
|
111,936
|
|
Depreciation expense
|
|
4,063
|
|
|
3,210
|
|
|
2,738
|
|
|
1,592
|
|
|
11,603
|
|
Amortization expense
|
|
10,955
|
|
|
431
|
|
|
604
|
|
|
11,818
|
|
|
23,808
|
|
Severance, restructuring, and acquisition integration costs
|
|
174
|
|
|
5,573
|
|
|
4,746
|
|
|
2,302
|
|
|
12,795
|
|
Deferred gross profit adjustments
|
|
283
|
|
|
—
|
|
|
—
|
|
|
1,076
|
|
|
1,359
|
|
Segment assets
|
|
314,020
|
|
|
265,085
|
|
|
261,923
|
|
|
105,938
|
|
|
946,966
|
|
As of and for the nine months ended October 1, 2017
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
550,420
|
|
|
$
|
473,504
|
|
|
$
|
465,907
|
|
|
$
|
293,928
|
|
|
$
|
1,783,759
|
|
Affiliate revenues
|
|
324
|
|
|
5,522
|
|
|
994
|
|
|
92
|
|
|
6,932
|
|
Segment EBITDA
|
|
90,681
|
|
|
77,310
|
|
|
87,314
|
|
|
65,563
|
|
|
320,868
|
|
Depreciation expense
|
|
12,095
|
|
|
8,034
|
|
|
9,659
|
|
|
4,806
|
|
|
34,594
|
|
Amortization expense
|
|
36,950
|
|
|
1,291
|
|
|
1,928
|
|
|
37,775
|
|
|
77,944
|
|
Severance, restructuring, and acquisition integration costs
|
|
4,434
|
|
|
19,267
|
|
|
8,307
|
|
|
831
|
|
|
32,839
|
|
Purchase accounting effects of acquisitions
|
|
4,089
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,089
|
|
Segment assets
|
|
373,848
|
|
|
284,327
|
|
|
291,984
|
|
|
108,554
|
|
|
1,058,713
|
|
As of and for the nine months ended October 2, 2016
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
560,966
|
|
|
$
|
452,951
|
|
|
$
|
438,746
|
|
|
$
|
296,986
|
|
|
$
|
1,749,649
|
|
Affiliate revenues
|
|
644
|
|
|
4,615
|
|
|
906
|
|
|
44
|
|
|
6,209
|
|
Segment EBITDA
|
|
89,317
|
|
|
80,605
|
|
|
73,700
|
|
|
66,715
|
|
|
310,337
|
|
Depreciation expense
|
|
12,086
|
|
|
10,028
|
|
|
8,165
|
|
|
4,974
|
|
|
35,253
|
|
Amortization expense
|
|
37,306
|
|
|
1,292
|
|
|
1,796
|
|
|
35,209
|
|
|
75,603
|
|
Severance, restructuring, and acquisition integration costs
|
|
5,871
|
|
|
7,280
|
|
|
7,982
|
|
|
5,939
|
|
|
27,072
|
|
Purchase accounting effects of acquisitions
|
|
195
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
195
|
|
Deferred gross profit adjustments
|
|
1,391
|
|
|
—
|
|
|
—
|
|
|
4,021
|
|
|
5,412
|
|
Segment assets
|
|
314,020
|
|
|
265,085
|
|
|
261,923
|
|
|
105,938
|
|
|
946,966
|
|
The following table is a reconciliation of the total of the reportable segments’ Revenues and EBITDA to consolidated revenues and consolidated income before taxes, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 1, 2017
|
|
October 2, 2016
|
|
October 1, 2017
|
|
October 2, 2016
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Total Segment Revenues
|
$
|
621,745
|
|
|
$
|
602,468
|
|
|
$
|
1,783,759
|
|
|
$
|
1,749,649
|
|
Deferred revenue adjustments (1)
|
—
|
|
|
(1,359
|
)
|
|
—
|
|
|
(5,412
|
)
|
Consolidated Revenues
|
$
|
621,745
|
|
|
$
|
601,109
|
|
|
$
|
1,783,759
|
|
|
$
|
1,744,237
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
$
|
117,531
|
|
|
$
|
111,936
|
|
|
$
|
320,868
|
|
|
$
|
310,337
|
|
Amortization of intangibles
|
(27,162
|
)
|
|
(23,808
|
)
|
|
(77,944
|
)
|
|
(75,603
|
)
|
Severance, restructuring, and acquisition integration costs (2)
|
(16,679
|
)
|
|
(12,795
|
)
|
|
(32,839
|
)
|
|
(27,072
|
)
|
Depreciation expense
|
(11,683
|
)
|
|
(11,603
|
)
|
|
(34,594
|
)
|
|
(35,253
|
)
|
Purchase accounting effects related to acquisitions (3)
|
(2,922
|
)
|
|
—
|
|
|
(4,089
|
)
|
|
(195
|
)
|
Deferred gross profit adjustments (1)
|
—
|
|
|
(1,359
|
)
|
|
—
|
|
|
(5,412
|
)
|
Income from equity method investment
|
2,551
|
|
|
586
|
|
|
5,835
|
|
|
1,077
|
|
Eliminations
|
(845
|
)
|
|
(977
|
)
|
|
(2,628
|
)
|
|
(2,694
|
)
|
Consolidated operating income
|
60,791
|
|
|
61,980
|
|
|
174,609
|
|
|
165,185
|
|
Interest expense, net
|
(19,385
|
)
|
|
(23,513
|
)
|
|
(66,424
|
)
|
|
(71,958
|
)
|
Loss on debt extinguishment
|
(51,594
|
)
|
|
—
|
|
|
(52,441
|
)
|
|
—
|
|
Consolidated income (loss) before taxes
|
$
|
(10,188
|
)
|
|
$
|
38,467
|
|
|
$
|
55,744
|
|
|
$
|
93,227
|
|
(1) For the
three and nine
months ended
October 2, 2016
, our segment results include revenues that would have been recorded by acquired businesses had they remained as independent entities. Our consolidated results do not include these revenues due to the purchase accounting effect of recording deferred revenue at fair value.
(2) See Note 8,
Severance, Restructuring, and Acquisition Integration Activities,
for details
.
(3) For the
three and nine
months ended October 1, 2017 and nine months ended
October 2, 2016
, we recognized cost of sales for the adjustment of acquired inventory to fair value related to the Thinklogical and M2FX acquisitions, respectively.
Note 5: Income per Share
The following table presents the basis for the income per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 1, 2017
|
|
October 2, 2016
|
|
October 1, 2017
|
|
October 2, 2016
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
945
|
|
|
$
|
36,072
|
|
|
$
|
62,417
|
|
|
$
|
94,363
|
|
Less: Net loss attributable to noncontrolling interest
|
(82
|
)
|
|
(88
|
)
|
|
(274
|
)
|
|
(286
|
)
|
Less: Preferred stock dividends
|
8,732
|
|
|
6,695
|
|
|
26,198
|
|
|
6,695
|
|
Net income (loss) attributable to Belden common stockholders
|
$
|
(7,705
|
)
|
|
$
|
29,465
|
|
|
$
|
36,493
|
|
|
$
|
87,954
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
42,256
|
|
|
42,126
|
|
|
42,251
|
|
|
42,073
|
|
Effect of dilutive common stock equivalents
|
—
|
|
|
522
|
|
|
412
|
|
|
461
|
|
Weighted average shares outstanding, diluted
|
42,256
|
|
|
42,648
|
|
|
42,663
|
|
|
42,534
|
|
For the three and nine months ended
October 1, 2017
, diluted weighted average shares outstanding do not include outstanding equity awards of
0.9 million
and
0.5 million
, respectively, because to do so would have been anti-dilutive. In addition, for both the three and nine months ended
October 1, 2017
, diluted weighted average shares outstanding do not include outstanding equity awards of
0.2 million
because the related performance conditions have not been satisfied. Furthermore, for the three and nine months ended
October 1, 2017
, diluted weighted average shares outstanding do not include the impact of preferred shares that are convertible into
6.8 million
and
6.9 million
common shares, respectively, because deducting the preferred stock dividends from net income was more dilutive.
For the three and nine months ended
October 2, 2016
, diluted weighted average shares outstanding do not include outstanding equity awards of
0.4 million
and
0.7 million
, respectively, because to do so would have been anti-dilutive. In addition, for both the three and nine months ended
October 2, 2016
, diluted weighted average shares outstanding do not include outstanding equity awards of
0.1 million
because the related performance conditions have not been satisfied. Furthermore, for the three and nine months ended
October 2, 2016
, diluted weighted average shares outstanding do not include the impact of preferred shares that are convertible into
5.2 million
and
1.7 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 6: Inventories
The major classes of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
October 1, 2017
|
|
December 31, 2016
|
|
|
|
|
|
(In thousands)
|
Raw materials
|
$
|
119,754
|
|
|
$
|
90,019
|
|
Work-in-process
|
39,672
|
|
|
25,166
|
|
Finished goods
|
130,009
|
|
|
99,784
|
|
Gross inventories
|
289,435
|
|
|
214,969
|
|
Excess and obsolete reserves
|
(26,941
|
)
|
|
(24,561
|
)
|
Net inventories
|
$
|
262,494
|
|
|
$
|
190,408
|
|
Note 7: Long-Lived Assets
Depreciation and Amortization Expense
We recognized depreciation expense of
$11.7 million
and
$34.6 million
in the
three and nine
months ended
October 1, 2017
, respectively. We recognized depreciation expense of
$11.6 million
and
$35.3 million
in the
three and nine
months ended
October 2, 2016
, respectively.
In connection with the segment change discussed in Note 4, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of
10
years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of
$0.8 million
and
$2.4 million
for the three and nine months ended October 1, 2017, respectively. As of
October 1, 2017
, the net book value of the Tripwire trademark was
$28.6 million
.
We recognized amortization expense related to our intangible assets of
$27.2 million
and
$77.9 million
in the
three and nine
months ended
October 1, 2017
, respectively. We recognized amortization expense related to our intangible assets of
$23.8 million
and
$75.6 million
in the
three and nine
months ended
October 2, 2016
, respectively.
Note 8: Severance, Restructuring, and Acquisition Integration Activities
Industrial and Network Solutions Restructuring Program: 2015-2016
Both our Industrial Solutions and Network Solutions segments were negatively impacted by a decline in sales volume in 2015. At such time, global demand for industrial products was negatively impacted by the strengthened U.S. dollar and lower energy prices. As a result, our customers reduced their capital spending. In response to these industrial market conditions, we began to execute a restructuring program in the fourth fiscal quarter of 2015 to reduce our cost structure. We recognized
$2.6 million
and
$8.4 million
of severance and other restructuring costs for this program during
the three and nine months ended October 2, 2016, respectively. Most of these costs were incurred by our Network Solutions segment. We did not incur any severance and other restructuring costs for this program in 2017. To date, we have incurred a total of
$13 million
in severance and other restructuring costs for this program. We expect the restructuring program to generate approximately
$18 million
of savings on an annualized basis, and we are substantially realizing such benefits.
Industrial Manufacturing Footprint Program: 2016 - 2017
In 2016, we began a program to consolidate our manufacturing footprint. The manufacturing consolidation is expected to be completed in 2018. We recognized
$10.0 million
and
$12.5 million
of severance and other restructuring costs for this program during the three and nine months ended October 2, 2016, respectively. We recognized
$11.4 million
and
$25.3 million
of severance and other restructuring costs for this program during the
three and nine
months ended
October 1, 2017
, respectively. The costs were incurred by the Enterprise Solutions and Industrial Solutions segments, as the manufacturing locations involved in the program serve both platforms. To date, we have incurred a total of
$43.1 million
in severance and other restructuring costs, including manufacturing inefficiencies for this program. We expect to incur approximately
$7 million
of additional severance and other restructuring costs for this program over 2017 and 2018. We expect the program to generate approximately
$13 million
of savings on an annualized basis, which we began to realize in the third quarter of 2017.
Grass Valley Restructuring Program: 2015-2016
Our Broadcast Solutions segment’s Grass Valley brand was negatively impacted by a decline in global demand of broadcast technology infrastructure products beginning in 2015. Outside of the U.S., demand for these products was impacted by the relative price increase of products due to the strengthened U.S. dollar as well as the impact of weaker economic conditions which resulted in lower capital spending. Within the U.S., demand for these products was impacted by deferred capital spending. We believe broadcast customers deferred their capital spending as they navigated through a number of important industry transitions and a changing media landscape. In response to these broadcast market conditions, we began to execute a restructuring program beginning in the third fiscal quarter of 2015 to reduce our cost structure. We recognized
$0.1 million
and
$5.1 million
of severance and other restructuring costs for this program during
the three and nine months ended October 2, 2016, respectively. We did not incur any severance and other restructuring costs for this program in 2017. To date, we have incurred a total of
$34.1 million
in severance and other restructuring costs for this program. We expect the restructuring program to generate approximately
$30 million
of savings on an annualized basis, and we are substantially realizing such benefits.
The following table summarizes the costs by segment of the various programs described above as well as other immaterial programs and acquisition integration activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
Other
Restructuring and
Integration Costs
|
|
Total Costs
|
|
|
|
|
|
|
|
Three Months Ended October 1, 2017
|
|
(In thousands)
|
Broadcast Solutions
|
|
$
|
510
|
|
|
$
|
2,546
|
|
|
$
|
3,056
|
|
Enterprise Solutions
|
|
712
|
|
|
5,541
|
|
|
6,253
|
|
Industrial Solutions
|
|
712
|
|
|
6,128
|
|
|
6,840
|
|
Network Solutions
|
|
—
|
|
|
530
|
|
|
530
|
|
Total
|
|
$
|
1,934
|
|
|
$
|
14,745
|
|
|
$
|
16,679
|
|
Three Months Ended October 2, 2016
|
|
|
|
|
|
|
Broadcast Solutions
|
|
$
|
(114
|
)
|
|
$
|
288
|
|
|
$
|
174
|
|
Enterprise Solutions
|
|
(21
|
)
|
|
5,594
|
|
|
5,573
|
|
Industrial Solutions
|
|
184
|
|
|
4,562
|
|
|
4,746
|
|
Network Solutions
|
|
1,103
|
|
|
1,199
|
|
|
2,302
|
|
Total
|
|
$
|
1,152
|
|
|
$
|
11,643
|
|
|
$
|
12,795
|
|
Nine Months Ended October 1, 2017
|
|
|
|
|
|
|
Broadcast Solutions
|
|
$
|
559
|
|
|
$
|
3,875
|
|
|
$
|
4,434
|
|
Enterprise Solutions
|
|
2,839
|
|
|
16,428
|
|
|
19,267
|
|
Industrial Solutions
|
|
865
|
|
|
7,442
|
|
|
8,307
|
|
Network Solutions
|
|
—
|
|
|
831
|
|
|
831
|
|
Total
|
|
$
|
4,263
|
|
|
$
|
28,576
|
|
|
$
|
32,839
|
|
Nine Months Ended October 2, 2016
|
|
|
|
|
|
|
Broadcast Solutions
|
|
$
|
(865
|
)
|
|
$
|
6,736
|
|
|
$
|
5,871
|
|
Enterprise Solutions
|
|
55
|
|
|
7,225
|
|
|
7,280
|
|
Industrial Solutions
|
|
1,961
|
|
|
6,021
|
|
|
7,982
|
|
Network Solutions
|
|
3,734
|
|
|
2,205
|
|
|
5,939
|
|
Total
|
|
$
|
4,885
|
|
|
$
|
22,187
|
|
|
$
|
27,072
|
|
Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended
October 1, 2017
,
$12.4 million
,
$4.2 million
, and
$0.1 million
were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended
October 2, 2016
,
$2.9 million
,
$9.9 million
, and
$0.0 million
were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.
Of the total severance, restructuring, and acquisition integration costs recognized in the nine months ended
October 1, 2017
,
$26.5 million
,
$6.2 million
, and
$0.1 million
were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the nine months ended
October 2, 2016
,
$6.8 million
,
$19.6 million
, and
$0.7 million
were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.
The other restructuring and integration costs primarily consisted of non-cash pension settlement charges due in part to our restructuring activities as well as equipment transfer, costs to consolidate operating and support facilities, retention bonuses, relocation, travel, legal, and other costs. The majority of the other cash restructuring and integration costs related to these actions were paid as incurred or are payable within the next
60 days
.
There were no significant severance accrual balances as of October 1, 2017 or December 31, 2016.
Note 9: Long-Term Debt and Other Borrowing Arrangements
The carrying values of our long-term debt were as follows:
|
|
|
|
|
|
|
|
|
|
October 1, 2017
|
|
December 31, 2016
|
|
|
|
|
|
(In thousands)
|
Revolving credit agreement due 2022
|
$
|
—
|
|
|
$
|
—
|
|
Senior subordinated notes:
|
|
|
|
3.375% Senior subordinated notes due 2027
|
528,165
|
|
|
—
|
|
4.125% Senior subordinated notes due 2026
|
234,740
|
|
|
209,081
|
|
2.875% Senior subordinated notes due 2025
|
352,110
|
|
|
—
|
|
5.25% Senior subordinated notes due 2024
|
200,000
|
|
|
200,000
|
|
5.50% Senior subordinated notes due 2023
|
238,805
|
|
|
529,146
|
|
5.50% Senior subordinated notes due 2022
|
—
|
|
|
700,000
|
|
9.25% Senior subordinated notes due 2019
|
—
|
|
|
5,221
|
|
Total senior subordinated notes
|
1,553,820
|
|
|
1,643,448
|
|
Less unamortized debt issuance costs
|
(23,743
|
)
|
|
(23,287
|
)
|
Long-term debt
|
$
|
1,530,077
|
|
|
$
|
1,620,161
|
|
Revolving Credit Agreement due 2022
On May 16, 2017, we entered into an Amended and Restated Credit Agreement (the Revolver) to amend and restate our prior Revolving Credit Agreement. The Revolver provides a
$400.0 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. We recognized a
$0.8 million
loss on debt extinguishment for unamortized debt issuance costs related to creditors no longer participating in the new Revolver. In connection with executing the Revolver, we paid
$2.2 million
of fees to creditors and third parties that we will amortize over the remaining term of the Revolver. As of
October 1, 2017
, we had
no
borrowings outstanding on the Revolver, and our available borrowing capacity was
$314.1 million
.
Senior Subordinated Notes
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
October 1, 2017
is
$528.2 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 2026, 2025, 2024, and 2023 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on January 15 and July 15 of each year, beginning on January 15, 2018. We paid approximately
$8.7 million
of fees associated with the issuance of the 2027 Notes, which will be amortized over the life of the 2027 Notes using the effective interest method. We used the net proceeds from this offering and cash on hand to repurchase all of the
$700.0 million
2022 Notes outstanding for cash consideration of
$722.7 million
. We recognized a
$29.8 million
loss on debt extinguishment including the write-off of unamortized debt issuance costs.
We have outstanding
€200.0 million
aggregate principal amount of
4.125%
senior subordinated notes due
2026
(the 2026 Notes). The carrying value of the 2026 Notes as of
October 1, 2017
is
$234.7 million
. The 2026 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2026 Notes rank equal in right of payment with our senior subordinated notes due 2027, 2025, 2024, and 2023 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
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
October 1, 2017
is
$352.1 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 2027, 2026, 2024, and 2023 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on March 15 and September 15 of each year, beginning on March 15, 2018. We paid approximately
$5.7 million
of fees associated with the issuance of the 2025 Notes, which will be amortized over the life of the 2025 Notes using the effective interest method. We used the net proceeds from this offering to repurchase
€300.0 million
of the
€500.0 million
2023 Notes outstanding. See further discussion below.
We have outstanding
$200.0 million
aggregate principal amount of
5.25%
senior subordinated notes due
2024
(the 2024 Notes). The 2024 Notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The 2024 Notes rank equal in right of payment with our senior subordinated notes due 2027, 2026, 2025, and 2023 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on January 15 and July 15 of each year.
We had outstanding
€500.0 million
aggregate principal amount of
5.5%
senior subordinated notes due
2023
(the 2023 Notes). In September 2017, we repurchased
€300.0 million
of the
€500.0 million
2023 Notes outstanding for cash consideration of
$377.9 million
and recognized a
$21.8 million
loss on debt extinguishment including the write-off of unamortized debt issuance costs. The carrying value of the 2023 Notes as of
October 1, 2017
is
$238.8 million
.
The 2023 Notes are guaranteed on a senior subordinated basis by certain of our subsidiaries.
The notes rank equal in right of payment with our senior subordinated notes due 2027, 2026, 2025, and 2024 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
We had outstanding
$5.2 million
aggregate principal amount of
9.25%
senior subordinated notes due
2019
(the 2019 Notes). On June 15, 2017, we repaid all of the 2019 Notes outstanding, plus accrued interest, and recognized an immaterial loss on debt extinguishment related to unamortized debt issuance costs.
Fair Value of Long-Term Debt
The fair value of our senior subordinated notes as of
October 1, 2017
was approximately
$1,582.9 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
$1,553.8 million
as of
October 1, 2017
.
Note 10: Net Investment Hedge
All of our euro denominated notes were issued by Belden Inc., a USD functional currency ledger. As of October 1, 2017, 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 operation against adverse changes in exchange rates. The transaction gain or loss is reported in the cumulative translation adjustment section of other comprehensive income. The amount of the cumulative translation adjustment associated with these notes at
October 1, 2017
was
$25.3 million
.
Note 11: Income Taxes
We recognized an income tax benefit of
$11.1 million
and
$6.7 million
for the three and nine months ended
October 1, 2017
, respectively, representing effective tax rates of
109.3%
and
(12.0)%
, respectively. The effective tax rates were impacted by the following significant factors:
|
|
•
|
We recognized an income tax benefit of
$2.5 million
and
$8.4 million
in the three and nine months ended October 1, 2017, respectively, as a result of the implementation of a foreign tax credit planning strategy.
|
|
|
•
|
Foreign tax rate differences reduced our income tax expense by approximately
$1.4 million
and
$8.4 million
in the three and nine months ended October 1, 2017, respectively. The statutory tax rates associated with our foreign earnings generally are lower than the statutory U.S. tax rate of
35%
. This had the greatest impact on our income before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately
28%
,
26%
, and
25%
, respectively.
|
|
|
•
|
We also recognized an income tax benefit of
$6.4 million
and
$11.7 million
in the three and nine months ended October 1, 2017, respectively, related to non-taxable currency translation gains.
|
All other items impacting the effective tax rate represented a net expense of
$2.6 million
and
$2.3 million
in the three and nine months ended October 1, 2017, respectively.
We recognized income tax expense of
$2.4 million
for the three months ended
October 2, 2016
, representing an effective tax rate of
6.2%
. We recognized an income tax benefit of
$1.1 million
for the nine months ended
October 2, 2016
, representing an effective tax rate of
(1.2)%
. The effective tax rates were impacted by the following significant factors:
|
|
•
|
We recognized
$2.9 million
and
$11.0 million
of tax benefit in the
three and nine
months ended
October 2, 2016
, respectively, as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
|
|
|
•
|
We also recognized a
$7.0 million
tax benefit in the nine months ended
October 2, 2016
for the reduction of deferred tax liabilities related to a previously completed acquisition. As part of an implemented tax planning strategy, we secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the tax benefit.
|
|
|
•
|
In the three and
nine
months ended
October 2, 2016
, we recognized tax benefits of
$2.2 million
and
$6.0 million
, respectively, as a result of reducing a deferred tax valuation allowance related to net operating loss carryforwards in a foreign jurisdiction. Based on certain restructuring transactions in the
nine
months ended
October 2, 2016
, the net operating loss carryforwards are expected to be realizable.
|
The tax benefits described above for the nine months ended
October 2, 2016
were partially offset by a
$2.7 million
tax expense to record a liability for uncertain tax positions in one of our foreign jurisdictions.
Note 12: Pension and Other Postretirement Obligations
The following table provides the components of net periodic benefit costs for our pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Obligations
|
|
Other Postretirement Obligations
|
Three Months Ended
|
|
October 1, 2017
|
|
October 2, 2016
|
|
October 1, 2017
|
|
October 2, 2016
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Service cost
|
|
$
|
1,206
|
|
|
$
|
1,282
|
|
|
$
|
14
|
|
|
$
|
11
|
|
Interest cost
|
|
1,822
|
|
|
2,202
|
|
|
344
|
|
|
305
|
|
Expected return on plan assets
|
|
(2,487
|
)
|
|
(2,931
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
|
(10
|
)
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
Actuarial losses
|
|
633
|
|
|
659
|
|
|
23
|
|
|
29
|
|
Settlement loss
|
|
—
|
|
|
7,385
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
1,164
|
|
|
$
|
8,586
|
|
|
$
|
381
|
|
|
$
|
334
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,549
|
|
|
$
|
4,118
|
|
|
$
|
41
|
|
|
$
|
40
|
|
Interest cost
|
|
5,391
|
|
|
7,020
|
|
|
1,000
|
|
|
1,152
|
|
Expected return on plan assets
|
|
(7,415
|
)
|
|
(9,339
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
|
(30
|
)
|
|
(29
|
)
|
|
—
|
|
|
(33
|
)
|
Actuarial losses
|
|
1,866
|
|
|
2,067
|
|
|
68
|
|
|
260
|
|
Settlement loss
|
|
—
|
|
|
7,385
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
3,361
|
|
|
$
|
11,222
|
|
|
$
|
1,109
|
|
|
$
|
1,419
|
|
Note 13: Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
The following table summarizes total comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 1, 2017
|
|
October 2, 2016
|
|
October 1, 2017
|
|
October 2, 2016
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Net income
|
$
|
945
|
|
|
$
|
36,072
|
|
|
$
|
62,417
|
|
|
$
|
94,363
|
|
Foreign currency translation loss, net of $1.1 million, $0.4 million, $1.5 million, and $1.5 million tax, respectively
|
(19,535
|
)
|
|
(8,762
|
)
|
|
(46,478
|
)
|
|
(9,855
|
)
|
Adjustments to pension and postretirement liability, net of $0.2 million, $3.1 million, $0.7 million, and $3.7 million tax, respectively
|
397
|
|
|
4,952
|
|
|
1,171
|
|
|
5,934
|
|
Total comprehensive income (loss)
|
(18,193
|
)
|
|
32,262
|
|
|
17,110
|
|
|
90,442
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
(66
|
)
|
|
(91
|
)
|
|
(306
|
)
|
|
(318
|
)
|
Comprehensive income (loss) attributable to Belden
|
$
|
(18,127
|
)
|
|
$
|
32,353
|
|
|
$
|
17,416
|
|
|
$
|
90,760
|
|
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Component
|
|
Pension and
Other
Postretirement
Benefit Plans
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
(In thousands)
|
Balance at December 31, 2016
|
$
|
(4,661
|
)
|
|
$
|
(34,406
|
)
|
|
$
|
(39,067
|
)
|
Other comprehensive loss attributable to Belden before reclassifications
|
(46,446
|
)
|
|
—
|
|
|
(46,446
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
1,171
|
|
|
1,171
|
|
Net current period other comprehensive loss attributable to Belden
|
(46,446
|
)
|
|
1,171
|
|
|
(45,275
|
)
|
Balance at October 1, 2017
|
$
|
(51,107
|
)
|
|
$
|
(33,235
|
)
|
|
$
|
(84,342
|
)
|
The following table summarizes the effects of reclassifications from accumulated other comprehensive income (loss) for the
nine
months ended
October 1, 2017
:
|
|
|
|
|
|
|
|
Amount
Reclassified from
Accumulated
Other
Comprehensive Income
(Loss)
|
|
Affected Line
Item in the
Consolidated Statements
of Operations and
Comprehensive Income
|
|
|
|
|
|
(In thousands)
|
|
|
Amortization of pension and other postretirement benefit plan items:
|
|
|
|
Actuarial losses
|
$
|
1,934
|
|
|
(1)
|
Prior service credit
|
(30
|
)
|
|
(1)
|
Total before tax
|
1,904
|
|
|
|
Tax benefit
|
(733
|
)
|
|
|
Total net of tax
|
$
|
1,171
|
|
|
|
(1) The amortization of these accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit costs (see Note 12).
Note 14: Preferred Stock
On July 26, 2016, we issued
5.2 million
depositary shares, each of which represents 1/100th interest in a share of
6.75%
Series B Mandatory Convertible Preferred Stock (the Preferred Stock), for an offering price of
$100
per depositary share. Holders of the Preferred Stock may elect to convert their shares into common stock at any time prior to the mandatory conversion date. Unless earlier converted, each share of Preferred Stock will automatically convert into common stock on or around July 15, 2019 into between
120.46
and
132.50
shares of Belden common stock, subject to customary anti-dilution adjustments. This represents a range of
6.2 million
to
6.9 million
shares of Belden common stock to be issued upon conversion. The number of shares of Belden common stock issuable upon the mandatory conversion of the Preferred Stock will be determined based upon the volume-weighted average price of Belden’s common stock over the
20
day trading period beginning on, and including, the 22nd scheduled trading day prior to July 15, 2019. The net proceeds from this offering were approximately
$501 million
. The net proceeds are for general corporate purposes. With respect to dividend and liquidation rights, the Preferred Stock ranks senior to our common stock and junior to all of our existing and future indebtedness. During the three and nine months ended
October 1, 2017
, dividends on the Preferred Stock were
$8.7 million
and
$26.2 million
, respectively.
Note 15: Share Repurchases
On May 25, 2017, our Board of Directors authorized a share repurchase program, which allows us to purchase up to
$200.0 million
of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. This program is funded with cash on hand and cash flows from operating activities. The program does not have an expiration date and may be suspended at any time at the discretion of the Company. During both the three and nine months ended October 1, 2017, we repurchased
0.2 million
shares of our common stock under the share repurchase program for an aggregate cost of
$11.5 million
and an average price per share of
$76.16
.