Company Quick10K Filing
Quick10K
Belden
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$58.90 39 $2,320
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-20 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-12-03 Other Events
8-K 2018-10-31 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-08-01 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-05-24 Shareholder Vote, Other Events, Shareholder Vote, Other Events
8-K 2018-05-02 Earnings, Exhibits, Earnings, Exhibits
8-K 2018-03-23 Shareholder Rights, Exhibits
8-K 2018-03-13 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-03-06 Enter Agreement, Enter Agreement, Other Events, Exhibits
8-K 2018-02-01 Earnings, Exhibits, Earnings, Exhibits
DCP DCP Midstream 4,620
NVRO Nevro 2,030
DLX Deluxe 2,010
NXGN Nextgen Healthcare 1,140
COWN Cowen 474
AXTI AXT 197
REPH Recro Pharma 184
GBCS Global Healthcare REIT 0
OMPS Omphalos 0
BKGMF Bankguam Holding 0
BDC 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1: Basis of Presentation
Note 2: Summary of Significant Accounting Policies
Note 3: Revenues
Note 4: Acquisitions
Note 5: Operating Segments and Geographic Information
Note 6: Noncontrolling Interest
Note 7: Income per Share
Note 8: Inventories
Note 9: Property, Plant and Equipment
Note 10: Intangible Assets
Note 11: Accrued Liabilities
Note 12: Severance, Restructuring, and Acquisition Integration Activities
Note 13: Long-Term Debt and Other Borrowing Arrangements
Note 14: Net Investment Hedge
Note 15: Income Taxes
Note 16: Pension and Other Postretirement Benefits
Note 17: Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
Note 18: Share-Based Compensation
Note 19: Preferred Stock
Note 20: Stockholder Rights Plan
Note 21: Share Repurchases
Note 22: Operating Leases
Note 23: Market Concentrations and Risks
Note 24: Contingent Liabilities
Note 25: Supplemental Cash Flow Information
Note 26: Quarterly Operating Results (Unaudited)
Note 27: Subsequent Events
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
EX-21.1 exhibit211.htm
EX-23.1 exhibit231.htm
EX-24.1 exhibit241.htm
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32.1 exhibit321.htm
EX-32.2 exhibit322.htm

Belden Earnings 2018-12-31

BDC 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 bdc-20183112x10k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2018
or
o    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
36-3601505
(State or Other Jurisdiction of
(IRS Employer
Incorporation or Organization)
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
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
The New York Stock Exchange
Depositary Shares, each representing a 1/100th interest in a share of 6.75% Series B Mandatory Converible Preferred Stock
 
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  þ   No  o.
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  o  No  þ.
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  þ  No  o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  o.



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 þ               Accelerated filer ¨       
Non-accelerated filer ¨                  Smaller reporting company ¨    
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  o   No   þ.
At July 1, 2018, the aggregate market value of Common Stock of Belden Inc. held by non-affiliates was $1,874,027,335 based on the closing price ($61.12) of such stock on such date.
There were 39,399,412 shares of registrant’s Common Stock outstanding on February 15, 2019.
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, 2018 (the “Proxy Statement”). Portions of such proxy statement are incorporated by reference into Part III.




Form 10-K
Item No.
 
Name of Item
 
Page
Part I
 
 
 
 
Item 1.
 
 
Item 1A.
 
 
Item 1B.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
Part II
 
 
 
 
Item 5.
 
 
Item 6.
 
 
Item 7.
 
 
Item 7A.
 
 
Item 8.
 
 
Item 9.
 
 
Item 9A.
 
 
Item 9B.
 
 
 
 
 
 
 
Part III
 
 
 
 
Item 10.
 
 
Item 11.
 
 
Item 12.
 
 
Item 13.
 
 
Item 14.
 
 
 
 
 
 
 
Part IV.
 
 
 
 
Item 15.
 
 
 
 
 




Part I
Item 1. Business
General
Belden Inc. (Belden, the Company, us, we, or our) is an innovative signal transmission solutions company built around two global business platforms – Enterprise Solutions and Industrial Solutions. Each of the global business platforms represents a reportable segment. Financial information about our segments appears in Note 5 to the Consolidated Financial Statements.
Our comprehensive portfolio of signal transmission 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 significant cash flow. We generated cash flows from operating activities of $289.2 million, $255.3 million, and $314.8 million in 2018, 2017, and 2016, 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 broadcast, 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, broadcast studios, and academias. 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 products are also used in a variety of applications, including live production and performance, video display and digital signage, and corporate communications. 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 convergence, the increased use of

2


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; 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, insulating, 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 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 April 2018 we acquired Net-Tech Technology, Inc. (NT2). NT2 is 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 April 25, 2018, and are reported within the Enterprise Solutions segment.
In February 2018, we acquired Snell Advanced Media (SAM). SAM designs, manufactures, and sells innovative content production and distribution systems for the broadcast and media markets. The results of SAM have been included in our Consolidated Financial Statements from February 8, 2018, and are reported within the Enterprise Solutions segment.
In May 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.
In January 2016, we acquired M2FX Limited (M2FX), a manufacturer of fiber optic cable and fiber protection solutions for broadband and telecommunications networks. The results of M2FX 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. represented approximately 12% of our consolidated revenues in 2018. No other customer accounted for more than 10% of our revenues in 2018.

3


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 2018, approximately 49% 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 5 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 its markets on the basis of our reputation, 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, the trend towards increasingly complex broadcast production, management, and distribution environments continues to evolve. Our end-user customers need to increase efficiency and enhance workflow through systems and infrastructure. Our broadcast products allow content producers, broadcasters, and service providers to manage the increasingly complex broadcast signals throughout their operations. 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

4


work in 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™, Mohawk®, West Penn Wire™, Hirschmann®, Lumberg Automation™, GarrettCom®, Poliron™, Tofino®, PPC®, Grass Valley®, ProSoft Technology®, Tripwire®, and Thinklogical®.
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.
 
 
2018
 
2017
 
2016
Copper spot prices per pound
 
 
 
 
 
High
$
3.29

 
$
3.29

 
$
2.69

Low
$
2.56

 
$
2.48

 
$
1.94

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.

5


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, 2018, our backlog of orders believed to be firm was $287.9 million. The majority of the backlog at December 31, 2018 is scheduled to be shipped in 2019.
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, 2018, we had approximately 9,000 employees worldwide. We also utilized approximately 400 workers under contract manufacturing arrangements. Approximately 1,900 employees are covered by collective bargaining agreements at various locations around the world. We believe our relationship with our employees is generally good.
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.
Executive Officers
The following table sets forth certain information with respect to the persons who were Belden executive officers as of February 19, 2019. 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
 
Age
 
Position
John Stroup
 
52
 
President, Chief Executive Officer, and Chairman
Brian Anderson
 
44
 
Senior Vice President, Legal, General Counsel and Corporate Secretary
Henk Derksen
 
50
 
Senior Vice President, Finance, and Chief Financial Officer
Leo Kulmaczewski
 
53
 
Senior Vice President, Operations and Lean Enterprise
Dean McKenna
 
50
 
Senior Vice President, Human Resources
Glenn Pennycook
 
56
 
Executive Vice President, Enterprise Solutions
Ross Rosenberg
 
49
 
Senior Vice President, Strategy and Corporate Development
Dhrupad Trivedi
 
52
 
Executive Vice President, Chief Technology Officer and President, Tripwire
Paul Turner
 
55
 
Senior Vice President, Sales
Roel Vestjens
 
44
 
Executive Vice President, Industrial Solutions
Doug Zink
 
43
 
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

6


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 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.
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 was appointed Senior Vice President, Human Resources in 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.
Glenn Pennycook has been Executive Vice President, Enterprise Solutions since February 2018. Prior to that, Mr. Pennycook was Executive Vice President, Enterprise Solutions and Broadband Solutions from February 2017 to February 2018 and Executive Vice President, Enterprise Solutions from May 2013 to February 2017. Before serving in that role, Mr. Pennycook as President of the Enterprise Solutions Division, after joining Belden in November 2008. Prior to joining the Company, he spent 5 years with Pregis Corporation as Director of Operations for Protective Packaging Europe, and was promoted to Managing Director for Western Europe in 2005. He has a degree in Chemical Engineering from McMaster University, Hamilton Ontario, Canada.
Ross Rosenberg was appointed Senior Vice President of Strategy & Corporate Development at the Company in February 2013, and became an executive officer in May 2014. Prior to joining the Company, he led corporate development and global marketing at First Solar, the world’s largest provider of utility-scale solar power plant solutions. Prior to First Solar, Mr. Rosenberg ran a division of Danaher, a large diversified industrial technology company. At Danaher, he held several executive management roles, as well as vice president, marketing for a division and group vice president, strategy and business development. Mr. Rosenberg holds a B.S. in Accounting from University of Illinois, an M.B.A. from The Wharton School at the University of Pennsylvania and is a Certified Public Accountant.
Dhrupad Trivedi has been Executive Vice President, Chief Technology Officer and President, Tripwire since February 2018. Prior to that, Mr. Trivedi was Executive Vice President, Network Solutions from January 2017 to February 2018, Executive Vice President of the former Network Security Solutions segment from August 2016 to January 2017 and Executive Vice President of the former Industrial IT Solutions segment from April 2013 to August 2016. Mr. Trivedi fulfilled other corporate development, strategy and general management roles in his earlier Belden career dating back to January 2010. Prior to joining the Company, he was responsible for General Management and Corporate Development roles at JDS Uniphase. Mr. Trivedi has an MBA from Duke University and a Ph.D. in Electrical Engineering from University of Massachusetts, Amherst.
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.

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Roel Vestjens has been Executive Vice President, Industrial Solutions since February 2018. 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.

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.
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 broadcast, 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 becoming 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.
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 becoming more heavily involved in operation areas that have not historically been associated with information technology. As a result, CIOs and IT departments are exercising increased 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 increasing 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.



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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 anticipate, identify, develop and market products that respond to changes in 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 prevalence of cloud computing 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;
Preferences for software as a service billing and pricing models may reduce demand for non-cloud “packaged” software.

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.
We must complete further acquisitions in order to achieve our strategic plan.
In order to meet the goals in our strategic plan, we must complete further acquisitions. 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 are able to acquire.
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

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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, 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 and political risks inherent in maintaining operations abroad such as economic and political destabilization, land use risks, international conflicts, 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 49% 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 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 $420.6 million cash and cash equivalents balance as of December 31, 2018, $184.1 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,

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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 15 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 announced U.S. and Chinese tariff actions are not expected to be 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 and broadcast 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 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.

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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. 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.
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.

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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 12% of our revenue in 2018 and our top six distributors, including Anixter, accounted for a total of 22% of our revenue in 2018. 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, particularly where the survivor relies more heavily on our competitors, 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.
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.


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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, the European Commission has approved a data protection regulation, known as the General Data Protection Regulation (GDPR), which became effective in May 2018. The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union that are different than those previously in place in the European Union, and includes 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.

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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 2019 through 2028.
The table below summarizes the geographic locations of our manufacturing and other operating facilities utilized by our segments as of December 31, 2018.
 
Enterprise
Solutions
 
Industrial
Solutions
 
Utilized by
Multiple
Segments
 
Total
Brazil

 
1

 

 
1

Canada
1

 
1

 

 
2

China
1

 

 
1

 
2

Czech Republic

 
1

 

 
1

Denmark
2

 

 

 
2

Germany

 
4

 

 
4

Hungary

 

 
1

 
1

Italy

 

 
1

 
1

Japan
1

 

 

 
1

Mexico
1

 

 
2

 
3

Netherlands
1

 
1

 

 
2

St. Kitts
1

 

 

 
1

United Kingdom
3

 

 

 
3

United States
5

 
6

 
2

 
13

Total
16

 
14

 
7

 
37


In addition to the manufacturing and other operating facilities summarized above, our segments also utilize approximately 30 warehouses worldwide. As of December 31, 2018, we owned or leased a total of approximately 7 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
PPC Broadband, Inc. v. Corning Optical Communications RF, LLC - On July 5, 2011, the Company’s wholly-owned subsidiary, PPC Broadband, Inc. (“PPC”), filed an action for patent infringement in the U.S. District Court for the Northern District of New York against Corning Optical Communications RF LLC (“Corning”). The Complaint alleged that Corning infringed two of PPC’s patents - U.S. Patent Nos. 6,558,194 and 6,848,940 - each entitled “Connector and Method of Operation.” 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.
SEC Investigation - 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 15, 2019, there were 254 record holders of common stock of Belden Inc.
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. Set forth below is information regarding our stock repurchases for the three months ended December 31, 2018.
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
 
 
 
 
 
 
 
 
 
October 1, 2018 through November 4, 2018
 

 
$

 

 
$
50,000,000

November 5, 2018 through December 2, 2018
 
912,530

 
54.79

 
912,530

 
300,000,000

December 3, 2018 through December 31, 2018
 

 

 

 
300,000,000

     Total
 
912,530

 
$
54.79

 
912,530

 
$
300,000,000

 
 
 
 
 
 
 
 
 
During the fourth quarter of 2018, 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 $54.79. During the year ended December 31, 2018, we repurchased a total of 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. From inception of the program to December 31, 2018, we have repurchased 3.0 million shares of our common stock under the program for an aggregate cost of $200.0 million and an average price of $66.48.
We utilized all of the $200.0 million authorized under this share repurchase program. On November 29, 2018, our Board of Directors authorized a 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.


17


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, 2018, 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, 2013, 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.

stockperformancegraph2018.jpg

(1)
The chart above and the accompanying data are “furnished,” not “filed,” with the SEC.
Total Return To Shareholders
(Includes reinvestment of dividends)
 
 
 
 
ANNUAL RETURN PERCENTAGE
Years Ending December 31,
Company Name / Index
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
Belden Inc.
 
 
 
12.2
%
 
(39.3
)%
 
57.3
%
 
3.5
%
 
(45.7
)%
S&P 500 Index
 
 
 
13.7
%
 
1.4
 %
 
12.0
%
 
21.8
%
 
(4.4
)%
S&P 1500 Industrials Index
 
 
 
8.5
%
 
(2.7
)%
 
20.4
%
 
21.1
%
 
(13.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INDEXED RETURNS
 
 
 
 
Years Ending December 31,
Company Name / Index
 
Base Period
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Belden Inc.
 
$
100.00

 
$
112.18

 
$
68.09

 
$
107.10

 
$
110.83

 
$
60.21

S&P 500 Index
 
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

S&P 1500 Industrials Index
 
100.00

 
108.48

 
105.53

 
127.07

 
153.83

 
133.25


18


Item 6. Selected Financial Data
 
 
 
 
Years Ended December 31,
 
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
(In thousands, except per share amounts and percentages)
Balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
$
3,779,321

 
$
3,840,613

 
$
3,806,803

 
$
3,290,602

 
$
3,232,202

Long-term debt
1,463,200

 
1,560,748

 
1,620,161

 
1,725,282

 
1,736,954

Long-term debt, including current maturities
1,463,200

 
1,560,748

 
1,620,161

 
1,727,782

 
1,739,454

Total stockholders’ equity
1,387,588

 
1,434,866

 
1,461,317

 
825,523

 
807,186

Statement of operations data:
 
 
 
 
 
 
 
 
 
Revenues
2,585,368

 
2,388,643

 
2,356,672

 
2,309,222

 
2,308,265

Operating income
305,221

 
235,404

 
232,083

 
143,731

 
166,017

Operating income margin
11.8
%
 
9.9
%
 
9.8
%
 
6.2
%
 
7.2
%
Income from continuing operations
160,711

 
92,853

 
127,646

 
66,508

 
74,432

Basic income per share attributable to Belden common stockholders
3.10

 
1.38

 
2.67

 
1.57

 
1.72

Diluted income per share attributable to Belden common stockholders
3.08

 
1.37

 
2.65

 
1.55

 
1.69

Other data:
 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
40,675

 
42,220

 
42,093

 
42,390

 
43,273

Diluted weighted average common shares outstanding
40,956

 
42,643

 
42,557

 
42,953

 
43,997

Dividends per common share
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

Statement of cash flow data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
289,220

 
255,300

 
314,794

 
241,460

 
200,887

Adjusted results:
 
 
 
 
 
 
 
 
 
Adjusted revenues
2,591,980

 
2,388,643

 
2,357,805

 
2,360,583

 
2,320,219

Adjusted EBITDA
474,162

 
434,276

 
431,201

 
400,688

 
359,425

Adjusted EBITDA margin
18.3
%
 
18.2
%
 
18.3
%
 
17.0
%
 
15.5
%
Free cash flow
192,953

 
192,078

 
261,212

 
187,024

 
157,312

Consolidated Results
Since 2014, we have grown our revenues by 12.0%, from $2.3 billion in 2014 to $2.6 billion in 2018, representing a 2.3% compounded annual growth rate for that period. The majority of our revenue growth has been the result of our inorganic initiatives, described below, as we have been operating in a period of modest end market growth rates.
The trends in our operating income and income from continuing operations from 2014-2018 have been impacted by a number of acquisitions, dispositions, productivity improvement programs, and other matters, as follows:
During 2018, we acquired SAM and NT2 in our fiscal first and second quarters, respectively; and recognized severance, restructuring, and acquisition integration costs of $68.6 million primarily related to the integration of SAM with our Grass Valley business as well as costs from a program to consolidate our manufacturing footprint. We also recognized a $23.0 million loss on debt extinguishment related to our debt refinancing transactions during the year and a $62.1 million gain for amounts received from a patent infringement litigation - see further discussion in Part I Item 3 Legal Proceedings.
During 2017, we recognized a $52.4 million loss on debt extinguishment related to our debt refinancing transactions during the year; severance, restructuring, and acquisition integration costs of $42.8 million related to a number of productivity improvement programs; and acquired Thinklogical Holdings, LLC in our fiscal second quarter. 

19


During 2016, we recognized severance, restructuring, and acquisition integration costs of $38.8 million related to a number of productivity improvement programs. In addition, we acquired M2FX Limited in our fiscal first quarter.
During 2015, we recognized severance, restructuring, and acquisition integration costs of $47.2 million related to a number of productivity improvement programs. In addition, we acquired Tripwire in our fiscal first quarter. We also recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards related to our acquisition of Tripwire.
During 2014, we recognized severance, restructuring, and acquisition integration costs of $70.8 million related to the integration of acquired businesses and a productivity improvement program. In 2014, we acquired Grass Valley, ProSoft, and Coast. We recognized purchase accounting effects related to acquisitions, including the adjustment of acquired inventory to fair value, of $8.4 million.
See further discussion of our acquisitions and productivity improvement programs in Notes 4 and 12 to the Consolidated Financial Statements.
Since 2014, we have grown our operating cash flow by 44.0%, from $200.9 million in 2014 to $289.2 million in 2018, representing a 7.6% compounded annual growth rate for that period. Our strong operating cash flow is driven by our earnings growth, coupled with our efficient use of working capital.
Adjusted Results
Since 2014, we have grown our Adjusted Revenues by 11.7%, from $2.3 billion in 2014 to $2.6 billion in 2018, representing a 2.2% compounded annual growth rate for that period. The majority of our Adjusted Revenue growth has been the result of our inorganic initiatives, described above, as we have been operating in a period of modest end market growth rates.
We have grown our Adjusted EBITDA by 31.9%, from $359.4 million in 2014 to $474.2 million in 2018, representing a 5.7% compounded annual growth rate for that period. Adjusted EBITDA has grown due to the results of our inorganic initiatives, described above, which have transformed our product portfolio. Importantly, however, our Adjusted EBITDA has also grown due to the impact of productivity improvement programs, as we are committed to continuously improving our cost structure in a low organic growth environment. Furthermore, our Adjusted EBITDA has improved as Lean enterprise techniques have been applied at our acquired companies. These factors have all led to the improvement in Adjusted EBITDA margins from 15.5% in 2014 to 18.3% in 2018.
Since 2014, our free cash flow has increased by 22.7% from $157.3 million in 2014 to $193.0 million in 2018, representing a 4.2% compounded annual growth rate for that period. Our strong free cash flow is driven by our earnings growth, coupled with our efficient use of working capital and fixed assets.
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,

20


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.

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.

Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures:
 
 
December 31, 2018
 
December 31, 2017
 
Years Ended
December 31, 2016
 
December 31, 2015
 
December 31, 2014
 
 
 
(In thousands, except percentages)
 
 
GAAP revenues
$
2,585,368

 
$
2,388,643

 
$
2,356,672

 
$
2,309,222

 
$
2,308,265

Deferred revenue adjustments (1)
6,612

 

 
6,687

 
51,361

 
11,954

Patent settlement (2)

 

 
(5,554
)
 

 

Adjusted revenues
$
2,591,980

 
$
2,388,643

 
$
2,357,805

 
$
2,360,583

 
$
2,320,219

 
 
 
 
 
 
 
 
 
 
GAAP net income
160,711

 
92,853

 
127,646

 
66,180

 
$
74,449

Amortization of intangible assets
98,829

 
103,997

 
98,385

 
103,791

 
58,426

Severance, restructuring, and acquisition integration costs (3)
68,613

 
42,790

 
31,140

 
47,170

 
70,827

Interest expense, net
61,559

 
82,901

 
95,050

 
100,613

 
81,573

Income tax expense (benefit)
59,619

 
6,495

 
(1,185
)
 
(26,568
)
 
7,114

Depreciation expense
47,615

 
45,597

 
47,208

 
46,551

 
43,736

Loss on debt extinguishment
22,990

 
52,441

 
2,342

 

 

Deferred revenue adjustments (1)
6,612

 

 
6,687

 
52,876

 
10,777

Purchase accounting effects related to acquisitions (4)
3,497

 
6,133

 
(2,079
)
 
9,747

 
12,540

Costs related to patent litigation
2,634

 

 

 

 

Amortization of software development intangible assets
2,188

 
56

 

 

 

Non-operating pension settlement loss
1,342

 

 
7,630

 

 

Loss on sale of assets (5)
94

 
1,013

 

 

 

Impairment of assets held for sale (5)

 

 
23,931

 

 

Patent settlement (2)

 

 
(5,554
)
 

 

Gain from patent litigation
(62,141
)
 

 

 

 

Loss (Income) from discontinued operations

 

 

 
242

 
(579
)
Loss from disposal of discontinued operations

 

 

 
86

 
562

Adjusted EBITDA
$
474,162

 
$
434,276

 
$
431,201

 
$
400,688

 
$
359,425

GAAP net income margin
6.2
%
 
3.9
%
 
5.4
%
 
2.9
%
 
3.2
%
Adjusted EBITDA margin
18.3
%
 
18.2
%
 
18.3
%
 
17.0
%
 
15.5
%
 
(1)
Our adjusted 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)
Both our consolidated revenues and gross profit were positively impacted by royalty revenues received during 2016 that related to years prior to 2016 as a result of a patent settlement.

21


(3)
See Note 12 to the Consolidated Financial Statements, Severance, Restructuring, and Acquisition Integration Activities, for details.
(4)
In 2018, we recognized $3.5 million of cost of sales related to purchase accounting adjustments, most of which was for the adjustment of acquired inventory to fair value for our SAM and NT2 acquisitions. 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. In 2016, we made a $3.2 million adjustment to reduce the earn-out liability associated with the M2FX acquisition. This adjustment was partially offset by $0.8 million and $0.2 million of cost of sales related to the adjustment of acquired inventory to fair value related our Enterprise segment and M2FX acquisition, respectively. In 2015, we recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards associated with our acquisition of Tripwire. In addition, we recognized $0.3 million of cost of sales related to the adjustment of acquired inventory to fair value related to our acquisition of Coast and $0.3 million of acquisition related transaction costs. In 2014, we recognized $8.4 million of cost of sales related to the adjustment of acquired inventory to fair value for our acquisitions of Grass Valley, ProSoft, and Coast, as well as $4.1 million of acquisition related transaction costs.
(5)
In 2018, 2017, and 2016, we recognized a $0.1 million loss on sale of assets, $1.0 million loss on sale of assets, and $23.9 million impairment of assets held for sale, respectively, for the sale of our MCS business and Hirschmann JV.

The following table reconciles our GAAP results to our non-GAAP financial measures:
 
Years ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
 
(In thousands)
 
 
Net cash provided by operating activities
$
289,220

 
$
255,300

 
$
314,794

 
$
241,460

 
$
200,887

Capital expenditures, net of proceeds from the disposal of tangible assets
(96,267
)
 
(63,222
)
 
(53,582
)
 
(54,436
)
 
(43,575
)
Free cash flow
$
192,953

 
$
192,078

 
$
261,212

 
$
187,024

 
$
157,312




22


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
We are a signal transmission solutions company 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 people, 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 flows, 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 2018
The following trends and events during 2018 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.


23


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.
Operating Segments
Effective January 1, 2018, we changed our organizational structure and, as a result, now are reporting two segments. The segments formerly known as Broadcast Solutions and Enterprise Solutions now are presented as the Enterprise Solutions segment, and the segments formerly known as Industrial Solutions and Network Solutions now are presented as the Industrial Solutions segment. The reorganization allows us to further accelerate progress in key strategic areas and the segment consolidation properly aligns our external reporting with the way the businesses are now managed. We have recast the prior period segment information to conform to the change in the composition of these reportable segments. See Note 5.
Acquisitions
We completed the acquisitions of SAM and NT2 on February 8, 2018 and April 25, 2018, respectively. The results of both SAM and NT2 have been included in our Consolidated Financial Statements from their respective acquisition dates and are reported within the Enterprise Solutions segment. See Note 4.
Long-Term Debt
In March 2018, we issued €350.0 million ($431.3 million at issuance) aggregate principal amount of new senior subordinated notes due 2028 at an interest rate of 3.875%. During March and April 2018, we used the net proceeds of this offering to repurchase our outstanding $200.0 million 5.25% senior subordinated notes due 2024 and our outstanding €200.0 million 5.5% senior subordinated notes due 2023. We paid approximately $7.5 million of fees related to issuing the 2028 notes, and recognized a $23.0 million loss on debt extinguishment in 2018 for premiums paid to the bond holders to retire the 2024 and 2023 notes and for the unamortized debt issuance costs that we wrote-off. See Note 13.

24


Gain from Patent Litigation

On July 5, 2011, the Company’s wholly-owned subsidiary, PPC Broadband, Inc. (“PPC”), filed an action for patent infringement against Corning Optical Communications RF LLC (“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.
Grass Valley and SAM Integration Program: 2018
During the first quarter of 2018, we began a restructuring program to integrate SAM with Grass Valley. The restructuring and integration activities are focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $42.3 million of severance and other restructuring costs for this program during 2018. The costs were incurred by the Enterprise Solutions segment. We expect to incur approximately $3 million of additional severance and restructuring costs for this program, which will be incurred during the first quarter of 2019. See Note 12.
Industrial Manufacturing Footprint Program: 2016-2018
In 2016, we began a program to consolidate our manufacturing footprint. The manufacturing consolidation is substantially complete. We recognized $17.7 million of severance and other restructuring costs for this program during 2018. 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 $66.1 million in severance and other restructuring costs, including manufacturing inefficiencies for this program. See Note 12.

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 2018, we collected proceeds of $40.2 million from the sale of our MCS business and 50% ownership interest in Xuzhou Hirschmann Electronics Co. Ltd (the Hirschmann JV), which we committed to selling during the fourth quarter of 2016. The MCS business was part of the Industrial Solutions segment and the Hirschmann JV was an equity method investment that was not included in an operating segment. The MCS business operated in Germany and the United States, and the Hirschmann JV was an equity method investment located in China. We reached an agreement in principle to sell this disposal group in 2016, however, the sale was executed in 2017 and the funds were received in 2018. See Note 2.


25


Results of Operations
Consolidated Income before Taxes
 
 
 
 
 
 
 
 
Percentage Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
(In thousands, except percentages)
Revenues
$
2,585,368

 
$
2,388,643

 
$
2,356,672

 
8.2
 %
 
1.4
 %
Gross profit
1,008,412

 
934,753

 
981,321

 
7.9
 %
 
(4.7
)%
Selling, general and administrative expenses
525,918

 
461,022

 
486,403

 
14.1
 %
 
(5.2
)%
Research and development expenses
140,585

 
134,330

 
140,519

 
4.7
 %
 
(4.4
)%
Amortization of intangibles
98,829

 
103,997

 
98,385

 
(5.0
)%
 
5.7
 %
Gain from patent litigation
62,141

 

 

 
n/a

 
 %
Impairment of assets held for sale

 

 
23,931

 
 %
 
(100.0
)%
Operating income
305,221

 
235,404

 
232,083

 
29.7
 %
 
1.4
 %
Interest expense, net
61,559

 
82,901

 
95,050

 
(25.7
)%
 
(12.8
)%
Non-operating pension cost
342

 
714

 
8,230

 
(52.1
)%
 
(91.3
)%
Loss on debt extinguishment
22,990

 
52,441

 
2,342

 
(56.2
)%
 
2,139.2
 %
Income before taxes
220,330

 
99,348

 
126,461

 
121.8
 %
 
(21.4
)%

2018 Compared to 2017
Revenues increased $196.8 million from 2017 to 2018 due to the following factors:
Acquisitions contributed $123.9 million to the increase in revenues.
Higher sales volume resulted in a $75.7 million increase in revenues.
Currency translation had a $14.8 million favorable impact on revenues.
Higher copper costs contributed $10.1 million to the increase in revenues.
The divestiture of our MCS business resulted in a $27.7 million decrease in revenues.
Gross profit increased $73.7 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 $28.1 million of severance, restructuring, and acquisition integration costs; $2.2 million for the amortization of software development intangible assets; and $1.8 million of cost of sales arising from the adjustment of inventory to fair value related to acquisitions. Gross profit for 2017 included $32.6 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 $64.9 million from 2017 to 2018 primarily due to increases in acquisitions; severance, restructuring, and acquisition integration costs; currency translation; costs related to patent litigation; and purchase accounting effects of acquisitions, which contributed an estimated $35.5 million, $25.1 million, $3.7 million, $2.6 million, and $1.7 million, respectively, to the increase in selling, general and administrative expenses; 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 $6.3 million from 2017 to 2018 primarily due to acquisitions; increases from severance, restructuring, and acquisition integration costs; and currency translation, which contributed an estimated $12.0 million, $5.2 million, and $1.3 million, respectively, to the increase in research and development expenses year-over-year. These increases were partially offset by $10.0 million and $2.2 million from improved productivity and the MCS divestiture in the fourth quarter of 2017, respectively.

Amortization of intangibles decreased $5.2 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 acquisitions of SAM and NT2. See Note 10.

26


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 $69.8 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 $21.3 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 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.
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 13.
Income before taxes increased by $121.0 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.
2017 Compared to 2016
Revenues increased $31.9 million from 2016 to 2017 due to the following factors:
Acquisitions contributed $30.8 million to the increase in revenues.
Higher copper costs contributed $13.0 million to the increase in revenues.
Currency translation had a $12.2 million favorable impact on revenues.
Lower sales volume resulted in a $24.1 million decrease in revenues.
Gross profit decreased $47.0 million from 2016 to 2017, and gross profit margin decreased 250 basis points from 41.6% in 2016 to 39.1% in 2017. The decrease in gross profit and margin is primarily attributable to the decrease in lower sales volume discussed above; increases in severance, restructuring, and acquisition integration costs; and increases in copper costs. Increases in copper prices result in higher revenues as discussed above, but as they have minimal impact to gross profit dollars, resulting in lower gross profit margins. Gross profit for 2017 included $32.6 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. Gross profit for 2016 included $12.3 million of severance, restructuring, and acquisition integration costs; $1.0 million of cost of sales arising from the adjustment of inventory to fair value related to acquisitions; and $0.9 million of accelerated depreciation in our Enterprise Solutions segment.
Selling, general and administrative expenses decreased by $33.2 million from 2016 to 2017 primarily due to a $15.7 million decrease in severance, restructuring, and acquisition integration costs and improved productivity. Selling, general and administrative expenses included $10.0 million of severance, restructuring, and integration costs in 2017 as compared to $25.7 million in 2016. The remaining decrease is primarily due to realized benefits from our productivity improvement initiatives.
Research and development expenses decreased by $6.3 million from 2016 to 2017 primarily due to productivity improvement initiatives, which contributed $8.8 million to the decline in research and development expenses, partially offset by $2.7 million from the acquisition of Thinklogical.
Amortization of intangibles increased $5.6 million from 2016 to 2017 primarily due to the acquisition of Thinklogical and amortization from the Tripwire trademark, which we began amortizing in 2017. These increases were partially offset by the intangible assets classified as held for sale for which we ceased amortizing in the fourth quarter of 2016. See Note 10.

27


The $23.9 million impairment of assets held for sale in 2016 related to our MCS business and Hirschmann JV. The amount of the impairment of assets held for sale represents the excess carrying value over the fair value of the assets. See Note 2.
Operating income increased by $10.8 million from 2016 to 2017 primarily due to the impairment of assets held for sale in the prior year and the decline in selling, general and administrative expenses; partially offset by the decline in gross profit discussed above.
Interest expense decreased $12.2 million from 2016 to 2017 due to the financing activities in 2017 discussed above. See Note 13.
The loss on debt extinguishment increased $50.1 million from 2016 to 2017. The loss on debt extinguishment recognized in 2017 is the result of the refinancing actions discussed above. The loss on debt extinguishment recognized in 2016 represents the unamortized debt issuance costs written off for the Term Loan that we repaid in 2016. See Note 13.
Income before taxes decreased by $27.2 million from 2016 to 2017 primarily due to the increase in loss on debt extinguishment discussed above.
Income Taxes
 
 
 
 
 
 
 
 
Percentage Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
(In thousands, except percentages)
Income before taxes
$
220,330

 
$
99,348

 
$
126,461

 
121.8
%
 
(21.4
)%
Income tax benefit (expense)
(59,619
)
 
(6,495
)
 
1,185

 
817.9
%
 
(648.1
)%
Effective tax rate
27.1
%
 
6.5
%
 
(0.9
)%
 
 
 
 

2018 Compared to 2017
We recognized income tax expense of $59.6 million in 2018, representing an effective tax rate of 27.1%. The effective tax rate was impacted by the "Tax Cuts and Jobs Act" (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. 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 $28.4 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 $36.0 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 $29.1 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 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 reduced our income tax expense by approximately $4.0 million and $13.0 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.

28


As of December 31, 2018, we maintained a valuation allowance on our deferred tax assets of $90.9 million. Of this amount, approximately $58.0 million relates to net operating loss deferred tax assets for certain of our Grass Valley entities. Certain Grass Valley entities have a history of significant tax losses in their various jurisdictions. We do not currently have sufficient history of taxable income in the relevant jurisdictions to support the realizability of the net operating losses.
The remaining $32.8 million of valuation allowance primarily 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 $8.9 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.
2017 Compared to 2016
We recognized income tax expense of $6.5 million in 2017, representing an effective tax rate of 6.5%. The effective tax rate was impacted by the following significant factors:

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 included, but were 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. The Company calculated its best estimate of the impact of the Act in its income tax provision for the year ended December 31, 2017 in accordance with its understanding of the Act and guidance available as of the date of the filing of the 2017 Form 10-K, and as a result, recorded $28.4 million of additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax expense was comprised of a $36.0 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they were expected to reverse, offset by $29.1 million for a one-time tax expense on deemed repatriation, and a $35.3 million valuation allowance recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law.
We recognized a net tax benefit of $27.1 million resulting from a non-taxable translation gain associated with a debt instrument that was treated as a loan for U.S. GAAP purposes but as equity for tax purposes.
The net tax benefit described above for 2017 was partially offset by $2.2 million of tax expense to record a liability for uncertain tax positions primarily for our foreign jurisdictions.
Our income tax expense was also impacted by foreign tax rate differences. The statutory tax rates associated with our foreign earnings generally were lower than the 2017 statutory U.S. tax rate of 35%. This had the greatest impact on our income before taxes that was generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively. Foreign tax rate differences reduced our income tax expense by approximately $13.0 million and $17.7 million in 2017 and 2016, 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, 2017, we maintained a valuation allowance on our deferred tax assets of $151.8 million. Of this amount, approximately $104.3 million related to net operating loss deferred tax assets for certain of our Grass Valley entities. Certain Grass Valley entities have a history of significant tax losses in their various jurisdictions. We do not currently have sufficient history of taxable income in the relevant jurisdictions to support the realizability of the net operating losses.
The remaining $47.5 million of valuation allowance primarily related to deferred tax assets for certain U.S foreign tax credits and U.S. state net operating losses and tax credits. The $35.3 million valuation allowance on the foreign tax credits was a direct result of the Act, as described above. The remaining $12.2 million valuation allowance related 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, 2017 due to a history of net operating losses and tax credits expiring without being utilized in certain states and because the forecast of income at such time was not sufficient to utilize all of these state net operating losses and tax credits prior to expiration.

29


Consolidated Adjusted Revenues and Adjusted EBITDA
 
 
 
 
 
 
 
 
Percentage Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
(In thousands, except percentages)
Adjusted Revenues
$
2,591,980

 
$
2,388,643

 
$
2,357,805

 
8.5
%
 
1.3
%
Adjusted EBITDA
474,162

 
434,276

 
431,201

 
9.2
%
 
0.7
%
as a percent of adjusted revenues
18.3
%
 
18.2
%
 
18.3
%
 
 
 
 

2018 Compared to 2017
Adjusted Revenues increased $203.4 million in 2018 from 2017 due to the following factors:
Acquisitions contributed $130.5 million to the increase in adjusted revenues.
Higher sales volume resulted in a $75.7 million increase in adjusted revenues.
Currency translation had a $14.8 million favorable impact on adjusted revenues.
Higher copper costs contributed $10.1 million to the increase in adjusted revenues.
The divestiture of our MCS business resulted in a $27.7 million decrease in adjusted revenues.

Adjusted EBITDA increased $39.9 million in 2018 from 2017 primarily due to the increases in revenues discussed above as well as productivity initiatives.
2017 Compared to 2016
Adjusted Revenues increased $30.8 million in 2017 from 2016 due to the following factors:
Acquisitions contributed $30.8 million to the increase in adjusted revenues.
Higher copper costs contributed $13.0 million to the increase in adjusted revenues.
Currency translation had a $12.2 million favorable impact on adjusted revenues.
Lower sales volume resulted in a $25.2 million decrease in adjusted revenues.

Adjusted EBITDA increased $3.1 million in 2017 from 2016 primarily due to productivity initiatives and the impact of acquisitions and currency translation; partially offset by lower sales volume.
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

30


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. See Item 6, Selected Financial Data, for the tables that reconcile our GAAP results to our non-GAAP financial measures.
Segment Results of Operations
For additional information regarding our segment measures, see Note 5 to the Consolidated Financial Statements.
Enterprise Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
(In thousands, except percentages)
Segment Revenues
$
1,522,178

 
$
1,356,305

 
$
1,372,941

 
12.2
%
 
(1.2
)%
Segment EBITDA
267,656

 
216,558

 
239,978

 
23.6
%
 
(9.8
)%
as a percent of segment revenues
17.6
%
 
16.0
%
 
17.5
%
 
 
 
 

2018 Compared to 2017
Enterprise revenues increased $165.9 million in 2018 as compared to 2017 primarily due to acquisitions, increases in volume, favorable currency translation, and higher copper prices, which contributed $130.5 million, $25.2 million, $5.8 million, and $4.4 million, respectively, to the increase in revenues over the year ago period.
Enterprise EBITDA increased $51.1 million in 2018 as compared to 2017 primarily due to the increases in revenues discussed above and successful restructuring actions. Accordingly, EBITDA margins expanded 160 basis points over the year ago period.
2017 Compared to 2016
Enterprise revenues decreased $16.6 million in 2017 as compared to 2016 primarily due to decreases in volume, which contributed $66.6 million to the decrease in revenues. The decrease in volume was partially offset by $30.8 million of revenues from the acquisition of Thinklogical as well as higher copper costs and favorable currency translation, which had a $15.3 million and $3.9 million favorable impact on revenues, respectively.
Enterprise EBITDA decreased $23.4 million in 2017 as compared to 2016 primarily due to the decreases in revenues discussed above and the inability to fully and timely pass through the rising copper costs to our customers; partially offset by improved productivity resulting from our restructuring actions and acquisition integration activities.
Industrial Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
(In thousands, except percentages)
Segment Revenues
$
1,069,802

 
$
1,032,338

 
$
984,864

 
3.6
 %
 
4.8
%
Segment EBITDA
207,724

 
214,190

 
193,811

 
(3.0
)%
 
10.5
%
as a percent of segment revenues
19.4
%
 
20.7
%
 
19.7
%
 
 
 
 

2018 Compared to 2017
Industrial Solutions revenues increased $37.5 million in 2018 as compared to 2017 primarily due to volume growth, 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.

31


Industrial EBITDA decreased $6.5 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.
2017 Compared to 2016
Industrial Solutions revenues increased $47.5 million in 2017 as compared to 2016 primarily due to volume growth, higher copper costs, and favorable currency translation, which contributed $24.6 million, $14.5 million, and $8.4 million, respectively, to the increase in revenues year over year. Our robust growth in volume stems from our continued strength in discrete manufacturing, our largest vertical.
Industrial EBITDA increased $20.4 million in 2017 as compared to 2016 primarily due to leverage on volume and productivity improvements. Accordingly, Industrial Solutions EBITDA margins expanded 100 basis points to 20.7%.
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, (4) our available credit facilities and other borrowing arrangements, and (5) cash proceeds from equity offerings. We expect our operating activities to generate cash in 2019 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 mix, and commodities pricing.
The following table is derived from our Consolidated Cash Flow Statements:
 
 
Years Ended
December 31,
 
2018
 
2017
 
(In thousands)
Net cash provided by (used for):
 
 
 
Operating activities
$
289,220

 
$
255,300

Investing activities
(140,676
)
 
(230,118
)
Financing activities
(281,770
)
 
(331,448
)
Effects of currency exchange rate changes on cash and cash equivalents
(7,272
)
 
19,258

Decrease in cash and cash equivalents
(140,498
)
 
(287,008
)
Cash and cash equivalents, beginning of year
561,108

 
848,116

Cash and cash equivalents, end of year
$
420,610

 
$
561,108


Net cash provided by operating activities totaled $289.2 million for 2018 compared to $255.3 million for 2017. The increase over the year ago period is primarily due to the $62.1 million received from Corning for the patent infringement litigation, an increase in net income, and a favorable change in inventory; partially offset by an unfavorable change in accounts payable. Inventory was a use of cash of $14.8 million in 2018 compared to $84.1 million in the prior year. The increase in inventory levels in 2017 was greater than in 2018 due in part to the build in safety stock inventory throughout 2017 to support the closure of an operating facility. Accounts payable was a use of cash of $29.4 million in 2018 compared to a source of cash of $100.8 million in the prior year. The accounts payable use of cash in 2018 is primarily attributable to the growth in inventory levels in the latter part of 2017 as discussed above.
Net cash used for investing activities totaled $140.7 million for 2018 compared to $230.1 million for 2017. 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 of cash received for the sale of the MCS business and Hirschmann JV which closed on December 31, 2017 of $40.2 million. Investing activities for 2017 included payments, net of cash acquired, for acquisitions of $166.9 million and capital expenditures of $64.3 million.

32


Net cash flows from financing activities was a $281.8 million use of cash for 2018 compared to $331.4 million for 2017. 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. Financing activities for 2017 included payments under borrowing arrangements of $1,105.9 million, cash dividend payments of $43.4 million, debt issuance costs of $17.3 million, payments under our share repurchase program of $25.0 million, net payments related to share based compensation activities of $6.6 million, and borrowings under credit arrangements of $866.7 million.
Our cash and cash equivalents balance was $420.6 million as of December 31, 2018. Of this amount, $184.1 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. The Tax Cuts and Jobs Act of 2017 included a one-time transition tax of unremitted foreign earnings. Accordingly, in the years ended December 31, 2018 and 2017, we recorded a tax expense of $1.3 million and $29.1 million, respectively, most of which was non-cash and related to the transition tax on the one-time mandatory deemed repatriation of all our foreign earnings. 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 15, Income Taxes in the accompanying notes to our consolidated financial statements.
Our outstanding debt obligations as of December 31, 2018 consisted of $1.5 billion of senior subordinated notes. As of December 31, 2018, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $359.1 million. Additional discussion regarding our various borrowing arrangements is included in Note 13 to the Consolidated Financial Statements.

Contractual obligations outstanding at December 31, 2018, have the following scheduled maturities:
 
 
Total
 
Less than
1 Year
 
1-3
Years
 
4-5
Years
 
More than
5 Years
 
(In thousands)
Long-term debt payment obligations (1)(2)
1,485,900

 
$

 
$

 
$

 
$
1,485,900

Interest payments on long-term debt obligations
455,700

 
52,149

 
104,299

 
104,299

 
194,953

Operating lease obligations (3)
100,926

 
19,877

 
32,307

 
19,971

 
28,771

Purchase obligations (4)
30,248

 
30,248

 

 

 

Other commitments (5)
8,292

 
1,792

 
5,725

 
775

 

Pension and other postemployment obligations
83,014

 
7,729

 
15,818

 
17,287

 
42,180

Total
$
2,164,080

 
$
111,795

 
$
158,149

 
$
142,332

 
$
1,751,804

 
(1)
As described in Note 13 to the Consolidated Financial Statements.
(2)
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.
(3)
As described in Note 22 to the Consolidated Financial Statements.
(4)
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 15 and 27 to the Consolidated Financial Statements).




33


Our commercial commitments expire or mature as follows:
 
 
Total
 
Less than
1 Year
 
1-3
Years
 
3-5
Years
 
More than
5 Years
 
(In thousands)
Standby financial letters of credit
$
7,467

 
$
7,184

 
$
283

 
$

 
$

Bank guarantees
3,957

 
2,561

 
1,396

 

 

Surety bonds
2,360

 
2,360

 

 

 

Total
$
13,784

 
$
12,105

 
$
1,679

 
$

 
$

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 and accounts receivable. 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 also adjust other current assets and cost of sales for the estimated level of returns.

34


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, 2018 would have affected net income by less than $1 million in 2018.
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 on the period of delivery 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"). 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. Nevertheless, in 2019 we expect to analyze tax planning strategies to potentially identify additional foreign source income in the carryforward period. In addition, we have significant research and development related tax credit carryforwards in Canada on which we have not recorded a valuation allowance. The utilization of these credits is dependent upon the recognition of Canadian taxable income, and we expect to generate enough taxable income in the future to utilize these tax credits.
See Note 15, Income Taxes, to the consolidated financial statements for further information regarding income taxes.





35


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.
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 five 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 2018, we performed a qualitative assessment for seven of our reporting units, which collectively represented approximately $383 million of our consolidated goodwill balance. For those reporting units for which we performed a qualitative assessment, we determined that it was more likely than not that the fair value was greater than the carrying value, and therefore, we did not perform the calculation of fair value for these reporting units as described in the paragraph below.
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.
We determined that none of our goodwill was impaired during 2018. Based on our annual goodwill impairment test, the excess of the fair values over the carrying values of our four reporting units tested under a quantitative income approach ranged from 4% - 87%. 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 10.1% to 14.5% and the long-term 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 2018. Rather, we performed a quantitative assessment for each of our indefinite-lived trademarks in 2018. 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 2018. 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.

36


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 16 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 2018 net periodic benefit cost and projected benefit obligations of approximately $0.4 million and $31.8 million, respectively, as of December 31, 2018. A 50 basis point decline in the expected return on plan assets would have resulted in an increase in the 2018 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 2018 net periodic benefit cost and projected benefit obligations of approximately $0.5 million and $28.3 million, respectively, as of December 31, 2018. A 50 basis point increase in the expected return on plan assets would have resulted in a decrease in the 2018 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

37


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 14 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 2018, we recorded approximately $2.3 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, 2018.
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, 2018 or 2017.
The following table presents unconditional commodity purchase obligations outstanding as of December 31, 2018. The unconditional purchase obligations will settle during 2019.
 
 
Purchase
Amount
 
Fair
Value
 
(In thousands, except average price)
Unconditional copper purchase obligations:
 
 
 
Commitment volume in pounds
1,807

 
 
Weighted average price per pound
$
2.76

 
 
Commitment amounts
$
4,994

 
$
4,770

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.




38


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, 2018 or 2017.

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, 2018.
 
 
Principal Amount by Expected Maturity
 
Fair
Value
 
2019
 
Thereafter
 
Total
 
 
(In thousands, except interest rates)
€350.0 million fixed-rate senior subordinated notes due 2028
$

 
$
400,050

 
$
400,050

 
$
390,777

Average interest rate
 
 
3.875
%
 
 
 
 
€450.0 million fixed-rate senior subordinated notes due 2027
$

 
$
514,350

 
$
514,350

 
$
523,912

Average interest rate
 
 
3.375
%
 
 
 
 
€200.0 million fixed-rate senior subordinated notes due 2026
$

 
$
228,600

 
$
228,600

 
$
225,171

Average interest rate
 
 
4.125
%
 
 
 
 
€300.0 million fixed-rate senior subordinated notes due 2025
$

 
$
342,900

 
$
342,900

 
$
345,136

Average interest rate
 
 
2.875
%
 
 
 
 
Total
 
 
 
 
$
1,485,900

 
$
1,484,996


Concentrations of Credit Risk
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, 2018, we had $37.0 million in accounts receivable outstanding from Anixter International Inc. This represented approximately 8% of our total accounts receivable outstanding at December 31, 2018. Anixter generally pays all outstanding receivables within thirty to sixty days of invoice receipt.


39


Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm
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, 2018 and 2017, 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, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 20, 2019 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.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1993.
St. Louis, Missouri
February 20, 2019





40


Belden Inc.
Consolidated Balance Sheets
 
 
December 31,
 
2018
 
2017
 
(In thousands, except par value)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
420,610

 
$
561,108

Receivables, net
465,939

 
473,570

Inventories, net
316,418

 
297,226

Other current assets
55,757

 
40,167

Total current assets
1,258,724

 
1,372,071

Property, plant and equipment, less accumulated depreciation
365,970

 
337,322

Goodwill
1,557,653

 
1,478,257

Intangible assets, less accumulated amortization
511,093

 
545,207

Deferred income taxes
56,018

 
42,549

Other long-lived assets
29,863

 
65,207

 
$
3,779,321

 
$
3,840,613

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
352,646

 
$
376,277

Accrued liabilities
364,276

 
302,651

Total current liabilities
716,922

 
678,928

Long-term debt
1,463,200

 
1,560,748

Postretirement benefits
132,791

 
102,085

Deferred income taxes
39,943

 
27,713

Other long-term liabilities
38,877

 
36,273

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01 per share— 2,000 shares authorized; 52 shares outstanding
1

 
1

Common stock, par value $0.01 per share— 200,000 shares authorized; 50,335 shares issued; 39,396 and 42,019 shares outstanding at 2018 and 2017, respectively
503

 
503

Additional paid-in capital
1,139,395

 
1,123,832

Retained earnings
922,000

 
833,610

Accumulated other comprehensive loss
(74,907
)
 
(98,026
)
Treasury stock, at cost— 10,939 and 8,316 shares at 2018 and 2017, respectively
(599,845
)
 
(425,685
)
Total Belden stockholders’ equity
1,387,147

 
1,434,235

Noncontrolling interest
441

 
631

Total stockholders’ equity
1,387,588

 
1,434,866

 
$
3,779,321

 
$
3,840,613

The accompanying notes are an integral part of these Consolidated Financial Statements.

41


Belden Inc.
Consolidated Statements of Operations
 
 
Years Ended December 31,
 
2018
 
2017
 
2016
 
(In thousands, except per share amounts)
Revenues
$
2,585,368

 
$
2,388,643

 
$
2,356,672

Cost of sales
(1,576,956
)
 
(1,453,890
)
 
(1,375,351
)
Gross profit
1,008,412

 
934,753

 
981,321

Selling, general and administrative expenses
(525,918
)
 
(461,022
)
 
(486,403
)
Research and development expenses
(140,585
)
 
(134,330
)
 
(140,519
)
Amortization of intangibles
(98,829
)
 
(103,997
)
 
(98,385
)
Gain from patent litigation
62,141

 

 

Impairment of assets held for sale

 

 
(23,931
)
Operating income
305,221

 
235,404

 
232,083

Interest expense, net
(61,559
)
 
(82,901
)
 
(95,050
)
Non-operating pension cost
(342
)
 
(714
)
 
(8,230
)
Loss on debt extinguishment
(22,990
)
 
(52,441
)
 
(2,342
)
Income before taxes
220,330

 
99,348

 
126,461

Income tax benefit (expense)
(59,619
)
 
(6,495
)
 
1,185

Net income
160,711

 
92,853

 
127,646

Less: Net loss attributable to noncontrolling interest
(183
)
 
(357
)
 
(357
)
Net income attributable to Belden
160,894

 
93,210

 
128,003

Less: Preferred stock dividends
34,931

 
34,931

 
15,428

Net income attributable to Belden common stockholders
$
125,963

 
$
58,279

 
$
112,575

 
 
 
 
 
 
Weighted average number of common shares and equivalents:
 
 
 
 
 
Basic
40,675

 
42,220

 
42,093

Diluted
40,956

 
42,643

 
42,557

 
 
 
 
 
 
Basic income per share attributable to Belden common stockholders:
$
3.10

 
$
1.38

 
$
2.67

 
 
 
 
 
 
Diluted income per share attributable to Belden common stockholders:
$
3.08

 
$
1.37

 
$
2.65

 
 
 
 
 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.

42


Belden Inc.
Consolidated Statements of Comprehensive Income
 
 
Years Ended December 31,
 
2018
 
2017
 
2016
 
(In thousands)
Net income
$
160,711

 
$
92,853

 
$
127,646

Foreign currency translation, net of tax of $1.7 million, $1.3 million, and $1.2 million, respectively
27,802

 
(65,046
)
 
18,687

Adjustments to pension and postretirement liability, net of tax of $1.0 million, $2.2 million, and $1.9 million, respectively
(4,690
)
 
6,071

 
1,170

Other comprehensive income (loss), net of tax
23,112

 
(58,975
)
 
19,857

Comprehensive income
183,823

 
33,878

 
147,503

Less: Comprehensive loss attributable to noncontrolling interest
(190
)
 
(373
)
 
(420
)
Comprehensive income attributable to Belden
$
184,013

 
$
34,251

 
$
147,923

The accompanying notes are an integral part of these Consolidated Financial Statements.

43