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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2003
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to____________
Commission File No. 1-12280
BELDEN INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0412617
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
7701 FORSYTH BOULEVARD
SUITE 800
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:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 par value The New York Stock Exchange
Preferred Stock Purchase Rights The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [X] No[ ]
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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined Rule 12b-2 of the Act). Yes [X] No[ ]
================================================================================
At June 30, 2003, the aggregate market value of Common Stock held by
non-affiliates was $396,950,934 based on the closing price ($15.89) of such
stock on such date.
There were 25,783,350 shares of Common Stock outstanding on March 1, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive joint proxy statement/prospectus for
its annual meeting of stockholders within 120 days of the end of the fiscal year
ended December 31, 2003 (the "Joint Proxy Statement"). Portions of such joint
proxy statement are incorporated by reference into Part III.
1
TABLE OF CONTENTS
FORM 10-K
ITEM NO. NAME OF ITEM PAGE
- --------- ------------ ----
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 14
ITEM 3. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 18
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 94
ITEM 9A. CONTROLS AND PROCEDURES 94
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 95
ITEM 11. EXECUTIVE COMPENSATION 95
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS 95
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 95
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 95
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 96
SIGNATURES 101
INDEX TO EXHIBITS 102
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PART I
ITEM 1. BUSINESS
GENERAL
Belden designs, manufactures and markets metallic and fiber optic wire and cable
products for the electronics and communications markets. We focus on segments of
the worldwide wire and cable market that require highly differentiated,
high-performance products. We add value through design, engineering, excellence
in manufacturing, product quality, and customer service.
The business was founded in Chicago as Belden Manufacturing Company in 1902,
when it began manufacturing silk insulated wire and insulated magnet wire. In
1980, the business was acquired by Crouse-Hinds Company and, in 1981, by Cooper
Industries, Inc. ("Cooper") as part of Cooper's acquisition of Crouse-Hinds
Company. From 1981 until July 1993, the business was operated as an
unincorporated division of Cooper.
In 1993, the business was transferred to Belden Wire & Cable Company ("BWC"), a
wholly-owned subsidiary of Belden Inc., in connection with the October 6, 1993
initial public offering by Cooper of 23,500,000 shares of common stock of Belden
Inc. In 1995 and 1996, an additional 2,500,000 shares of common stock, which
were originally retained by Cooper, were sold to the public. In June 1999,
Belden Inc. acquired all the outstanding shares of Cable Systems Holding Company
and its subsidiary Cable Systems International Inc., now Belden Communications
Company ("BCC"). With the acquisition of BCC, Belden began reporting under two
business segments: Electronics and Communications. For more information
regarding Belden acquisitions, see "Note 6: Business Acquisition" of Belden's
consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
On February 4, 2004, Belden Inc. entered into an Agreement and Plan of Merger
with Cable Design Technologies Corporation (CDT). If the merger is consummated,
the combined Belden-CDT business will focus on products for the specialty
electronics and data networking markets, including connectivity. For more
information, see "Note 24: Subsequent Event (unaudited)" of Belden's
consolidated financial statements in Item 8 of this Annual Report on Form 10-K;
Belden's Report on Form 8-K, filed with the Securities and Exchange Commission
on February 5, 2004; and the Joint Proxy Statement.
Belden Inc., the publicly-traded parent company, is a Delaware corporation
incorporated in 1993. Substantially all of our operations are conducted through
BWC, BCC and our other subsidiaries.
As used herein, unless a business segment is identified or the context otherwise
requires, "Belden", the "Company" and "we" refer to Belden Inc. and its
subsidiaries as a whole. Financial information about Belden's two business
segments appears in "Note 22: Industry Segments and Geographic Information" of
Belden's consolidated financial statements in Item 8 of this Annual Report on
Form 10-K.
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PRODUCTS
We make many different wire and cable configurations, most of which are applied
in multiple markets.
Multiconductor Product Configurations. A multiconductor cable consists of two or
more insulated conductors that are twisted into pairs or quads and cabled
together, or run in a parallel configuration as a flat cable. The conductors are
usually bare or tinned copper. Insulation may be extruded or laminated over bare
conductors, and separately insulated conductors may be bonded or woven together.
A cable may be unshielded, have individually shielded pairs or have an overall
shield. The cable is covered with an overall jacket. Various insulating and
jacketing materials are used.
Coaxial Product Configurations. Coaxial cable consists of a central inner
conductor surrounded by a concentric outer conductor or shield. A dielectric
material separates the two conductors and a jacket covers the overall
construction. The inner conductor is usually copper or copper-covered steel,
while the outer conductor is usually a metallic tape or a wire braid. Various
insulating and jacketing materials are used.
Fiber Optic Product Configurations. Fiber optic cables transmit light signals
through glass or plastic fibers. Fiber optic cables may be either multimode or
single mode. We manufacture multimode fiber optic cables for use in data
networking and other applications. We purchase coated fibers and insert them
into tight or loose buffer tubes covered with an overall jacket. The tubing and
jacket materials are high performance thermoplastics.
Lead, Hook-up and Other Wire Product Configurations. Lead and hook-up wire
consist of single insulated conductor wire that is used for electrical leads.
Insulation may be extruded or laminated over bare or tinned copper conductors.
Various insulating materials are used.
Composite Cable Configurations. A composite cable may be any combination of
multiconductor, coaxial, and fiber optic cables jacketed together or otherwise
joined together to serve a complex application and provide ease of installation.
MARKETS AND PRODUCTS FOR ELECTRONICS SEGMENT
Our Electronics business segment designs, manufactures and markets metallic and
fiber optic wire and cable products that serve the Industrial, Networking,
Entertainment, original equipment manufacturer (OEM) and Communications markets,
as described in more detail below. The Electronics business segment contributed
approximately 67%, 70% and 66% of Belden's consolidated revenues in 2003, 2002
and 2001, respectively.
Industrial. We define this market broadly to include applications from advanced
industrial networking to the traditional instrumentation and control systems and
several other niche markets. Our 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
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. We offer
multiconductor, coaxial, fiber optic, and composite cables for all these
applications.
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Other applications include building security and fire protection systems,
airport baggage screening equipment and traffic signal control. We also supply
heat-shrinkable tubing and wire management products to protect and harness wire
and cable assemblies. We sell our industrial products primarily through wire
specialist distributors, industrial distributors and re-distributors.
Networking. In the Networking market, we supply both shielded and unshielded
multiconductor cables, and to a lesser extent coaxial and fiber optic cables,
for use within the premises (hence the use of the term "premise" products) for
the transmission of voice, data, video or a combination of these. Networking
products are generally used as the backbone of computer networks, linking local
area networks ("LANs"), workstations, and peripheral devices to each other or to
the telecommunications network. Belden's multiconductor product line for the
Networking market includes plenum cable, which is jacketed with special flame
retardant materials, and its DataTwist(R) cables for high-speed transmission. It
also includes MediaTwist(R) cables, which are multimedia cables supporting
diverse applications in video, data, and voice technologies. A special
configuration of Belden's unshielded twisted-pair cable is used to link video
surveillance cameras into data networks.
Our primary channels to the Networking market include distributors, computer
OEMs and systems integrators who design and install multivendor data/voice
systems.
Entertainment. We manufacture a variety of multiconductor and coaxial products
which distribute audio and video signals for use in broadcast television
(including digital television and HDTV), broadcast radio, pre- and
post-production facilities, recording studios and public facilities such as
casinos, arenas and stadiums. Our audio/video cables are also used in connection
with microphones, musical instruments, audio mixing consoles, effects equipment,
speakers, paging systems and consumer audio products. Our primary market
channels for these broadcast, music and entertainment products are broadcast
specialty distributors and audio systems installers. Belden also sells directly
to music OEMs and the major networks including NBC, CBS, ABC and Fox.
OEM. We make:
- - flat cables to connect internal computer components;
- - lead and hook-up wire for electrical leads in motors, internal wiring
and test equipment; and
- - wire used in the production of active and passive electronic
components.
We sell these products directly to OEMs and through assembly houses and
distributors. In early 2003, we announced that we were discontinuing the
manufacture of enamel coated wire used in precision deflection coils for
computer video screens and television monitors.
Communications. Our products for transmitting voice, video, and data signals
through the public telephone network are principally supplied by the
Communications business segment, and they are discussed in connection with that
segment below.
Within the Communications market, our Electronics segment manufactures flexible,
copper-clad coaxial cable for high-speed transmission of voice, data and video
("broadband"). This product is used for the "drop" section of cable television
(CATV) systems to distribute the signal from the "trunk" portion of the system
into the home, and similarly with Direct Broadcast Systems (DBS) to link a home
satellite dish to
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the television. We also make a composite CATV and telephone-pair cable to meet
the changing needs of the converging CATV and telecommunication markets. In
Europe, we manufacture copper base trunk distribution cables that meet local
specifications and are widely used throughout the region. We sell CATV cable
directly to multiple systems operators (MSOs) who operate CATV systems
throughout the world and through CATV and electronic distributors.
We offer a complete line of composite cables, called HomeChoice(R), for the
emerging market in home networking. Also within the Communications market,
Belden sells coaxial cables used in connection with wireless applications, such
as cellular, PCS, PCN and GPS, primarily through distributors. In early 2003, we
announced our exit from the manufacturing and marketing of long-line single-mode
fiber optic cable.
MARKETS AND PRODUCTS FOR COMMUNICATIONS SEGMENT
The Company's Communications business segment designs, manufactures and markets
metallic cable products that serve the Communications market primarily as
described below, and to a minor extent the Networking market as described above.
The Company's Communications business segment contributed approximately 33%, 30%
and 34% of Belden's consolidated revenues in 2003, 2002 and 2001, respectively.
Within the Communications market, we supply multiconductor and coax wire and
cable products that transmit voice, video, and data signals through the public
telephone network. Sophisticated digital network and switching equipment used in
advanced telephone systems require specialty cable. Belden supplies:
- Outside plant cable--also known as exchange cable--which is
used for telephone and data circuits from the central office
(where switching equipment is located) or distribution
cabinets to neighborhoods or buildings (where circuits are
required);
- Outside plant wire--also known as service distribution
wire--which extends the voice, video, or data circuit from the
exchange cable to a home or office; and
- Central office and equipment wire and cable designed to
support local and long distance exchanges in overlay and
interconnecting cabling for central office applications such
as telecommunication equipment wiring, cross-connect wiring
and apparatus cabling.
We sell these products to Local Exchange Carriers (LECs) and other major
communications companies, value-added resellers, assembly houses, and through
distributors.
In the fourth quarter of 2003, the Board of Directors decided to seek strategic
alternatives for the North American operations of the Communications business
segment, which have experienced falling demand and operating losses for the past
two years. See Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 of this Annual Report on Form 10-K.
6
CUSTOMERS
Belden's Electronics business segment sells to distributors and directly to OEMs
and installers of equipment and systems. Our Communications business segment
sells primarily to Local Exchange Carriers (LECs) both directly and through
value-added resellers designated by the LECs, to other major communications
companies, assembly houses, and through distributors. Sales to several business
units of Anixter International Inc., primarily by the Electronics business
segment, represented approximately 15% of Belden-wide sales in 2003. Sales by
the Communications business segment to several business units of SBC
Communications Inc. represented approximately 10% of Belden-wide sales in 2003.
In general, our customers are not contractually obligated to buy Belden products
exclusively, in minimum amounts or, except as noted below for the Communications
business segment, for a significant period of time. They could purchase products
of competitors, and the loss of one or more large customers could, at least in
the short term, have an adverse effect on the Company's results of operations.
However, we believe that our relationships with our customers are satisfactory
and that the customers choose Belden products due to, among other reasons, the
breadth of Belden's product offering and the quality and performance
characteristics of its products.
The Company's Communications business segment sells to LECs under long-term
contracts, generally three to five years in duration. Due to the size of these
contracts, the award or loss of a contract may have a material impact on the
operating performance of the Company. In addition, the order pattern for these
customers can vary due to their operational priorities, weather, financial
condition, budget constraints, maintenance policies and other factors.
There are potential risks in our relationships with distributors. For example,
adjustments to inventory levels maintained by distributors (which adjustments
may be accelerated through consolidation among distributors) may adversely
affect sales on a short-term basis. Further, certain distributors are allowed to
return inventory at the distributor's 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. We have recorded a liability for the estimated impact of this
return policy.
INTERNATIONAL OPERATIONS
Belden's international sales consist primarily of products sold by the
Electronics business segment into all our served markets and by the
Communications business segment into the British, Hungarian and Slovak Republic
telecommunications markets. Belden's primary channels to international markets
include both distributors and direct sales to end users and OEMs.
Belden's international opportunities are accompanied by risks arising from
economic and political considerations in the countries served. Changes in the
relative value of currencies take place from time to time and their effects on
the Company's results of operations may be favorable or unfavorable. Belden
sometimes engages in foreign currency hedging transactions to mitigate these
effects. For more information about Belden's foreign currency exposure
management, see "Note 2: Summary of Significant Accounting Policies" of Belden's
consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
7
Financial information about Belden's geographic areas is shown in "Note 22:
Industry Segments and Geographic Information" of Belden's consolidated financial
statements in Item 8 of this Annual Report on Form 10-K.
COMPETITION
Belden faces substantial competition in its major markets. The number and size
of our competitors varies depending on the product line and business segment.
For our Electronics business segment, the market can be generally categorized as
highly competitive with many players. Some multinational competitors have
greater financial, engineering, manufacturing and marketing resources than we
have. Additionally, certain international competitors operate in lower cost
regions of the world, which could result in a cost advantage. There are also
many regional competitors that have more limited product offerings.
For our Communications business segment, competition is characterized by a few
manufacturers competing for business among large LEC customers under long-term
contracts. Due to the buying power of the LECs, the present underutilization of
capacity in this market, and other factors, the Communications segment faces
highly competitive conditions.
The principal competitive factors in all our product markets are product
features, availability, price, customer support and distribution coverage. The
relative importance of each of these factors varies depending on the specific
product category. Some products are manufactured to meet published industry
specifications and cannot be differentiated on the basis of product
characteristics. We believe, however, that Belden stands out in many of its
markets on the basis of its customer service, delivery, product quality, and
breadth of product line.
Although we believe that Belden has certain technological and other advantages
over its competitors, realizing and maintaining such advantages will require
continued investment in engineering, research and development, marketing and
customer service and support. There can be no assurance that we will continue to
make such investments or that we will be successful in maintaining such
advantages.
RESEARCH AND DEVELOPMENT
Belden engages in a continuing research and development program, including new
and existing product development, testing and analysis, process and equipment
development and testing, and compound materials development and testing. For
information about the amount spent on research and development, see "Note 2:
Summary of Significant Accounting Policies" of Belden's consolidated financial
statements in Item 8 of this Annual Report on Form 10-K.
8
PATENTS AND TRADEMARKS
Belden has 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, with numerous others for which
applications are pending. Although in the aggregate our patents and trademarks
are of considerable importance to the manufacturing and marketing of many of our
products, we do not consider any single patent or trademark or group of patents
or trademarks to be material to the business as a whole, except for the
Belden(R) trademark. Belden has the right to use the Belden(R) trademark in
connection with all of our current products. Around the time of Belden's initial
public offering, however, we granted to Cooper the exclusive royalty-free right
to use the Belden(R) trademark for wire and cable products in the automotive
markets and certain other markets in which we do not compete. Other important
trademarks used by Belden include DataTwist(R), MediaTwist(R), Flamarrest(R),
UnReel(R), Duobond(R), Beldfoil(R), Conformable(R), Banana Peel(R), Alpha(R),
FIT(R), XTRA GUARD(R), HomeChoice(R) and New Generation(R). Belden's patents
and trademarks are primarily used by the Electronics business segment.
RAW MATERIALS
The principal raw material used in many of Belden's products is copper. We have
a copper price management strategy that usually involves the use of natural
techniques, such as purchasing copper for future delivery at fixed prices. We
will sometimes use commodity price derivatives, typically exchange-traded
forward contracts, with durations of generally twelve months or less. For
additional information on this matter and on price risk related to certain
petroleum-based commodities, see "Note 2: Summary of Significant Accounting
Policies" and "Note 17: Unconditional Purchase Obligations" of Belden's
consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Other raw materials used by Belden include, for the Electronics business
segment, color chips, Teflon(R) FEP and other insulating materials such as
plastic and rubber, shielding tape, plywood reels, corrugated cartons, aluminum,
steel and optical fiber; and for the Communications business segment, the
preceding materials as well as flooding and filling compound, bronze tape,
Reemay, mylar and polyester film. With respect to all major raw materials used
by the Company, Belden generally has 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.
Belden sources a minor percentage of its finished products from a network of
manufacturers under private label agreements.
BACKLOG
Our business is characterized generally by short-term order and shipment
schedules rather than volume purchase contracts. Accordingly, we do not consider
backlog at any given date to be indicative of future sales. Our backlog consists
of product orders for which we have received a customer purchase order or
purchase commitment and which are scheduled for shipment within six months.
Orders are subject to cancellation or rescheduling by the customer, generally
with a cancellation charge. At December 31, 2003, the Company's backlog of
orders believed to be firm was $38.8 million, compared to $36.5 million at
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December 31, 2002, most of which amounts were attributable to the Electronics
business segment. The Company believes that all such backlog will be filled in
2004.
ENVIRONMENTAL MATTERS
The Company is subject to numerous federal, state, 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 ("CERCLA"), the Clean Water Act, the
Clean Air Act (including the 1990 amendments) and the Resource Conservation and
Recovery Act. We believe that our existing environmental control procedures are
adequate and we have no current plans for substantial capital expenditures in
this area.
A former Belden facility in Shrewsbury, Massachusetts was sold to a third party
in 1992, but Belden agreed to indemnify the buyer for certain preexisting
environmental liabilities, principally caused by a former owner. Contaminated
soil has been removed, and groundwater remediation has been suspended. Site
closure documents have been submitted to the state environmental agency for
review and approval. The Company will close the groundwater system upon approval
of the closure application by the state agency.
The facility in Venlo, The Netherlands was acquired in 1995 from Philips
Electronics N.V. Soil and goundwater contamination were identified on the site
as a result of material handling and past storage practices. Various soil and
groundwater assessments are being performed, and some form of remediation may be
necessary. We have recorded a liability for the estimated costs. In addition, we
may need to make capital expenditures to install groundwater treatment
equipment. We do not expect the capital expenditures to materially affect our
financial results or cash flow.
The Company has been identified as a potentially responsible party ("PRP") with
respect to three sites designated for cleanup under CERCLA or similar state
laws, which impose liability for cleanup of certain waste sites and for related
natural resource damages without regard to fault or the legality of waste
generation or disposal. Persons liable for such costs and damages generally
include the site owner or operator and persons that disposed or arranged for the
disposal of hazardous substances found at those sites. Although CERCLA imposes
joint and several liability on all PRPs, in application, the PRPs typically
allocate the investigation and cleanup costs based upon the volume of waste
contributed by each PRP. Settlements can often be achieved through negotiations
with the appropriate environmental agency or the other PRPs. PRPs that
contributed less than 1% of the waste are often given the opportunity to settle
as "de minimis" parties, resolving their liability for a particular site. The
number of sites with respect to which the Company has been identified as a PRP
has decreased in part as a result of "de minimis" settlements.
Belden does not own or operate any of the three waste sites with respect to
which it has been identified as a PRP. In each case, Belden is identified as a
party that disposed of waste at the site. With respect to two of the sites,
Belden's share of the waste volume is estimated to be less than 1%. At the third
site, Belden contributed less than 10% of the waste. Although no estimates of
cleanup costs have yet been completed for these sites, we believe, based on our
preliminary review and other factors, including Belden's estimated share of the
waste volume at the sites, that the costs relating to these sites will not have
a material adverse effect on our results of operations or financial condition.
We have an accrued liability on the balance sheet to the extent such costs are
known and estimable for such sites.
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We do not currently anticipate any material adverse effect on our results of
operations, financial condition or competitive position as a result of
compliance with federal, state, local or foreign environmental laws or
regulations, or cleanup costs at the facilities and sites discussed above.
However, some risk of environmental liability and other costs is inherent in the
nature of our business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible that future
developments, such as increasingly strict requirements of environmental laws and
enforcement policies thereunder, could lead to material costs of environmental
compliance and cleanup by the Company.
EMPLOYEES
As of December 31, 2003, Belden had approximately 3,900 employees. Approximately
1,450 employees are covered by collective bargaining agreements at various
locations around the world. During 2003, we closed our manufacturing operations
in Kingston, Canada; Villingen, Germany; and Melbourne, Australia. During the
year, Belden paid approximately $19.4 million in severance and related benefits
to 436 terminated employees. At December 31, 2003, Belden has recorded accrued
severance and related benefits in anticipation of 2004 payments to an additional
15 employees scheduled for termination. The Company believes that its
relationship with its employees is good.
IMPORTANCE OF NEW PRODUCTS AND PRODUCT IMPROVEMENTS;
IMPACT OF TECHNOLOGICAL CHANGE; IMPACT OF ACQUISITIONS
Many of the markets that Belden serves 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. These trends require ongoing
improvements in the capabilities of wire and cable products, and present
recurring opportunities for Belden and others to introduce more sophisticated
products. 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 such changes.
Belden holds certain patents that we believe provide a competitive advantage.
Our patented technologies include a performance level achieved by using bonded
pairs, in which the individual conductors of a pair are affixed along their
longitudinal axis. This results in consistent conductor-to-conductor spacing for
consistent electrical performance and better installed performance. We have also
patented the e-Spline, which complements bonded-pair technology. The e-Spline
maintains consistent spacing among the various pairs of wire within a cable,
reducing near-end crosstalk. These patented technologies enable certain of the
Company's products to provide overall performance in excess of industry
standards.
Fiber optic technology presents a potential substitute for certain of the
copper-based products that comprise the vast majority of Belden's sales. Fiber
optic cables have significantly penetrated the trunk portion of communications
markets, and in the distribution portion of communications networks both fiber
optic and copper cables are used. The service wire portion of these networks,
often called "the last mile," which connects the user to the network, remains
almost exclusively copper-based and we expect that it will continue to be copper
for the foreseeable future.
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Other markets we serve have not been significantly penetrated by optical fiber
due to the high relative cost required to interface electronic and light signals
and the high cost of fiber termination and connection. Advances in copper cable
technologies and data transmission equipment have increased the relative
performance of copper solutions. However, if there were a significant and rapid
decrease in the cost of fiber optic systems relative to the cost of copper-based
systems, without a significant increase in copper capabilities, such systems
could become superior on a price/performance basis to the copper systems that
are the majority of our business and could adversely affect our results.
To date, the development of wireless devices has required the development of new
wired platforms and infrastructure. In the future, wireless communications
technology may represent a threat to both copper and fiber optic-based systems.
We believe that the insufficient signal security, susceptibility to interference
and jamming, and relatively slow transmission speeds of current systems restrict
the use of wireless technology in many data communications markets. However,
there are no assurances that future advances in wireless technology will not
have an adverse effect on our business.
Continued strategic acquisitions are an announced part of Belden's future
strategy, and as discussed in "Note 6: Business Acquisition" of Belden's
consolidated financial statements in Item 8 of this Annual Report on Form 10-K,
the Company completed one acquisition in the three-year period ended December
31, 2003. However, there can be no assurance that future acquisitions will occur
or that those that do occur will be successful. See also the reference in Item 1
of this Annual Report on Form 10-K to the Agreement and Plan of Merger with
Cable Design Technologies Corporation.
AVAILABLE INFORMATION
Belden maintains an Internet website at www.belden.com where Belden's Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports are available without charge, as soon as
reasonably practicable following the time they are filed with or furnished to
the SEC.
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EXECUTIVE OFFICERS
The following sets forth certain information with respect to Belden's executive
officers. 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
---- --- --------
C. Baker Cunningham 62 Chairman of the Board, President, Chief Executive
Officer and Director
Kevin L. Bloomfield 52 Vice President, Secretary and General Counsel
Stephen H. Johnson 54 Treasurer
Robert W. Matz 57 Vice President, Operations and
President, Belden Communications
Richard K. Reece 48 Vice President, Finance and Chief Financial Officer
D. Larrie Rose 56 Vice President, Operations and President, Belden
Holdings, Inc.
Cathy O. Staples 53 Vice President, Human Resources
Peter J. Wickman 55 Vice President, Operations and President, Belden
Electronics
C. Baker Cunningham has been Chairman of the Board, President, Chief Executive
Officer and Director of the Company since 1993. From February 1982 until July
1993, he was an Executive Vice President, Operations of Cooper, a manufacturer
of electrical equipment and tools and hardware. Mr. Cunningham has a B.S. degree
in civil engineering from Washington University, an M.S. degree in civil
engineering from Georgia Tech and an M.B.A. from the Harvard Business School.
Kevin L. Bloomfield has been Vice President, Secretary and General Counsel of
the Company since August 1, 1993. He was Senior Counsel for Cooper from February
1987 to July 1993, and had been in Cooper's Law Department from 1981 to 1993. He
has a B.A. degree in economics and a J.D. degree from the University of
Cincinnati and an M.B.A. from The Ohio State University.
Stephen H. Johnson has been Treasurer of the Company since July 2000. He was
Vice President, Finance of Belden Electronics from September 1998 through June
2000 and Director, Tax and Assistant Treasurer of the Company from October 1993
through August 1998. He was associated with the public accounting firm of Ernst
& Young LLP from 1980 through September 1993 and was a partner with that firm
since 1989. Mr. Johnson has a B.A. in History from Austin College and a Ph.D. in
Philosophy from the University of Texas at Austin. He is a Certified Public
Accountant.
Robert W. Matz has been Vice President, Operations, and President, Belden
Communications since May 2002. Before joining Belden, Mr. Matz served as Vice
President of Ignition Products for Federal Mogul, a supplier of automotive
products. Previously, he was Vice President and General Manager of Champion
Ignition Products, a division of Cooper, and held other engineering and general
management positions at Champion. Mr. Matz holds the degrees of Bachelor of
Ceramic Engineering and Master of Science in Cermamic Engineering from The Ohio
State University and an M.B.A. from Wayne State University.
13
Richard K. Reece has been Vice President, Finance and Chief Financial Officer of
the Company since April 2002. He was Vice President, Operations of the Company
and President, Belden Communications from June 1999 until April 2002, and was
Vice President, Finance, Treasurer and Chief Financial Officer of the Company
from August 1, 1993 until June 1999. He was associated with the public
accounting firm of Ernst & Young LLP from 1978 until June 1993 and was a partner
with that firm since 1989. He has a B.S. degree in accounting from Auburn
University and is a Certified Public Accountant.
D. Larrie Rose has been Vice President, Operations and President, Belden
Holdings, Inc., since April 2002. He served as Vice President, Sales & Marketing
for Belden Electronics from 1998 until 2002. From 1981 until 1998, Mr. Rose held
various European management positions including Vice President, International
Operations from 1995 until 1998. He has been with Belden since 1972. Mr. Rose
has a B.S. degree from Ball State University.
Cathy Odom Staples has been Vice President, Human Resources of the Company since
May 1997. She was Vice President, Human Resources for the Electronic Products
Division of the Company from May 1992 to May 1997. Ms. Staples has a B.S.B.A.
degree in human resources from Drake University.
Peter J. Wickman has been Vice President, Operations of the Company since 1993,
and President, Belden Electronics since June 1999. He was Vice President,
Finance and Planning for the Belden Division of Cooper from 1989 to July 1993.
He was Controller of Cooper's Bussmann Division from 1983 to 1989. Mr. Wickman
has a B.S. degree in accounting from Walton School of Commerce and is a
Certified Public Accountant.
ITEM 2. PROPERTIES
Belden has an executive office and various manufacturing plants, distribution
centers and sales offices. The significant facilities are as follows:
1. Used by Belden generally:
OWNED
SQUARE OR
LOCATION FACILITY TYPE FEET LEASED
-------- ------------- ---- ------
St. Louis, Missouri Executive Office 13,261 Leased
14
2. Used by the Electronics business segment:
OWNED
SQUARE OR
LOCATION FACILITY TYPE FEET LEASED
-------- ------------- ---- ------
Richmond, Indiana Sales and Administrative Office 53,575 Owned
Richmond, Indiana Engineering Center 70,000 Owned
Richmond, Indiana Manufacturing - electronics wire & 693,372 Owned
cable
Richmond, Indiana Distribution Center 145,000 Owned
Monticello, Kentucky Manufacturing - electronics wire & 222,800 Owned
cable
Tompkinsville, Kentucky Manufacturing - CATV and flat cable 228,800 Owned
Leominster, Massachusetts Manufacturing - electronics wire & 61,200 Leased
cable
Elizabeth, New Jersey Sales and Administrative Office 7,064 Owned
Elizabeth, New Jersey Distribution Center 197,250 Owned
Essex Junction, Vermont Manufacturing - high temperature 77,400 Owned
electronics wire & cable
Cobourg, Ontario, Canada Manufacturing - electrical and 215,000 Owned
electronics wire & cable; Sales and
Administrative Office and Distribution
Center
Budapest, Hungary Manufacturing - electrical and 79,000 Owned
electronics wire & cable; Sales and
Administrative Office
Venlo, The Netherlands Manufacturing - electrical and 585,000 Owned
electronics wire & cable and fiber
optics cable; Distribution Center; and
Sales and Administrative Office
15
3. Used by the Communications business segment:
OWNED
SQUARE OR
LOCATION FACILITY TYPE FEET LEASED
-------- ------------- ---- ------
Phoenix, Arizona Manufacturing - Communications 1,300,000 Owned
and networking wire & cable; Sales
and Administrative Office and
Distribution Center
Manchester, United Kingdom Manufacturing - Communications wire & 282,000 Owned
cable; Sales and Administrative Office
and Distribution Center
Fort Mill, South Carolina Manufacturing - Communications wire & 240,000 Leased
cable
The Company believes its physical facilities are suitable for their present and
intended purposes and adequate for the Company's current level of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative actions
that are incidental to its operations. These proceedings include personal injury
cases (195 of which the Company was aware at March 1, 2004) in which the Company
is one of many defendants, 12 of which are scheduled to go to trial in 2004.
Electricians have filed a majority of these cases, primarily in New Jersey and
Pennsylvania. Typically, the claimant alleges injury from alleged exposure to
heat-resistant asbestos fiber, which was usually encapsulated or embedded and
lacquered-coated or covered by another material. Exposure to the fiber would
have occurred, if at all, while stripping (cutting) the wire or cable that had
such fiber. It is alleged by claimants that exposure to the fiber may result in
respiratory illness. Generally, stripping was done to repair or to attach a
connector to the wire or cable. Alleged predecessors of the Company had a small
number of products that contained the fiber, but ceased production of such
products more than fifteen years ago. Through March 1, 2004, the Company had
been dismissed in approximately 50 similar cases without any going to trial or
any payment to the claimant; only one involved a settlement, with the Company
having paid $1,250 and two of its insurers having paid the remainder. These
cases were dismissed primarily because the claimants could not show any injury,
or could not show that injury was caused from exposure to products of alleged
predecessors of the Company. The Company has insurance that it believes should
cover a significant portion of any defense, settlement or judgment costs borne
by the Company in these types of cases and, under an agreement with the Company,
two insurance carriers are paying 83% of the defense costs in these types of
cases and defense costs do not erode their policy limits. The Company vigorously
defends these cases and is unaware of any valid study or literature that proves
that stripping (or otherwise handling) wire and cable, which contains the fiber
and which was manufactured by any alleged predecessor of the Company, would
cause any illness. As a separate matter, liability for any such injury generally
should be allocated among all defendants in such cases in accordance with
applicable law. From 1996 through March 1, 2004, the total amount of litigation
costs paid or payable for all cases of this nature was approximately
$178,000. In the opinion of the Company's management, the proceedings and
actions in which the Company is involved should not, individually or in
16
the aggregate, have a material adverse effect on the Company's results of
operations or financial condition.
See "Item 1. Business -- Environmental Matters" regarding certain proceedings
arising under environmental laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters
were submitted to a vote of security holders of the Company.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
At February 27, 2004, there were approximately 750 record holders of Common
Stock of Belden Inc. Belden's common stock is traded on the New York Stock
Exchange (NYSE), under the symbol "BWC." The Company anticipates that comparable
cash dividends will continue to be paid in the foreseeable future.
COMMON STOCK PRICES AND DIVIDENDS
2003 (BY QUARTER)
-----------------------------------------------------
1 2 3 4
------- ------ ------ ------
DIVIDENDS PER COMMON SHARE $ .05 $ .05 $ .05 $ .05
COMMON STOCK PRICES:
HIGH 15.84 15.94 20.06 22.00
LOW 10.66 10.50 14.40 17.30
2002 (BY QUARTER)
-----------------------------------------------------
1 2 3 4
------- ------ ------ ------
DIVIDENDS PER COMMON SHARE $ .05 $ .05 $ .05 $ .05
COMMON STOCK PRICES:
HIGH 25.75 24.94 21.14 17.44
LOW 19.54 19.69 12.85 10.86
18
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31, 2003 2002 2001 2000 1999
- ------------------------ ---- ---- ---- ---- ----
(in thousands, except per share
amounts)
Income statement data
Revenues $ 826,521 $ 813,348 $ 968,369 $1,169,255 $ 818,614
Operating earnings/(loss) (83,876) (6,048) 60,256 103,985 79,890
Income/(loss) from continuing
operations before cumulative
effect of change in accounting
principle (60,730) (15,893) 31,209 52,843 40,991
Diluted earnings/(loss) per share
from continuing operations before
cumulative effect of change in
accounting principle (2.41) (.64) 1.26 2.14 1.68
Diluted earnings/(loss) per share (2.41) (.64) 1.25 2.14 1.47
--------- --------- --------- ---------- ---------
Balance sheet data
Total assets $ 673,555 $ 743,539 $ 722,690 $ 795,768 $ 712,464
Long-term debt 136,000 203,242 234,703 272,630 283,817
Other long-term obligations 80,012 114,834 96,926 88,246 61,334
Stockholders' equity 274,410 307,195 314,245 287,669 247,527
--------- --------- --------- ---------- ---------
Other data
Average number of employees 4,200 4,700 5,500 5,800 4,500
========= ========= ========= ========== =========
Dividends per common share $ .20 $ .20 $ .20 $ .20 $ .20
========= ========= ========= ========== =========
Events affecting the comparability of financial information for 2001 through
2003 are discussed in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
On May 7, 1999, the Company sold its Cord Products Division to Volex, Inc. for
$27.4 million.
On June 28, 1999, the Company acquired all of the outstanding shares of Cable
Systems Holding Company and its subsidiary Cable Systems International Inc.,
Phoenix, Arizona for $183.5 million.
On April 3, 2000, the Company purchased certain assets and assumed certain
liabilities of the metallic communications cable operations of Corning
Communications Limited in Manchester, United Kingdom for $15.5 million.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis, as well as the accompanying Consolidated
Financial Statements and related footnotes, will aid in the understanding of the
Company's operating results as well as its financial position, cash flows,
indebtedness and other key financial information. Certain reclassifications have
been made to prior year amounts to make them comparable to current year
presentation. Preparation of this Annual Report on Form 10-K requires the
Company to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of its financial statements and the reported amounts of revenue and
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily derived from other sources. There can be no assurance that actual
amounts will not differ from those estimates. The following discussion will also
contain forward-looking statements. In connection therewith, please see the
cautionary statements contained herein, which identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements.
OVERVIEW
The Company designs, manufactures and markets metallic and fiber optic wire and
cable products for the electronics and communications markets. The Company has
manufacturing facilities in North America and Europe.
The Company believes that revenue growth, operating margins and working capital
management are its key performance indicators.
During the five-year period from 1999 through 2003, the Company's total revenues
have increased by 1% from $818.6 million to $826.5 million. This revenue
comparison reflects two offsetting trends.
From 2001 through 2003, companies selling products to the electronics and
communications markets have suffered through a significant downturn in demand.
Much of this downturn can be attributed to the poor health of the general
economies in both North America and Europe during that period. A majority of the
Company's revenues historically have been derived from customers located in
North America and Europe.
During this same period, the Company used its strong balance sheet to acquire
numerous businesses, thus bringing enough revenues into the Company to offset
those revenues lost due to the economic downturn. From 1999 through 2003, the
Company acquired 5 businesses that generated combined revenues of $407.4 million
during their first year after acquisition.
20
On October 31, 2002, the Company purchased certain assets and assumed certain
liabilities of the NORCOM wire and cable business in Kingston, Ontario, Canada
(NORCOM) from Cable Design Technologies Corporation for cash of $11.3 million.
The purchase price is subject to additional contingency payments for up to three
years which could total as much as $6.7 million depending mainly on the
Company's achievement of future business levels. No goodwill was recorded with
respect to this transaction. NORCOM manufactured and marketed metallic cable
products primarily for the Canadian and United States communications markets.
Operating results for NORCOM have been included in the operating results for the
Communications segment since the acquisition date and may affect comparability
of the operating results between years.
In December 2002, the Company elected to streamline operations by closing its
manufacturing facilities in Melbourne, Australia and Villingen, Germany, exiting
the production of certain products in North America, Europe and Australia,
disposing of certain excess and inefficient equipment used in the manufacturing
of certain products with communications applications and disposing of certain
real estate and buildings in order to rationalize production capabilities. The
Company recorded impairment losses of $32.5 million on property, plant and
equipment and $0.2 million on goodwill in that month. During 2003, the Company
paid $10.8 million in severance and other related benefits to 241 terminated
employees and recognized an additional impairment loss of $0.4 million related
to the closure of the manufacturing facility in Germany. At December 31, 2003,
the Company has recorded accrued severance of $0.8 million in anticipation of
2004 payments to an additional 13 employees scheduled for termination.
In December 2002, the Company decided to close its manufacturing facility in
Kingston, Canada and relocate production to other Company facilities. During
2003, the Company paid $8.6 million in severance and other related benefits to
195 terminated employees. At December 31, 2003, the Company has recorded accrued
severance of $0.2 million in anticipation of 2004 payments to an additional 2
employees scheduled for termination.
During 2003, a general deterioration of the North American telecommunications
market required downward revisions to the expected future results of operations.
Reasons for the market deterioration included the general economic slowdown,
network overcapacity, network build-out delays and limited availability of
capital. As a result, sales and results of operations have been and may continue
to be adversely affected. The significant slowdown in capital spending in target
markets has created uncertainty as to the level of demand, which can change
quickly and can vary over short periods of time, including month to month. As a
result of this uncertainty, accurate forecasting of near- and long-term results,
earnings and cash flow remains difficult. In addition, since a limited number of
customers account for a significant amount of revenue, results are subject to
volatility from changes in spending by one or more of these significant
customers. The significant declines in revenues led to high, unabsorbed fixed
costs, which adversely affected gross margin. Although reductions in operating
expenses continued, they were not sufficient to completely offset unabsorbed
costs.
21
The Company does not see market conditions improving sufficiently to return the
North American portion of the Communications business to operating profitability
in 2004. Accordingly, in the fourth quarter of 2003, the Company's Board of
Directors decided to seek strategic alternatives for this business. Depending on
the outcome of the strategic review of the North American operations of the
Communications segment, the Company may (1) restructure operations of the North
American business, which may require further capital for facility consolidation,
(2) develop strategic relationships with other manufacturers, such as a joint
venture or outsourcing arrangements, (3) sell facilities and equipment and exit
the market, or (4) sell the entity and exit the market.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
performed an evaluation of the recoverability of the carrying value of
long-lived assets using undiscounted cash flow projections. Based on the gross
undiscounted cash flow projections, the Company determined that all asset groups
within the North American operations of its Communications segment were
impaired. The Company then estimated fair values using a variety of techniques
including discounted cash flows and comparable market data. Calculating the
estimated fair values involves significant assumptions. Assumptions utilized in
estimating fair values under continued asset use included long-term forecasts of
revenue growth, gross margins and capital expenditures. Comparable market data
was obtained from appraisals and other third party valuation estimates. During
the fourth quarter of 2003, the Company determined that fair values of the asset
groups within the North American operations of its Communications segment were
less than carrying amounts by $92.4 million. The Company recognized this
impairment loss during the fourth quarter of 2003.
The Company successfully renewed supply arrangements with two major
communications customers--one in the United Kingdom, the other in Canada--during
2003.
The Company successfully renewed the collective bargaining agreement with
certain employees at its Phoenix, Arizona operations during 2003.
During the years ended December 2003, 2002 and 2001, two of the Company's
customers each accounted for more than 10% of the Company's total revenues.
Revenues from the two customers in 2003 represented 15% and 10% of total
revenues. Revenues from the two customers in 2002 represented 16% and 11% of
total revenues. Revenues from the two customers in 2001 represented 11% and 17%
of total revenues. A loss of one or both of these major customers, a decrease in
orders by one or both of the customers or a change in the mix of products
purchased by one or both of these customers could adversely affect the Company's
revenues, margins and net income.
22
CONSOLIDATED OPERATING RESULTS
The following table sets forth information comparing 2003 consolidated operating
results with 2002 and 2001.
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- ---------
(in thousands)
Revenues $ 826,521 $ 813,348 $ 968,369
Gross profit 114,355 123,012 168,906
Operating earnings/(loss) (83,876) (6,048) 60,256
Interest expense 12,299 13,730 18,585
Income/(loss) before taxes and cumulative effect of change
in accounting principle (CECAP) (96,175) (19,778) 42,871
Income/(loss) before CECAP (60,730) (15,893) 31,209
Net income/(loss) (60,730) (15,893) 30,958
========= ========= =========
BUSINESS SEGMENTS
The Company conducts its operations through two business segments--the
Electronics segment and the Communications segment. The Electronics segment
designs, manufactures and markets metallic and fiber optic wire and cable
products with industrial, networking, entertainment/OEM and communications
applications. These products are sold primarily through distributors. The
Communications segment designs, manufactures and markets metallic cable products
primarily with communications and networking applications. These products are
sold chiefly to Local Exchange Carriers (LECs) either directly or through
value-added resellers (VARs) designated by the LECs.
The following table sets forth information comparing 2003 Electronics segment
operating results with 2002 and 2001.
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- ---------
(in thousands)
External customer revenues $ 553,743 $ 567,126 $ 635,630
Operating earnings 32,163 11,315 61,925
As a percent of external customer revenues 5.8% 2.0% 9.7%
========= ========= =========
The following table sets forth information comparing 2003 Communications segment
operating results with 2002 and 2001.
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- ---------
(in thousands)
External customer revenues $ 272,778 $ 246,222 $ 332,739
Operating earnings/(loss) (104,524) (6,857) 6,283
As a percent of external customer revenues (38.3)% (2.8)% 1.9%
========= ========= =========
23
OPERATING RESULTS -- 2003 COMPARED WITH 2002
Revenues
Revenues increased 1.6% to $826.5 million in the year ended December 31, 2003
from $813.3 million in the year ended December 31, 2002 as favorable currency
translation on international revenues were only partially offset by reduced
sales volume and net decreased selling prices.
The increase of the euro, British pound, Canadian dollar and Australian dollar
from average exchange values of $0.95, $1.50, $0.64 and $0.54, respectively, in
2002 to $1.13, $1.64, $0.72 and $0.65, respectively, in 2003 contributed 4.4
percentage points of revenue increase. The Company anticipates that average
exchange values for 2004 will be higher than those achieved in 2003, thus
contributing to an expected overall revenue increase.
The Company experienced volume decreases in all of its product offerings due
primarily to the sluggish general economies in both North America and Europe and
historically low capital expenditures by the major communications companies that
were partially offset by incremental volume from NORCOM, acquired in the fourth
quarter of 2002. These volume decreases partially offset the positive impact of
currency translation by 2.1 percentage points. The Company believes that the
general economy in North America is now improving and that improvement in the
North American electronics market should result in a modest volume increase on
products sold by the its Electronics segment in 2004. The Company believes,
however, that there will be little to no improvement in the North American
communications market and that the volume of products sold by its Communications
segment will be flat to slightly down in 2004. The Company believes the general
economy in Europe is also improving and it should experience an increase in the
volume of products sold by its Communications segment. The Company believes,
however, that the volume of products sold by its Electronics segment will
decrease due to its 2002 decision to exit certain product lines in Europe.
Decreased product pricing also offset the positive impact that currency
translation and NORCOM had on the revenue comparison by 0.7 percentage points.
This decrease resulted primarily from the impact of sales price reductions
implemented on certain products with communications, networking and
entertainment/OEM applications as well as lower annual average pass-through
copper prices on certain products with communications applications. These
decreases were partially offset by sales price increases implemented on certain
products with industrial applications. The Company believes that sales prices
for most products should increase in 2004. These increases will result from the
Company's planned response to the rising costs of copper and other materials.
Revenues in the United States, representing 58.6% of the Company's total
revenues generated during the year ended December 31, 2003, declined by 6.0%
compared with revenues generated during the same period in 2002. This decline
was attributed to a shortfall in sales of both Electronics segment and
Communications segment products. United States revenues generated from the sale
of Electronics segment products during 2003 declined by 7.3% compared with
revenues generated during 2002. Revenues generated in the United States from the
sale of Communications segment products during the year ended December 31, 2003
declined by 3.4% compared with the same period in 2002.
24
Revenues in Canada represented 10.2% of the Company's total revenues for the
year ended December 31, 2003. Canadian revenues for 2003 increased by 55.3%
compared with revenues for 2002 due primarily to revenues generated by NORCOM
and the impact of favorable currency translation partially offset by decreased
demand for products with industrial applications. Local currency revenues
generated by NORCOM contributed 49.2 percentage points to the revenue increase.
The impact of favorable currency translation contributed 11.4 percentage points
of the revenue increase. Decreased local currency revenues generated on sales of
products with industrial applications partially offset the favorable impact that
NORCOM and currency translation had on the revenue comparison by 5.3 percentage
points.
Revenues in the United Kingdom, representing 10.0% of the Company's total
revenues generated during 2003, decreased by 1.6% compared with revenues
generated during 2002. Absent the impact of favorable currency translation and
revenues generated by NORCOM on sales into the United Kingdom, revenues
generated for 2003 declined by 8.4% compared with revenues generated for 2002.
This decline occurred due to a shortfall in revenues generated on the sale of
Electronics segment products partially offset by increased revenues generated on
the sale of Communications segment products.
Revenues in Continental Europe represented 12.4% of the Company's total revenues
for the year ended December 31, 2003. Continental European revenues generated
during 2003 increased by 16.0% compared with revenues generated during 2002.
Absent the impact that favorable currency translation had on the revenue
comparison, Continental European revenues generated during 2003 decreased by
8.1% compared with revenues generated during 2002. This decline occurred
primarily due to a shortfall in demand for Electronics segment products.
Revenues from the rest of the world, representing 8.8% of the Company's total
revenues generated during the year ended December 31, 2003, increased by 1.5%
from the same period in 2002. The increase represented favorable currency
translation and stronger demand in the Africa/Middle East markets partially
offset by lower demand in both Latin America and the Asia/Pacific markets.
Costs, Expenses and Earnings
The following table sets forth information comparing the components of
earnings/(loss) for the year ended December 31, 2003 with the year ended
December 31, 2002.
Percent
Decrease
2003 Compared
Year Ended December 31, 2003 2002 With 2002
- ----------------------- --------- --------- -------------
(in thousands, except % data)
Gross profit $ 114,355 $ 123,012 (7.0)%
As a percent of revenues 13.8% 15.1%
Operating loss $ (83,876) $ (6,048) (1,286.8)%
As a percent of revenues (10.1)% (0.7)%
Loss before taxes and CECAP $ (96,175) $ (19,778) (386.3)%
As a percent of revenues (11.6)% (2.4)%
Net loss $ (60,730) $ (15,893) (282.1)%
As a percent of revenues (7.3)% (2.0)%
========= ========= =======
25
Gross profit decreased 7.0% to $114.4 million in the year ended December 31,
2003 from $123.0 million in the year ended December 31, 2002 due primarily to
lower sales volume, higher product costs resulting from increased prices for
copper and commodities derived from petroleum and natural gas, the impact of
sales price reductions taken on certain products with communications, networking
and entertainment applications, severance costs of $2.2 million recognized in
2003 related to the manufacturing facility closings in Australia and Germany,
severance costs of $1.2 million recognized in 2003 resulting from personnel
reductions within the Electronics segment, severance costs of $0.5 million
recognized in 2003 resulting from personnel reductions within the Communications
segment, and an aggregate nonrecurring $2.0 million favorable settlement from
class action litigation regarding the pricing of copper futures recognized in
2002. Also contributing to the unfavorable gross profit comparison was the
impact of the Company's inventory reduction initiative. By limiting production
to reduce inventory levels, the Company absorbed less of its fixed costs; thus,
unabsorbed costs, or unfavorable production variances, had a negative impact on
gross profit. These negative factors were partially offset by the current-year
impact of material, labor and overhead cost reduction initiatives as well as
severance costs totaling $2.7 million related to personnel reductions within the
Electronics segment recognized in 2002, severance costs totaling $5.9 million
recognized in 2002 related to product line curtailment and planned manufacturing
facility consolidation, and inventory obsolescence costs of $3.6 million
recognized in 2002 related to product line curtailment. Gross profit as a
percent of revenues declined by 1.3 percentage points from the prior year due to
the previously mentioned items.
Operating loss increased to $83.9 million for the year ended December 31, 2003
from $6.0 million for the year ended December 31, 2002 due primarily to lower
gross profit, asset impairment costs of $92.8 million recognized in 2003 related
to the Company's inability to recover its investment in both the tangible and
intangible assets within the North American operations of its Communications
segment and the manufacturing facility closing in Germany, and an $8.1 million
decrease from 2002 to 2003 in other operating earnings recognized for
"take-or-pay" and "sales incentive" compensation due under minimum requirements
contracts with a major private-label customer. Also contributing to the negative
operating loss comparison was an increase in selling, general and administrative
expenses to $108.5 million for 2003 from $107.4 million for 2002 due primarily
to the NORCOM acquisition in the fourth quarter of 2002, the unfavorable impact
of currency translation, severance costs of $0.4 million recognized in 2003
related to the manufacturing facility closings in Australia and Germany,
severance costs of $2.4 million recognized in 2003 related to personnel
reductions within the Electronics segment, and bad debt expense of $0.6 million
recognized in 2003 related to the failure of a distribution customer in Asia.
This unfavorable performance was somewhat mitigated by asset impairment costs
totaling $32.7 million recognized in 2002 related to product line curtailment
and the manufacturing facility closings in Australia and Germany, severance
costs totaling $1.3 million recognized in 2002 related to personnel reductions
within the Electronics segment, severance costs totaling $2.4 recognized in 2002
related to product line curtailment and the manufacturing facility closings in
Australia and Germany, and bad debt expense totaling $1.9 million recognized in
2002. Selling, general and administrative expenses decreased to 13.1% of
revenues in 2003 from 13.2% of revenues in 2002. Operating loss as a percent of
revenues declined by 9.4 percentage points from the prior year due to the
previously mentioned items.
26
Loss before taxes and CECAP increased to $96.2 million in the year ended
December 31, 2003 from $19.8 million in the year ended December 31, 2002 due
mainly to lower operating earnings. The lower operating earnings were partially
offset by decreased interest expense. Interest expense decreased 10.4% to $12.3
million in 2003 from $13.7 million in 2002 due to lower average borrowings and
marginally lower interest rates. Average debt outstanding during the 2003 and
2002 was $200.1 million and $215.3 million, respectively. The Company's average
interest rate was 6.59% in 2003 and 6.64% in 2002.
The net tax benefit of $35.4 million for the year ended December 31, 2003
resulted from a net loss before taxes and CECAP of $96.2 million. The Company's
effective tax rate after asset impairment, severance and bad debt (Charges) was
40.0%. This rate was adjusted to 36.9% because of valuation allowances recorded
against the state and foreign net operating loss carryforwards and deferred tax
assets resulting from the Charges.
Net loss increased to $60.7 million in the year ended December 31, 2003 from
$15.9 million in the year ended December 31, 2002 due mainly to a greater loss
before taxes and CECAP partially offset by the larger tax benefit recognized
during 2003.
Electronics Segment
Revenues generated from sales to external customers decreased 2.4% to $553.7
million for the year ended December 31, 2003 from $567.1 million for the year
ended December 31, 2002. The segment experienced lower sales volume on products
with networking, industrial, entertainment/OEM and communications applications
due to the unfavorable manufacturing economies in the United States, Europe and
parts of Asia. The impact of price reductions taken on certain products with
networking, entertainment and communications applications also had a negative
impact on the revenue comparison. The impact of these price reductions was
partially offset by price increases taken on certain products with industrial
applications. Favorable currency translation on international revenues partially
offset the negative impact that volume and pricing had on the revenue
comparison.
Operating earnings increased significantly to $32.2 million for the year ended
December 31, 2003 from $11.3 million for the same period in 2002 due mainly to
asset impairment and severance costs of $17.5 million and $8.3 million,
respectively, recognized in 2002 related to product line curtailment and the
manufacturing facility closures in Australia and Germany, inventory obsolescence
costs of $3.6 million recognized in 2002 related to product line curtailment,
severance costs of $3.3 million recognized in 2002 related to personnel
reductions taken in response to the downturn in sales activity, bad debt expense
totaling $0.9 million recognized in 2002 related to two financially troubled
distribution customers, the 2003 impact of cost reduction initiatives related to
certain material, labor, manufacturing overhead and selling, general and
administrative expenditures, and $1.6 million in unabsorbed production costs
recognized during 2002 related to the Company's Ft. Mill, South Carolina
manufacturing facility which was transferred from this segment to the
Communications segment effective July 1, 2003. These positive factors were
partially offset by lower sales volumes, the impact of sales price reductions
taken on certain products, increased unabsorbed production costs resulting from
actions taken by the segment to reduce inventory levels, severance and asset
impairment costs of $2.5 million and $0.4 million, respectively, recognized in
2003 related to the manufacturing facility closings in Australia and Germany,
severance costs of $3.6 million recognized in 2003 related to personnel
reductions within the segment, bad debt expense of $0.6 million recognized in
2003 related to the failure of a distribution customer in Asia, and an aggregate
nonrecurring $0.7 million favorable settlement from class action litigation
regarding the pricing of copper futures recognized during 2002.
27
Communications Segment
The Communications segment recorded revenues generated on sales to external
customers of $272.8 million for the year ended December 31, 2003; a 10.8%
increase from revenues of $246.2 million generated for the year ended December
31, 2002. The revenue increase was due principally to favorable currency
translation on international revenues, the inclusion of revenues generated by
NORCOM during twelve months of 2003 compared with two months of 2002 and
increased sales of products with communications applications to distribution
customers. The positive impact that currency translation, NORCOM and increased
distribution sales had on the revenue comparison was partially offset by
historically low capital spending by the major communications companies.
Operating loss deteriorated to $104.5 million for the year ended December 31,
2003 from $8.9 million for the year ended December 31, 2002 due primarily to
asset impairment costs of $92.4 million related to the Company's inability to
recover its investment in both the tangible and intangible assets within the
North American operations of its Communications segment and an $8.1 million
decrease from 2002 to 2003 in other operating earnings recognized for
"take-or-pay" and "sales incentive" compensation due under minimum requirements
contracts with a major private-label customer. Also contributing to the negative
operating loss comparison were higher product costs resulting from increased
prices for copper and commodities derived from petroleum and natural gas,
increased unabsorbed production costs resulting from actions taken to reduce
inventory levels, severance costs of $0.5 million recognized in 2003 related to
personnel reductions in the United Kingdom, an aggregate nonrecurring $1.3
million favorable settlement from class action litigation regarding the pricing
of copper futures recognized in 2002, increased production, selling, general and
administrative costs and expenses due to the acquisition of NORCOM in the fourth
quarter of 2002, and the transfer of the Company's Ft. Mill, South Carolina
manufacturing facility from the Electronics segment to this segment effective
July 1, 2003. These negative factors were partially offset by the 2003 impact of
cost reduction initiatives related to certain material, labor, manufacturing
overhead and selling, general and administrative expenditures and asset
impairment costs totaling $15.2 million recognized in 2002 related to updated
manufacturing technology and the manufacturing facility closing in Canada.
OPERATING RESULTS -- 2002 COMPARED WITH 2001
Revenues
Revenues decreased 16.0% to $813.3 million in the year ended December 31, 2002
from $968.4 million in the year ended December 31, 2001 as reduced sales volume
and decreased selling prices were only partially offset by favorable currency
translation on international revenues.
Decreased unit sales contributed 14.2 percentage points of revenue decline. The
Company experienced volume decreases in all of its product offerings due
primarily to the downturns in both the United States and European economies,
capital spending reductions by the major communications companies and the lack
of purchases during 2002 by a major private-label customer that contributed
$13.0 million in revenues during 2001. These negative factors were partially
offset by incremental revenues from NORCOM, acquired in the fourth quarter of
2002.
28
Decreased product pricing contributed 3.0 percentage points of revenue decline.
This decrease resulted primarily from the impact of sales price reductions
implemented on certain products with communications, networking, industrial and
entertainment/OEM applications as well as lower annual average pass-through
copper prices on certain products with communications applications.
The increase of the euro, British pound and Australian dollar from average
exchange values of $0.90, $1.44 and $0.52, respectively, in 2001 to $0.95, $1.50
and $0.54, respectively, partially offset the negative impact of volume and
pricing on revenue comparisons by 1.2 percentage points.
Revenues in the United States, representing 63.3% of the Company's total
revenues for the year ended December 31, 2002, decreased by 20.2% compared to
revenues for the year ended December 31, 2001. This decline was attributed to a
shortfall in sales of both Electronics segment and Communications segment
products. United States revenues generated from the sale of Electronics segment
products during 2002 declined by 10.3% compared to revenues generated during
2001. Revenues generated in the United States from the sale of Communications
segment products during 2002 were down 33.6% compared to revenues generated
during 2001.
Revenues in Canada represented 6.7% of the Company's total revenues for the year
ended December 31, 2002. Canadian revenues for 2002 increased by 35.1% compared
with revenues for 2001 due primarily to increased demand for products with
industrial applications and revenues generated by NORCOM partially offset by the
impact of unfavorable currency translation. Increased local currency revenues
generated on sales of products with industrial applications contributed 22.7
percentage points to the revenue increase. Local currency revenues generated by
NORCOM contributed 14.0 percentage points to the revenue increase. The impact of
unfavorable currency translation partially offset the favorable impact that the
increased industrial products revenues and the incremental NORCOM revenues had
on the revenue comparison by 1.6 percentage points.
Revenues in the United Kingdom, representing 10.3% of the Company's total
revenues generated during 2002, decreased by 4.5% compared with revenues
generated during 2001. Absent the impact of favorable currency translation,
revenues generated for 2002 declined by 7.7% compared with revenues generated
for 2001. This decline occurred due to a shortfall in revenues generated on the
sale of both Electronics segment products and Communications segment products.
Revenues in Continental Europe represented 10.9% of the Company's total revenues
for the year ended December 31, 2002. Continental European revenues decreased by
23.9% from revenues generated during 2001. Absent the impact of favorable
currency translation, revenues generated for 2002 declined by 29.4% compared
with revenues generated for 2001. This decline occurred due to a shortfall in
revenues generated on the sale of both Electronics segment products and
Communications segment products.
Revenues from the rest of the world, representing 8.8% of the Company's total
revenues for 2002, decreased by 12.1% from revenues generated in 2001. Absent
the impact of favorable currency translation, revenues from the rest of the
world for 2002 would have decreased by 13.2% compared to revenues generated in
2001. This decline represented reduced demand in Latin America and the
Asia/Pacific markets partially offset by increased demand in the Africa/Middle
East markets.
29
Costs, Expenses and Earnings
The following table sets forth information comparing the 2002 components of
earnings with 2001.
Percentage
Decrease
2002 Compared
Year Ended December 31, 2002 2001 With 2001
- ----------------------- --------- --------- -------------
(in thousands, except % data)
Gross profit $ 123,012 $ 168,906 (27.2)%
As a percent of revenues 15.1% 17.4%
Operating earnings/(loss) $ (6,048) $ 60,256 (110.0)%
As a percent of revenues (0.7)% 6.2%
Income/(loss) before taxes and CECAP $ (19,778) $ 42,871 (146.1)%
As a percent of revenues (2.4)% 4.4%
Net income/(loss) $ (15,893) $ 30,958 (151.3)%
As a percent of revenues (2.0)% 3.2%
========= ========= ======
Gross profit decreased 27.2% to $123.0 million in the year ended December 31,
2002 from $168.9 million in the year ended December 31, 2001 due primarily to
lower sales volume, the impact of sales price reductions taken on certain
products, severance costs of $2.1 million recognized in 2002 related to
personnel reductions taken in response to the downturn in sales activity,
severance costs of $5.9 million recognized in 2002 related to product line
curtailment and planned manufacturing facility consolidation, and inventory
obsolescence costs of $3.6 million recognized in 2002 related to product line
curtailment. This decrease was partially offset by the impact of material, labor
and overhead cost reductions as well as a $2.0 million settlement awarded to the
Company in 2002 from class action litigation regarding the pricing of copper
futures. Gross profit as a percent of revenues declined by 2.3 percentage points
from the prior year reflecting the previously mentioned items.
Operating earnings/(loss) decreased 110.0% to $6.0 million of operating loss in
the year ended December 31, 2002 from $60.3 million of operating earnings in the
year ended December 31, 2001 due primarily to the decrease in gross profit and a
decrease in other operating earnings/(expenses) from $8.3 million of other
operating earnings in 2001 to $21.6 million of other operating expenses in 2002.
The decrease in other operating earnings/(expenses) was due primarily to asset
impairment costs of $32.7 million recognized in 2002 related to product line
curtailment and planned manufacturing facility consolidation that was only
partially offset by a $2.8 million increase from 2001 to 2002 in other operating
earnings recognized for "take-or-pay" and "sales incentive" compensation due
under minimum requirements contracts with a major private-label customer.
Partially offsetting the decrease in gross profit and other operating
earnings/(loss) was a reduction in selling, general and administrative expenses
of 6.4% to $107.4 million in 2002 from $114.8 million in 2001 and the cessation
of goodwill amortization, which totaled $2.1 million in 2001, in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets.
30
The favorable performance in selling, general and administrative expenses was
primarily the result of a $6.8 million decrease from 2001 to 2002 in bad debt
expense and was also positively affected by personnel reductions and tighter
spending control throughout the organization. This favorable performance was
somewhat mitigated by severance costs of $1.2 million recognized in 2002 related
to personnel reductions taken in response to the downturn in sales activity,
management reassignment costs of $0.5 million recognized in 2002, severance
costs of $2.4 million recognized in 2002 related to product line curtailment and
planned manufacturing facility consolidation, and additional selling, general
and administrative expenses related to the NORCOM acquisition. Operating
earnings/(loss) as a percent of revenues declined by 6.9 percentage points from
the prior year reflecting the previously mentioned items.
Income/(loss) before taxes and CECAP decreased 146.1% to $19.8 million of loss
before taxes and CECAP in the year ended December 31, 2002 from $42.9 million of
income before taxes and CECAP in the year ended December 31, 2001 due mainly to
the decrease in operating earnings/(loss) and $1.2 million of nonoperating
earnings recognized in 2001 related to the Company's sale of its ownership
interest in a medical wire joint venture. The decrease in operating
earnings/(loss) and the nonrecurring nonoperating earnings were partially offset
by decreased interest expense. Interest expense decreased 26.1% to $13.7 million
in 2002 from $18.6 million in 2001 due to lower borrowings at marginally lower
interest rates. Average debt outstanding during 2002 and 2001 was $215.3 million
and $261.9 million, respectively. The Company's average interest rate was 6.6%
in 2002 compared to 7.3% in 2001.
The net tax benefit of $3.9 million in the year ended December 31, 2002 resulted
from a net loss before taxes and CECAP of $19.8 million. The Company had a
potential net tax benefit of $10.7 million. However, due to the uncertainty of
realizing the benefit of certain asset impairment, severance and inventory
obsolescence charges in locations other than the United States, the Company
recorded a valuation allowance of $6.8 million against income taxes receivable
and deferred income tax assets. As a result, the Company's effective tax benefit
rate was reduced to 19.6%.
Net income/(loss) decreased 151.3% to $15.9 million of net loss in the year
ended December 31, 2002 from $31.0 million of net income in the year ended
December 31, 2001 due mainly to lower income/(loss) before taxes and CECAP that
was partially mitigated by the decrease in tax expense/(benefit) from 2001 to
2002 and the cumulative effect of the Company's adoption of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activity, in 2001.
Electronics Segment
External customer revenues decreased 10.8% to $567.1 million for the year ended
December 31, 2002 from $635.6 million for the year ended December 31, 2001. This
decrease can be attributed mainly to weaker demand for all of the segment's
product offerings due to the downturns in both the United States and European
economies. Also contributing to the decrease was the impact of price reductions
taken on certain products with communications, networking, industrial and
entertainment/OEM applications. This decrease was partially offset by the
positive effect of currency translation on international revenues.
31
Operating earnings decreased 81.7% to $11.3 million for the year ended December
31, 2002 from $61.9 million for the year ended December 31, 2001 due primarily
to lower revenues, severance costs of $3.3 million recognized in 2002 related to
personnel reductions taken in response to the downturn in sales activity, $0.9
million in bad debt expense related to two financially troubled distribution
customers recognized in 2002, asset impairment and severance costs of $17.5
million and $8.3 million, respectively, recognized in 2002 related to product
line curtailment and planned manufacturing facility consolidation, and inventory
obsolescence costs of $3.6 million recognized in 2002 related to product line
curtailment. This decrease was partially offset by a $0.7 million settlement
awarded to the Company in 2002 from class action litigation regarding the
pricing of copper futures and the positive impact of material, labor and
overhead cost reductions, personnel reductions, and tighter control of selling,
general and administrative spending throughout the segment.
Communications Segment
The Communications segment recorded external customer revenues of $246.2 million
for the year ended December 31, 2002, a 26.0% decrease from revenues of $332.7
million for the year ended December 31, 2001, due principally to capital
spending reductions by the major communications companies, the impact of lower
annual average pass-through copper prices on certain products with
communications applications and the lack of sales during the current year to a
major private-label customer that contributed $13.0 million in revenues during
2001. These decreases were partially offset by both the positive effect of
currency translation on international revenues and incremental revenues of $5.7
million contributed by NORCOM, acquired in the fourth quarter of 2002.
Operating earnings/(loss) decreased to $6.9 million of operating loss for the
year ended December 31, 2002 from $6.3 million of operating earnings for the
year ended December 31, 2001 due primarily to lower revenues, selling, general
and administrative expenses for NORCOM that exceeded the operation's gross
profit, and asset impairment cost totaling $15.2 million recognized in 2002
related to updated manufacturing technology and planned manufacturing facility
consolidation. This decrease was partially offset by a $1.3 million settlement
awarded to the Company in 2002 from class action litigation regarding the
pricing of copper futures, an $8.0 million decrease in bad debt expense from
2001 to 2002, a $2.8 million increase from 2001 to 2002 in other operating
earnings recognized related to compensation due under minimum requirements
contracts with a major private-label customer, and the positive impact of
material, labor and overhead cost reductions, personnel reductions, and tighter
control of selling, general and administrative spending throughout the segment.
32
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's sources of cash liquidity included cash and cash equivalents, cash
from operations and amounts available under credit facilities. Generally, the
Company's primary source of cash has been from business operations. Cash sourced
from credit facilities and other borrowing arrangements has historically been
used to fund business acquisitions. The Company believes that these sources are
sufficient to fund the current requirements of working capital, to make
scheduled pension contributions for the Company's retirement plans, to fund
scheduled debt maturity payments, to fund quarterly dividend payments and to
support its short-term and long-term operating strategies. Planned capital
expenditures for 2004 are approximately $17.0 million, of which approximately
$12.0 million relates to capacity maintenance and enhancement. The Company has
the ability to revise and reschedule the anticipated capital expenditure program
should the Company's financial position require it.
Any materially adverse reaction to customer demand, competitive market forces,
uncertainties related to the effect of competitive products and pricing,
customer acceptance of the Company's product mix or economic conditions
worldwide could affect the ability of the Company to continue to fund its needs
from business operations.
The following table summarizes the Company's cash flows from operating,
investing and financing activities for the years ended December 31, 2003, 2002
and 2001.
SUMMARIZED STATEMENTS OF CASH FLOW
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- ---------
(in thousands)
Net cash provided by/(used in):
Operating activities $ 94,586 $ 95,448 $ 72,744
Investing activities (16,492) (43,928) (35,425)
Financing activities (4,913) (35,141) (42,015)
Effect of exchange rate changes on cash and cash equivalents 2,377 231 99
--------- --------- ---------
Increase/(decrease) in cash and cash equivalents $ 75,558 $ 16,610 $ (4,597)
========= ========= =========
NET CASH PROVIDED BY OPERATING ACTIVITIES
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- ---------
(in thousands)
Income/(loss) before CECAP $ (60,730) $ (15,893) $ 31,209
Depreciation and amortization 35,765 39,651 40,292
Asset impairment charges 92,752 32,719 -
Deferred tax provision/(benefit) (33,774) (1,930) 9,644
Retirement savings plan contributions 3,739 - -
Employee stock purchase plans 2,149 1,647 3,199
Stock compensation 148 - -
Gain on business divestiture - - 1,200)
Amortization of unearned deferred compensation 1,502 1,140 508
Changes in operating assets and liabilities, net 53,035 38,114 (10,908)
--------- --------- ---------
Net cash provided by operating activities $ 94,586 $ 95,448 $ 72,744
========= ========= =========
33
Net cash provided by operating activities in 2003 totaled $94.6 million. Changes
in operating assets and liabilities provided cash of $49.8 million. This
contribution resulted from decreases in both inventories and receivables
partially offset by decreased accounts payable and accrued liabilities. In 2003,
the Company focused on reducing inventory levels in an effort to accumulate cash
for pension contribution payments estimated at $17.2 million and debt maturity
payments estimated at $64.0 million to be made in 2004. The Company is
accumulating cash rather than prepaying debt due to the onerous penalties that
would apply on a debt prepayment. Receivables decreased primarily in the
Communications segment due to lower revenues and the difference between the
outstanding balances on the minimum requirement contracts receivables at
December 31, 2002 and December 31, 2003. The Company believes that both
inventory and receivables balances will increase slightly in 2004 as revenues
are projected to increase over 2003. Accounts payable and accrued liabilities
decreased from December 31, 2002 due primarily to the payout of severance and
other related benefits throughout 2003. The Company believes that accounts
payable and accrued liabilities will decrease in 2004 due to the payout of
severance and pension contributions.
The Company's deferred tax benefit increased from the year ended December 31,
2002 due primarily to the impairment of long-lived assets within the North
American operations of its Communications segment.
Asset impairment costs of $92.8 million were recognized in 2003 related to the
manufacturing facility closing in Germany and the Company's inability to recover
its investment in both the tangible and intangible assets within the North
American operations of its Communications segment.
In 2003, the Company elected to fund certain contributions to one of its
retirement savings plans with common stock held in treasury rather than with
cash. Treasury stock had a FIFO cost basis of $4.5 million and a market value of
$3.7 million.
Also in 2003, the Company elected to partially compensate its nonemployee
Directors with common stock held in treasury rather than with cash. Treasury
stock had a FIFO cost basis of $0.2 million and a market value of $0.1 million.
During 2002, cash flow from operations totaled $95.4 million. Operating assets
and liabilities provided $38.1 million of funds. This contribution resulted
primarily from both an increase in accounts payable and accrued liabilities and
a decrease in income taxes receivable partially offset by increased receivables
and inventories. Accounts payable and accrued liabilities increased from
December 31, 2001 due to pension liabilities totaling $15.2 million reclassified
from long-term to current in anticipation of funding requirements in 2003,
severance and other related benefits totaling $19.7 million accrued in the
fourth quarter of 2002 related to curtailed product lines and planned
manufacturing facility consolidation, and accounts payable and accrued
liabilities created and assumed in the NORCOM acquisition in the fourth quarter
of 2002. Income taxes receivable decreased $12.1 million due to federal income
tax refunds received in the first quarter of 2002. Receivables and inventories
increased $3.3 million and $9.0 million, respectively, due to assets purchased
in the NORCOM acquisition.
34
Asset impairment costs totaling $32.7 million were recognized in 2002 related to
product line curtailment, the manufacturing facility closings in Australia and
Germany and the disposition of certain excess and inefficient equipment used in
the manufacturing of certain products with communications applications.
During 2001, cash flow from operations totaled $72.7 million. Operating assets
and liabilities consumed $10.9 million of funds. This consumption resulted
principally from both a decrease in accounts payable and accrued liabilities and
an increase in income taxes receivable partially offset by lower receivables and
inventories. Accounts payable and accrued liabilities decreased $66.1 million
from December 31, 2000 due to reduced production and purchasing levels within
the Company, biennial settlement of the employee stock purchase plan and payment
of escrowed funds owed to the former stockholders of CSI. Income taxes
receivable increased $14.5 million from December 31, 2000 due to the utilization
of tax net operating loss carrybacks to prior periods and estimated interim tax
payments made in excess of actual annual amounts due. Receivables decreased
$50.3 million from December 31, 2000 due to reduced sales volume in 2001 and the
addition of an $8.4 million account receivable from a financially troubled VAR
to the allowance for doubtful accounts. Inventories decreased $21.1 million due
to inventory reduction efforts implemented by the Company in response to reduced
product demand.
NET CASH USED IN INVESTING ACTIVITIES
Years Ended December 31, 2003 2002 2001
- ------------------------ ---------- ---------- ----------
(in thousands)
Capital expenditures $ (16,738) $ (32,830) $ (37,072)
Cash used to acquire businesses - (11,300) -
Proceeds from business divestiture - - 1,400
Proceeds from disposal of property 246 202 247
---------- ---------- ----------
Net cash used in investing activities $ (16,492) $ (43,928) $ (35,425)
========== ========== ==========
CAPITAL EXPENDITURES
Years Ended December 31, 2003 2002 2001
- ------------------------ ---------- ---------- ----------
(in thousands)
Capacity maintenance and enhancement $ 14,237 $ 24,811 $ 22,424
Capacity expansion 418 2,296 8,729
Other 2,083 5,723 5,919
---------- ---------- ----------
$ 16,738 $ 32,830 $ 37,072
========== ========== ==========
Capital expenditures decreased significantly in 2003 from expenditures levels in
2002 and 2001 as the Company focused on accumulating cash for future pension
contribution and debt maturity payments. Capital expenditures during 2003, 2002
and 2001 were approximately 2.0%, 4.0% and 3.8% of total revenues, respectively.
Approximately 85%, 76% and 60% of capital expenditures were utilized for
maintaining and enhancing existing production capabilities in 2003, 2002 and
2001, respectively.
In 2002, the Company acquired NORCOM for cash of approximately $11.3 million.
Proceeds from business divestiture in 2001 resulted from the sale of the
Company's interest in a medical wire joint venture in The Netherlands.
35
NET CASH USED IN FINANCING ACTIVITIES
Years Ended December 31, 2003 2002 2001
- ------------------------ ---------- ---------- ----------
(in thousands)
Net payments under long-term
credit facility and credit agreements $ - $ (31,461) $ (38,635)
Proceeds from exercise of stock options 170 1,198 1,515
Cash dividends paid (5,083) (4,878) (4,895)
---------- ---------- ----------
Net cash used in financing activities $ (4,913) $ (35,141) $ (42,015)
========== ========== ==========
The Company repaid approximately $31.5 million and $38.6 million of debt during
2002 and 2001, respectively. These repayments were funded primarily by cash flow
from operations. Dividends of $0.20 per share per annum were paid to
stockholders during 2003, 2002 and 2001.
Borrowings and other contractual obligations have the following scheduled
maturities.
BORROWINGS AND CONTRACTUAL OBLIGATIONS
Payments Due by Period
------------------------------------------------------------------
Less than 1-2 3-4 After
December 31, 2003 Total 1 year years years 4 years
- ----------------- ---------- ---------- ---------- ---------- ----------
(in thousands)
Long-term debt, including current maturities (1) $ 200,000 $ 64,000 $ 15,000 $ 74,000 $ 47,000
Interest payable 42,763 12,880 10,153 12,936 6,794
Operating leases 6,531 3,825 1,916 788 2
Inventory purchase obligations 17,151 17,151 - - -
Capital equipment purchase obligations 1,381 1,381 - - -
Pension and other postretirement obligations(2) 53,713 19,371 17,171 17,171 -
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations $ 321,539 $ 118,608 $ 44,240 $ 104,895 $ 53,796
========== ========== ========== ========== ==========
(1) The Senior Notes, Series 1999-A, serve as the notional principal on certain
outstanding interest rate swap agreements. Therefore, they were recorded in
the financial records in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activity, at a fair market value as of
December 31, 2003 of $66.0 million.
(2) Annual contributions to the Company's pension plans for years after 2006
are dependent upon the investment results of the plans' assets and are thus
not currently estimable. Annual contributions to the Company's other
postretirement plan for years after 2004 are estimated to decline over time
to the $0.2 million to $0.3 million level as the participants receiving
healthcare benefits either die or reach their limit of benefits.
The Company anticipates making increased contributions to its pension plans
during 2004. The Company's contributions to these plans during 2003 were $6.7
million. The anticipated increase results primarily from the funding required
for its United States pension plan. During 1993 through 2002, the funded status
of this plan neither required any minimum contributions nor permitted any
tax-deductible contributions. Due to poor investment results with respect to the
United States pension plan's assets from 2000 through 2002, the Company did make
a required minimum contribution of $1.6 million to this plan during 2003. The
Company anticipates contributing $17.2 million to its pension plans during 2004,
$10.2 million of which is attributable to the United States pension plan. While
the amount of contributions to its pension plans for the years after 2004 is
partially but significantly affected by the investment results from the plans'
assets, the Company currently anticipates contributions to its pension plans for
2005 and 2006 in amounts no greater than those for 2004.
36
OTHER COMMERCIAL COMMITMENTS
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------
Less than 1-3 4-5 After
December 31, 2003 Total 1 year years years 5 years
- ----------------- ---------- ---------- ---------- ---------- ---------
(in thousands)
Lines of credit(1) $ 58,165 $ - $ 58,165 $ - $ -
Standby letters of credit 3,907 3,907 - - -
Guarantees 520 520 - - -
---------- ---------- ---------- ---------- ---------
Total commercial commitments $ 62,592 $ 4,427 $ 58,165 $ - $ -
========== ========== ========== ========== =========
(1) The Company entered into a credit agreement with a group of 6 banks on
October 9, 2003 (Credit Agreement). The Credit Agreement provides for a
secured, variable-rate and revolving credit facility not to exceed $75.0
million expiring in June 2006. The amount of any borrowing under the Credit
Agreement is subject to a borrowing base comprised of the Company's
receivables and inventories located in the United States. The Company's
borrowing capacity under the Credit Agreement as of December 31, 2003 was
$58.2 million. There were no outstanding borrowings under the Credit
Agreement at December 31, 2003.
WORKING CAPITAL
December 31, 2003 2002
- ------------ ---------- ----------
(in thousands, except current ratio)
Current assets
Cash and cash equivalents $ 94,967 $ 19,409
Receivables 99,112 109,180
Inventories 128,460 159,817
Income taxes receivable 1,770 2,428
Deferred income taxes 18,535 15,097
Other current assets 6,547 7,818
---------- ----------
Total current assets $ 349,391 $ 313,749
Current liabilities
Accounts payable and accrued liabilities $ 117,182 $ 118,268
Current maturities of long-term debt 65,951 -
---------- ----------
Total current liabilities $ 183,133 $ 118,268
---------- ----------
Working capital $ 166,258 $ 195,481
Current ratio(1) 1.91 2.65
========== ==========
(1) Total current assets divided by total current liabilities
Current assets increased $35.6 million, or 11%, from $313.7 million at December
31, 2002 to $349.4 million at December 31, 2003 due primarily to increases in
both cash and cash equivalents and the Company's deferred tax asset partially
offset by decreases in all other current asset categories. In 2003, the Company
focused on cash accumulation through receivables and inventory reduction, lower
capital spending and stricter management control over discretionary spending in
anticipation of pension contributions of approximately $17.2 million and debt
maturity funding requirements of $64.0 million in 2004. The Company's deferred
tax asset increased $3.4 million due to a combination of nondeductible reserves
associated with current assets and net operating loss carryforwards. Receivables
and inventories decreased $10.1 million and $31.4 million, respectively.
Receivables decreased primarily in the Communications segment due to lower
revenues and the difference between the outstanding balances on the minimum
requirement contracts receivables at December 31, 2002 of $12.5 million and the
outstanding balance on the minimum requirements contract receivable at December
31, 2003 of $3.0 million. Inventories were reduced as part of the Company's cash
accumulation initiative. Other current assets decreased $1.3 million due
primarily to fair market value reductions on the Company's outstanding interest
rate swaps.
37
Current liabilities increased $64.9 million, or 55%, from $118.3 million at
December 31, 2002 to $183.1 million at December 31, 2003. The increase was due
primarily to the reclassification of the $64.0 million balance outstanding on
the Series 1999-A Medium-Term Notes and the related interest rate swaps fair
value of $2.0 million from long-term to current as these notes mature in 2004
and a $13.5 million increase in accounts payable resulting primarily from a
change in the timing of payments for copper and commodities derived from
petroleum and natural gas within the Communications segment. These events were
partially offset by a reduction in accrued severance from $19.7 million at
December 31, 2002 to $3.4 million at December 31, 2003.
LONG-LIVED ASSETS
December 31, 2003 2002
- ------------ ---------- ----------
(in thousands)
Property, plant and equipment $ 238,027 $ 337,196
Goodwill and other intangibles 79,462 79,588
Other long-lived assets 6,675 13,006
---------- ----------
$ 324,164 $ 429,790
========== ==========
Long-lived assets decreased $105.6 million, or 25%, from $429.8 million at
December 31, 2002 to $324.2 million at December 31, 2003. Property, plant and
equipment includes the acquisition cost less accumulated depreciation of the
Company's land and land improvements, buildings and leasehold improvements and
machinery and equipment. Property, plant and equipment decreased by $99.2
million due mainly to current-year depreciation and asset impairment charges of
$92.8 million recognized in 2003 related to the Company's inability to recover
its investment in tangible and intangible assets within the North American
operations of the Communications segment and the manufacturing facility closing
in Germany. At December 31, 2003, goodwill and other intangibles consists only
of goodwill, defined as the unamortized difference between the aggregate
purchase price of acquired businesses taken as a whole and the fair market value
of the identifiable net assets of those acquired businesses. At December 31,
2002, goodwill and other intangibles consisted of goodwill and the fair value of
a major customer relationship acquired in the NORCOM acquisition. Goodwill and
other intangibles decreased $0.1 million in 2003 due to the impairment of the
customer relationship intangible.
CAPITAL STRUCTURE
December 31, 2003 2002
- ------------ ---------- ------- --------- -------
(in thousands) AMOUNT PERCENT Amount Percent
- ------------ ---------- ------- --------- -------
Current maturities of long-term debt $ 65,951 $ -
Long-term debt 136,000 203,242
---------- ----- --------- -----
Total debt 201,951 42.4% 203,242 39.8%
---------- ----- --------- -----
Stockholders' equity 274,410 57.6 307,195 60.2
---------- ----- --------- -----
$ 476,361 100.0% $ 510,437 100.0%
========== ===== ========= =====
The Company's capital structure consists primarily of long-term debt and
stockholders' equity. The capital structure decreased $34.1 million primarily
due to reductions in stockholders' equity.
38
The Company had privately-placed debt of $200.0 million outstanding at December
31, 2003. Details regarding maturities and interest rates are shown below.
Principal Maturity Contractual Effective
Note Series Balance Date Interest Rate Interest Rate
- ----------- ----------- ---------- ------------- -------------
Senior Notes, Series 1997-A $75,000,000 08/11/2009(1) 6.92% 6.92%
Senior Notes, Series 1999-A 64,000,000(2) 09/01/2004 7.60% 4.65%
Senior Notes, Series 1999-B 44,000,000 09/01/2006 7.74% 7.75%
Senior Notes, Series 1999-C 17,000,000 09/01/2009 7.95% 8.06%
(1) The Senior Notes, Series 1997-A include an amortizing maturity feature. The
Company is required to repay $15 million in principal per annum beginning
August 11, 2005.
(2) The Senior Notes, Series 1999-A, serve as the notional principal on certain
outstanding interest rate swap agreements. Therefore, they were recorded in
the financial records in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activity, at a fair market value as of
December 31, 2003 of $66.0 million.
The agreements for these private placements contain affirmative and negative
covenants including maintenance of minimum net worth and maintenance of a
maximum ratio of debt to total capitalization. The Company was in compliance
with these covenants at December 31, 2003.
The Company entered into a credit agreement with a group of 6 banks on October
9, 2003 (Credit Agreement). The Credit Agreement provides for a secured,
variable-rate and revolving credit facility not to exceed $75 million expiring
in June 2006. In general, the Company's assets in the United States, other than
real property, secure any borrowing under the Credit Agreement. The amount of
any such borrowing is subject to a borrowing base comprised of the Company's
receivables and inventories located in the United States. A fixed charge
coverage ratio covenant becomes applicable if the Company's excess borrowing
availability falls below $25.0 million. The Credit Agreement replaced the $100.0
million credit agreement dated June 2001 between the Company and a group of 7
banks that would have expired in June 2004. The Company cancelled the old credit
agreement in June 2003.
The Company's borrowing capacity under the Credit Agreement at December 31, 2003
was $58.2 million. There were no outstanding borrowings under the Credit
Agreement at December 31, 2003.
The Company also had unsecured, uncommitted arrangements with 3 banks under
which it may borrow up to $7.6 million at prevailing interest rates. At December
31, 2003, the Company had no outstanding borrowings under these arrangements.
39
The Company manages its debt portfolio by using interest rate swap agreements to
achieve an overall desired position of fixed and floating rates. As of December
31, 2003, the Company was party to interest rate swap agreements relating to its
7.60% medium-term notes that mature in 2004. The swaps convert a notional amount
of $64.0 million from fixed rates to floating rates and mature in 2004. These
agreements have been designated and qualify as fair value hedges of the
associated medium-term notes in accordance with SFAS No. 133. Based on current
interest rates for similar transactions, the fair value of the Company's
interest rate swap agreements at December 31, 2003 was $2.0 million. Credit and
market risk exposures on these agreements are limited to the net interest
differentials. Net interest differentials earned from the interest rate swaps of
$1.9 million pretax, or $0.05 per diluted share, were recorded as a reduction to
interest expense for the year ended December 31, 2003. Net interest
differentials earned from the interest rate swaps reduced the Company's average
interest rate on long-term debt by 0.97 percentage points for the year ended
December 31, 2003. The Company is exposed to credit loss in the event of
nonperformance by counterparties on the agreements, but does not anticipate
nonperformance by any of the counterparties. At December 31, 2003, the fair
value of the interest rate swap agreements was reflected in other current assets
on the Consolidated Balance Sheet. At December 31, 2002, the fair value of the
interest rate swap agreements was reflected in other long-lived assets on the
Consolidated Balance Sheet.
Stockholders' equity decreased by $32.8 million, or 11%, from 2002 to 2003 due
primarily to the 2003 net loss of $60.7 million, dividends of $5.1 million and a
decrease of $1.9 million in additional paid in capital resulting from the use of
common stock held in treasury for stock compensation plans settlement activity
and retirement savings plan contributions. These decreases were partially offset
by an $9.3 million reduction of common stock held in treasury as a result of
stock compensation plans settlement activity and retirement savings plan
contributions, a $0.3 million reduction in unearned deferred compensation due to
2003 amortization and a $25.3 million increase in accumulated other
comprehensive income/(loss) resulting from the positive effect of currency
exchange rates on financial statement translation and a favorable minimum
pension liability adjustment.
OFF-BALANCE SHEET ARRANGEMENTS
The Company was not a party to any of the following types of off-balance sheet
arrangements at December 31, 2003:
- - Guarantee contracts or indemnification agreements that contingently
require the Company to make payments to the guaranteed or indemnified
party based on changes in an underlying asset, liability or equity
security of the guaranteed or indemnified party;
- - Guarantee contracts that contingently require the Company to make
payments to the guaranteed party based on another entity's failure to
perform under an obligating agreement;
- - Indirect guarantees under agreements that contingently require the
Company to transfer funds to the guaranteed party upon the occurrence
of specified events under conditions whereby the funds become legally
available to creditors of the guaranteed party and those creditors may
enforce the guaranteed party's claims against the Company under the
agreement;
- - Retained or contingent interests in assets transferred to an
unconsolidated entity or similar arrangements that serve as credit,
liquidity or market risk support to that entity for such assets;
- - Derivative instruments that are indexed to the Company's common or
preferred stock and classified as stockholders' equity under accounting
principles generally accepted in the United States; and
- - Material variable interests held by the Company in unconsolidated
entities that provide financing, liquidity, market risk or credit risk
support to the Company, or engage in leasing, hedging or research and
development services with the Company.
40
EFFECTS OF INFLATION
During the years presented, inflation had a relatively minor effect on the
Company's results of operations. In recent years, the U.S. rate of inflation has
been relatively low. In addition, because the Company's inventories are valued
primarily on the LIFO method, current inventory costs are matched against
current sales so that increases in costs are reflected in earnings on a current
basis.
ENVIRONMENTAL REMEDIATION
The Company has been identified as a potentially responsible party with respect
to three sites designated for remediation under the Comprehensive Environmental
Response, Compensation and Liability Act or similar state laws. The Company does
not own or operate any of these waste sites. Although estimates of cleanup costs
have not yet been completed for these sites, the Company believes that, based on
its review and other factors, including its estimated share of the waste volume
at the sites, the existence of other financially viable, potentially responsible
parties and the anticipated nature and scope of the remediation, the costs to
the Company relating to these sites will not have a material adverse effect on
its results of operations or financial condition. Ground water contamination has
been identified on the site of the Venlo, The Netherlands, manufacturing
facility, which the Company acquired in 1995. The Company has recorded a
liability for the remediation costs, which are currently estimated at
approximately $1.0 million.
EURO CONVERSION
In January 1999, certain member countries of the European Union (EU) established
irrevocable, fixed conversion rates between their existing sovereign currencies
(legacy currencies) and a new common currency (euro). These countries introduced
the euro as their common currency over a period ending January 1, 2002 and the
various legacy currencies became obsolete effective June 30, 2002.
The Company has significant operations in several of the EU countries that
converted to the euro. Therefore, the Company prepared for the introduction of
the euro for several years. The timing of the Company's retirement of the legacy
currencies was scheduled so as to comply with various legal requirements and to
facilitate optimal coordination with the plans of vendors, distributors and
customers. Work related to the introduction of the euro and retirement of the
legacy currencies included conversion of information technology systems;
recalculation of currency risk; recalibration of financial instruments;
evaluation and action, where needed, regarding the continuity of contracts; and
modification of processes for preparing tax, accounting, payroll and customer
records.
Based on the work performed, the conversion to the euro did not have a material
adverse effect on the operating results or financial condition of the Company.
41
IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
The following accounting standards were issued or became effective during the
year ended December 31, 2003:
- - Emerging Issues Task Force Abstract (EITF) No. 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from
a Vendor;
- - SFAS No. 149, Amendment of FASB Statement No. 133 on Derivative and
Hedging Activities;
- - EITF No. 03-4, Determining the Classification and Benefit Attribution
Method for a "Cash Balance" Pension Plan; and
- - FASB Staff Position No. 106-1, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003.
The effects of these accounting standards on the Company's Consolidated
Financial Statements are discussed in Note 2 to the Consolidated Financial
Statements.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statement and related disclosures in conformity
with accounting principles generally accepted in the United States requires the
Company to make judgments, assumptions and estimates that affect the amounts
reported in its Consolidated Financial Statements and accompanying notes. Note 2
to the Consolidated Financial Statements describes the significant accounting
policies and methods used in preparing the Consolidated Financial Statements.
The Company considers the accounting policies described below to be its most
critical accounting policies. An accounting policy is deemed to be critical if
it requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, and if different
estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically, could materially
impact the Consolidated Financial Statements. The Company bases its estimates on
historical experience or various assumptions that are believed to be reasonable
under the circumstances, and the results form the basis for making judgments
about the reported values of assets, liabilities, revenues and expenses. The
Company believes these judgments have been materially accurate in the past and
the basis for these judgments should not change significantly in the future. The
Company's senior management has discussed the development, selection and
disclosure of these estimates with the Audit Committee of the Company's Board of
Directors. Actual results may differ materially from these estimates under
different assumptions or conditions.
Revenue Recognition
Revenue is recognized in the period title to product passes to customers and
collectibility of the resulting accounts receivable is reasonably assured. As
part of the revenue recognition process, the Company determines whether the
resulting accounts receivable are reasonably assured of collection based on a
variety of factors, including an evaluation of whether there has been
deterioration in the credit quality of its customers, which could result in the
Company being unable to collect the accounts receivable. In situations where it
is unclear as to whether the Company will be able to sell or collect the
accounts receivable, the Company will request alternative financing
arrangements, such as prepayment or commercial letters of credit, from the
customer.
42
Sales Incentive, Product Price Protection and Returned Material Allowances
The Company grants incentive allowances to selected customers as part of its
sales programs. The incentives are determined based on certain targeted sales
volumes. In certain instances, the Company also grants selected product price
protection allowances. Certain distribution customers are also allowed to return
inventory at the customer's 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. Sales revenues are reduced when incentives, allowances or returns
are anticipated or projected. Revenues are reduced by recording a separate
deduction in gross revenues. The Company follows guidance provided by Securities
Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, and EITF No. 00-14, Accounting for Certain Sales
Incentives. Future market conditions and product transitions might require the
Company to take actions to increase customer incentive and product price
protection offerings, possibly resulting in an incremental reduction of revenue
at the time the incentive or allowance is offered. Additionally, certain
incentive programs require the Company to estimate, based on historical
experience, the number of customers who will actually redeem the incentive.
Actual results may differ materially from these estimates.
The Company recognized incentive allowances totaling $7.0 million, $5.7 million
and $2.8 million as a deduction in gross revenues in 2003, 2002 and 2001,
respectively.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of accounts receivable based on the
specific identification method. A considerable amount of judgment is required in
assessing the realization of accounts receivable, including the current
creditworthiness of each customer and related aging of the past due balances. In
order to assess the collectibility of the accounts receivable, the Company
performs ongoing credit evaluations of its customers' financial condition.
Through these evaluations, the Company may become aware of a situation where a
customer may not be able to meet its financial obligations due to deterioration
of its financial viability, credit ratings or bankruptcy. In circumstances where
the Company is aware of a customer's inability or unwillingness to pay
outstanding amounts, the Company records a specific reserve for bad debts
against amounts due to reduce the receivable to its estimated collectible
balance. The reserve requirements are based on the best facts available to the
Company and are reevaluated and adjusted as additional information is received.
The Company recognized bad debt expense of $0.8 million, $2.1 million and $8.9
million as a component of operating expenses in 2003, 2002 and 2001,
respectively. Included in the 2001 expense was $8.4 million for an individual
customer (value-added reseller) of the Communications segment that filed for
bankruptcy.
The allowance for doubtful accounts at December 31, 2003 and 2002 was $3.6
million and $3.5 million, respectively. The Company does not anticipate that any
other major customers will be unable to pay outstanding receivables.
43
Inventory Reserves
The Company evaluates the realizability of its inventory on a product-by-product
basis in light of anticipated sales demand, technological changes, product life
cycle, component cost trends, product pricing and inventory condition. In
circumstances where inventory levels are in excess of anticipated market demand,
where inventory is deemed technologically obsolete or not saleable due to
condition or where inventory cost exceeds net realizable value, the Company
records a charge to cost of goods sold and reduces the inventory to its net
realizable value. Revisions to these inventory adjustments would be required if
any of the factors mentioned above differed from the Company's estimates.
At December 31, 2003 and 2002, the Company had inventory reserves of $11.9
million and $18.5 million, respectively.
Deferred Tax Assets
The Company recognizes deferred tax assets resulting from tax credit
carryforwards, net operating loss carryforwards and deductible temporary
differences between taxable income/(loss) on its income tax returns and
income/(loss) before income taxes under accounting principles generally accepted
in the United States. 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 the Company's
Consolidated Financial Statements become deductible for income tax purposes. A
valuation allowance is required when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company is
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 or not to record a valuation allowance for part or
all of a deferred tax asset. As of December 31, 2003, the Company has
approximately $39.9 million of deferred tax assets related in part to domestic
and foreign loss carryforwards, net of valuation allowances totaling $9.8
million. The realization of these assets is partially based upon estimates of
future taxable income. Based on these estimates, the Company believes the
deferred tax assets net of valuation allowances will be realized.
The Company's net operating loss carryforwards totaled $8.7 million at December
31, 2003. Unless otherwise utilized, net operating loss carryforwards totaling
$3.3 million and $1.5 million will expire between 2005 and 2009 and between 2010
and 2023, respectively. Net operating loss carryforwards, which are available
for an indefinite carryforward period, total $3.9 million. Net operating loss
carryforwards are presented net of liabilities related to the Tax Sharing and
Separation Agreement between the Company and its former owner, Cooper
Industries, Inc.
44
Valuation of Goodwill
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company evaluates goodwill for impairment annually or at other times if events
have occurred or circumstances exist that indicate the carrying value of
goodwill may no longer be recoverable. The provision of SFAS No. 142 requires
that a two-step impairment test be performed on goodwill. In the first step, the
Company compares the fair value of each reporting unit to its carrying value.
The Company determines the fair value using the income approach. Under the
income approach, the Company calculates the fair value of a reporting unit based
on the present value of estimated future cash flows. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
unit, goodwill is not impaired and the Company is not required to perform
further testing. If the carrying value of the reporting unit's net assets
exceeds the fair value of the reporting unit, then the Company must perform the
second step in order to determine the implied fair value of the reporting unit's
goodwill. If the carrying value of a reporting unit's goodwill exceeds its
implied fair value, then an impairment of goodwill has occurred and the Company
recognizes an impairment loss for the difference between the carrying amount and
the implied fair value of goodwill as a component of operating expenses.
The income approach, which the Company uses to estimate the fair value of its
reporting units, is dependent on a number of factors including estimates of
future market growth and trends, forecasted revenue and costs, expected periods
the assets will be utilized, appropriate discount rates and other variables. The
Company bases its fair value estimates on assumptions it believes to be
reasonable, but which are unpredictable and inherently uncertain. Actual future
results could differ from these estimates.
During 2003, the Company performed an evaluation of the recoverability of the
carrying value of goodwill using discounted cash flow projections. Based on the
gross discounted cash flow projections, the Company determined that the carrying
value of all goodwill was recoverable at December 31, 2003. At December 31,
2002, carrying value of goodwill in the amount of $0.2 million related to the
Company's Australia operation was deemed impaired and the associated loss was
included as other operating expense in the Consolidated Statement of Operations.
The remaining carrying value of goodwill at December 31, 2002 was deemed
recoverable.
The Company believes if there is little to no improvement during 2004 and beyond
from the revenues and profitability achieved by the European operations of its
Electronics segment in 2003, future operating results would adversely affect the
discounted future cash flows of that operation and, accordingly, could
negatively affect the assessment of that operation's goodwill. Goodwill, net of
accumulated amortization, for the European operations of the Electronics segment
totaled $18.4 million at December 31, 2003.
45
Valuation of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company reviews long-lived assets to determine whether an
event or change in circumstances indicates the carrying value of the asset may
not be recoverable. The Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets and any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether
impairment has occurred through the use of an undiscounted cash flows analysis
at the lowest level for which identifiable cash flows exist. If impairment has
occurred, the Company recognizes a loss for the difference between the carrying
amount and the fair value of the asset. Fair value is the amount at which the
asset could be bought or sold in a current transaction between a willing buyer
and seller other than in a forced or liquidation sale and can be measured as the
asset's quoted market price in an active market or, where an active market for
the asset does not exist, the Company's best estimate of fair value based on
either discounted cash flow analysis or present value analysis.
The discounted cash flow analyses and present value analyses that the Company
uses to estimate the fair value of its long-lived assets, are dependent on a
number of factors including long-term forecasts of the amounts and timing of
overall market growth and the Company's percentage of that market, groupings of
assets, discount rates, terminal growth rates and other variables. The Company
bases its fair value estimates on assumptions it believes to be reasonable, but
which are unpredictable and inherently uncertain. Actual future results could
differ from these estimates.
During 2003, the Company performed an evaluation of the recoverability of the
carrying value of long-lived assets using undiscounted cash flow projections.
Based on the gross undiscounted cash flow projections, the Company determined
that asset groups within the North American operations of its Communications
segment were impaired. The Company then estimated fair values using a variety of
techniques including discounted cash flows and comparable market data.
Calculating the estimated fair values involves significant assumptions.
Assumptions utilized in estimating fair values under continued asset use
included long-term forecasts of revenue growth, gross margins and capital
expenditures. Comparable market data was obtained from appraisals and other
third party valuation estimates. During 2003, the Company determined that fair
values of asset groups within the North American operations of its
Communications segment were less than carrying amounts by $92.4 million. The
Company recognized this impairment loss in 2003.
In connection with the closure of the Company's manufacturing operations in
Germany, an impairment loss of $0.4 million was recognized in 2003.
During 2002, the Company recognized impairment losses of $32.5 million on
property, plant and equipment. These losses resulted from the Company's plan to
exit the production of certain products in North America, Europe and Australia,
to dispose of certain excess and inefficient equipment used in the manufacturing
of certain products with communications applications, and to dispose of certain
real estate and buildings in order to rationalize production capabilities.
Impairment losses totaling $92.8 million and $32.5 million were recorded as
other operating expense in the Consolidated Statements of Operations for 2003
and 2002, respectively.
46
Pension and Other Postretirement Benefits
The Company's 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 and other factors. The Company bases
the discount rate assumptions on current investment yields on AA-rated corporate
long-term bonds. The salary growth assumptions reflect the Company's 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. The Company's health care cost
trend assumptions are developed based on historical cost data, the near-term
outlook and an assessment of likely long-term trends. The Company's key
assumptions are described in further detail in Note 14 to the Consolidated
Financial Statements. Actual results that differ from the Company's assumptions
are accumulated and, if in excess of the lesser of 10% of the project benefit
obligation or the fair market value of plan assets, amortized over the estimated
future working life of the plan participants.
OUTLOOK
The comments in the following three paragraphs exclude the impact of the
possible merger between the Company and Cable Design Technologies Corporation
announced on February 5, 2004 (See Note 24 to the Consolidated Financial
Statements).
The Company anticipates an improvement in the general economies of both North
America and Europe in 2004. Market conditions for the Company's Electronics
segment are expected to improve and the Company believes this segment will
achieve modest revenue growth in the upcoming year due to volume improvement and
sales price increases that are necessary to cover the rising costs of copper and
other materials that will be partially offset by the absence of revenues
generated by products the Company discontinued in 2003. Although the Company is
anticipating modest revenue growth in the Communications segment, that growth is
the result of European volume improvement and increased sales prices throughout
the segment that are necessary to cover the rising costs of copper and other
materials. The Company believes there will be little to no improvement in the
market conditions faced by the North American operations of the Communications
segment. Despite improvement in North America's general economy, the Company
believes that region's communications market will still be handcuffed by network
overcapacity, network build-out delays and limited availability of capital for
network upgrades.
The Company does not see market conditions improving sufficiently to return the
North American operations of the Communications business to operating
profitability in 2004. Accordingly, in the fourth quarter of 2003, the Company's
Board of Directors decided to seek strategic alternatives for this business.
Depending on the outcome of the strategic review of the North American
operations of the Communications segment, the Company may (1) restructure
operations of the North American business, which may require further capital for
facility consolidation, (2) develop strategic relationships with other
manufacturers, such as a joint venture or outsourcing arrangements, (3) sell
facilities and equipment and exit the market, or (4) sell the entity and exit
the market. The following is a summary of financial information related to the
North American operations of the Communications segment.
47
2003(1) 2002(1) 2001
---------- ---------- ----------
in thousands
Property, plant and equipment, net $ 65,820 $ 150,102 $ 151,980
Total assets 145,727 259,144 241,104
External customer revenues 202,415 180,265 260,338
Affiliate revenues 2,582 1,804 12,256
---------- ---------- ----------
Total revenues 204,997 182,069 272,594
Operating income/(loss) before impairment charges (17,027) 1,221 3,410
Impairment charges (92,400) (14,689) -
---------- ---------- ----------
Operating income/(loss) (109,427) (13,468) 3,410
========== ========== ==========
(1) Includes the full year and two-month impact of the NORCOM acquisition in
2003 and 2002, respectively. The NORCOM acquisition was completed on
October 31, 2002.
The Company believes the impact of company-wide cost-saving initiatives taken
during 2002 and 2003, including plant closures and personnel reductions, should
result in improved profitability in 2004. Having met its goals with regard to
inventory reduction in 2003, the Company also expects to be producing at or near
the level of demand in 2004, thus further helping operating margins. Because of
the impairment charge in 2003, the Company's depreciation expense should be
approximately $6.6 million lower in 2004 than 2003. Partially offsetting these
improvements will be higher pension and medical expenses. The Company is
projecting 2004 earnings per share between $0.60 and $0.80. This includes an
anticipated loss per share generated by the North American operations of the
Communications segment between $0.05 and $0.20 assuming no action as a result of
the strategic review described above.
The Company anticipates recognizing increased expenses for its pension plans
during 2004. The Company's expenses for these plans during 2003 were $5.3
million. The Company anticipates expenses for these plans of $7.9 million during
2004. The increase in expense results primarily from the recognition of
investment losses deferred from prior years into the market-related value of
plan assets. The market-related value of plan assets is the base to which the
expected rate of return is applied to generate the expected return on plan
assets component of the net periodic pension cost. Although there were deferred
investment losses totaling $44.3 million at December 31, 2003, the amortization
of those losses is not anticipated to be a material component of the net
periodic pension costs for these plans.
48
On February 4, 2004, the Company entered into an Agreement and Plan of Merger
(the Merger) with Cable Design Technologies Corporation (CDT). If the Merger is
consummated, the combined company will focus on products for the specialty
electronics and data networking markets, including connectivity. Completion of
the Merger is subject to various conditions including approval by stockholders
of both companies and by certain domestic and international regulatory agencies.
Under terms of the Merger, Belden common stockholders would receive 2 shares of
CDT common stock (or 1 share of CDT common stock if a proposed reverse stock
split of CDT common stock is effected prior to the Merger) for every 1 share of
Belden common stock. If the proposed stock split of CDT common stock is effected
prior to the Merger, the combined company would have approximately 46 million
shares of common stock outstanding. The former CDT stockholders will own
approximately 45% of the combined company and the former Belden stockholders
will own approximately 55% of the combined company. Upon completion of the
Merger, Belden will become a wholly-owned subsidiary of CDT. The Company
anticipates that annual dividends in the aggregate of $0.20 per common share
will be paid to all common stockholders of the merged companies starting in the
third calendar quarter of 2004. The Company anticipates the Merger will be
completed during the second quarter of 2004 and accounted for as a reverse
acquisition under the purchase method of accounting with Belden deemed the
acquiring entity and CDT deemed the acquired entity in accordance with SFAS No.
141, Business Combinations, because Belden's owners as a group will retain or
receive the larger portion of the voting rights in the combined entity and
Belden's senior management will represent a majority of the senior management of
the combined entity.
The following is a summary of selected unaudited balance sheet information of
CDT as of its most recent reported quarter ended October 31, 2003:
(in thousands)
- -----------------------------------------------------------------------------
Current assets $ 273,214
Total assets 509,109
Current liabilities, excluding debt 73,527
Current maturities of long-term debt 1,956
Long-term debt, excluding current maturities 112,337
Total liabilities 220,459
Stockholders' equity 288,650
=============================================================================
The following is a summary of selected unaudited income statement information of
CDT for the most recent reported twelve months ended October 31, 2003:
(in thousands)
- -----------------------------------------------------------------------------
Revenues $ 494,270
Operating earnings before restructuring charges 19,602
Restructuring charges (5,350)
Operating earnings 14,252
Net income 3,115
=============================================================================
Based on the net assets of CDT as of October 31, 2003, subject to changes of net
assets through closing date and determination of the final cost of CDT and
allocations of such cost, the aggregate fair values of net assets are expected
to be in excess of the book values of net assets by approximately $150 million.
49
The Company anticipates paying off its Series 1999-A Medium-Term Notes in the
amount of $64.0 million during 2004. The Company also anticipates funding $17.2
million in pension contributions in the upcoming year and funding $3.4 million
in severance accruals recorded at December 31, 2003 related to both the
manufacturing facility closings in Canada and Germany and personnel reductions
in the Electronics segment. These transactions will have a significant impact on
the Company's cash flow in 2004; however, the Company anticipates it will have
sufficient funds to satisfy these cash requirements.
The Company will continue to receive "sales incentive" compensation of up to
$3.0 million per annum through 2005 from a major private-label customer under a
minimum requirements contract should the customer fail to meet purchasing
targets. This amount could be reduced by the gross margin generated from the
customer's purchases of certain products from the Company during each year
through 2005.
FORWARD-LOOKING STATEMENTS
The statements set forth in this Annual Report on Form 10-K other than
historical facts, including those noted in the "Outlook" section, are
forward-looking statements made in reliance upon the safe harbor of the Private
Securities Litigation Reform Act of 1995. As such, they are based on current
expectations, estimates, forecasts and projections about the industries in which
the Company operates, general economic conditions, and management's beliefs and
assumptions. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions, which are difficult to
predict. As a result, the Company's actual results may differ materially from
what is expected or forecasted in such forward-looking statements. The Company
undertakes no obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise, and disclaims any
obligation to do so.
See Note 24 to the Consolidated Financial Statements for a brief synopsis of the
planned merger of the Company with CDT. There can be no assurance as to the
timing of the closing of the merger, or whether the merger will close at all.
Obtaining required regulatory approvals may delay consummation of the merger.
The consideration to be received by the Company's stockholders, as set forth in
the Agreement and Plan of Merger, is fixed despite potential changes in stock
prices. The officers and directors of the Company and CDT may have interests in
the merger that are different from the interests of stockholders because of
employment agreements, severance agreements and stock-based compensation
arrangements. The combined company will rely heavily on key personnel, and there
can be no assurance that such key personnel will be retained by the combined
company. Integration of the Company and CDT operations may be difficult, and the
expected synergies and cost savings might not be realized. If the merger is not
completed, the Company's business and stock price might be negatively affected
if customers, investors and others were to doubt the Company's ability to
compete effectively on its own.
50
The Company's actual results may differ materially from such forward-looking
statements for the following reasons: changing economic conditions in the United
States, Europe and parts of Asia (and the impact such conditions may have on the
Company's sales); increasing price, product and service competition from United
States and international competitors (including new entrants); the
creditworthiness of the Company's customers (including the collectibility of
receivables resulting from sales by the Communications segment to VARs); the
outcome of the Company's search for strategic alternatives for the North
American operations of its Communications segment; the Company's continued
ability to introduce, manufacture and deploy competitive new products and
services on a timely, cost-effective basis; the ability to successfully
integrate the operations and businesses of acquired companies; the ability to
transfer production to new or existing facilities; developments in technology;
the threat of displacement from competing technologies (including wireless and
fiber optic technologies); demand and acceptance of the Company's products by
customers and end users; changes in raw material costs (specifically, costs for
copper and commodities derived from petroleum and natural gas) and availability;
changes in foreign currency exchange rates; the pricing of the Company's
products (including the Company's ability to adjust product pricing in a timely
manner in response to raw material cost volatility); changes in regulation
affecting the business of communications companies and other customers; the
success of implementing cost-saving programs and initiatives; reliance on large
customers (particularly, the reliance of the Electronics segment on sales to
certain large distributors and the reliance of the Communications segment on
sales to a limited number of large LECs in the United States and sales to two
major international communications companies -- one in the United Kingdom, the
other in Canada); the Company's ability to successfully renew supply agreements
with major communications customers in the United States; the Company's ability
to successfully negotiate collective bargaining agreement renewals with
organized personnel; the threat of war and terrorist activities; general
industry and market conditions and growth rates; and other factors noted in the
Company's Annual Report on Form 10-K for 2003 and other Securities Exchange Act
of 1934 filings.
51
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from foreign
currency exchange rates, certain commodity prices, interest rates and credit
extended to customers. To manage the volatility relating to exposures, the
Company nets the exposures on a consolidated basis to take advantage of natural
offsets. For residual exposures, the Company sometimes enters into various
derivative transactions pursuant to the Company's policies in areas such as
counterparty exposure and hedging practices. The Company does not hold or issue
derivative instruments for trading purposes. The terms of such instruments and
the transactions to which they relate generally do not exceed twelve months.
Each of these risks is discussed below.
Foreign Currency Exchange Rate Risk
The Company manufactures and sells its products in a number of countries
throughout the world, and, as a result, is exposed to movements in foreign
currency exchange rates. The primary purpose of the Company's foreign currency
exchange rate management activities is to manage the volatility associated with
foreign currency purchases of materials or sales of finished product and other
assets and liabilities created in the normal course of business. The Company's
foreign currency exchange rate management strategy involves the use of natural
techniques, where possible, such as the offsetting or netting of like-currency
cash flows. Where natural techniques are not possible, the Company will
sometimes use foreign currency derivatives, typically foreign currency forward
contracts, with durations of generally 12 months or less.
At December 31, 2003, the Company had no financial instruments outstanding that
were sensitive to changes in foreign currency exchange rates. The Company had no
foreign currency derivatives outstanding at December 31, 2003 and did not employ
foreign currency derivatives during the year then ended.
The Company generally views as long-term its investments in international
subsidiaries with functional currencies other than the United States dollar. As
a result, the Company does not generally use derivatives to manage these net
investments. In terms of foreign currency translation risk, the Company is
exposed primarily to the euro, the British pound, the Hungarian forint, the
Canadian dollar and the Australian dollar.
The Company's net foreign currency investment in foreign subsidiaries and
affiliates translated into United States dollars using year-end exchange rates
was $109.0 million and $119.1 million at December 31, 2003 and 2002,
respectively.
Commodity Price Risk
Certain raw materials used by the Company are subject to price volatility caused
by supply conditions, political and economic variables and other unpredictable
factors. The primary purpose of the Company's commodity price management
activities is to manage the volatility associated with purchases of commodities
in the normal course of business. The Company does not speculate on commodity
prices.
52
The Company is exposed to price risk related to its purchase of copper used in
the manufacture of its products. The Company's copper price management strategy
involves the use of natural techniques, where possible, such as purchasing
copper for future delivery at fixed prices. Where natural techniques are not
possible, the Company will sometimes use commodity price derivatives, typically
exchange-traded forward contracts, with durations of generally twelve months or
less. The Company did not have any commodity price derivatives outstanding at
December 31, 2003 and did not employ any commodity price derivatives during the
year then ended. The following table presents the purchase commitments by the
notional amount in pounds, the weighted average contract price, and total dollar
amounts by expected maturity date. In addition, the table presents the physical
inventory of copper at December 31, 2003 by the amount of pounds held at average
cost. The fair value of purchase commitments and physical inventory as of
December 31, 2003 is also presented.
Expected Maturity Dates
-----------------------
2004 Thereafter Fair Value
-------- ---------- ----------
(in millions, except average price)
Purchase commitments
Commitment volume (pounds) 18.2 -
Weighted average price (per pound) $ 0.9398 -
Commitment amounts $ 17.2 - $ 19.0
On-hand copper rod at December 31, 2003
Pounds on hand 2.0 -
Weighted average price (per pound) $ 1.0125 -
Total value on hand $ 2.0 - $ 2.1
======== ========== ==========
The Company is also exposed to price risk related to its purchase of selected
commodities derived from petroleum and natural gas used in the manufacture of
its products. The Company generally purchases these commodities based upon
market prices established with the vendors as part of the purchase process.
Recent trends indicate that pricing of these commodities may become more
volatile due to the increased prices of both petroleum and natural gas as well
as the current threat of terrorist activities. Historically, the Company has not
used commodity financial instruments to hedge prices for commodities derived
from petroleum and natural gas. There is a modest correlation, primarily in the
Communications segment, between costs for commodities derived from petroleum and
natural gas and the ultimate selling price of the product. Exposures to most
changes in costs for commodities derived from petroleum and natural gas remain
unprotected.
Interest Rate Risk
The Company manages its debt portfolio by using interest rate swap agreements to
achieve an overall desired position of fixed and floating rates. The following
table provides information about the Company's financial instruments that are
sensitive to changes in interest rates. For the Company's short-term and
long-term debt obligations, the table presents principal cash flows and average
interest rates by expected maturity dates. The table also presents fair values
as of December 31, 2003.
53
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
--------------------------------------------------------
Fair
2004 2005 2006 2007 2008 Thereafter Total Value
----- ----- ----- ----- ----- ---------- ----- -----
(in millions, except rates)
LIABILITIES
Fixed-rate debt $15.0 $15.0 $15.0 $15.0 $ 15.0 $75.0 $73.5
Average interest rate 6.92% 6.92% 6.92% 6.92% 6.92%
Fixed-rate debt $64.0 $64.0 $66.0
Average interest rate 7.60%
Fixed-rate debt $44.0 $44.0 $46.3
Average interest rate 7.75%
Fixed-rate debt $ 17.0 $17.0 $17.4
Average interest rate 8.06%
===== ===== ===== ===== ===== ========== ===== =====
INTEREST RATE DERIVATIVE FINANCIAL
INSTRUMENTS RELATED TO DEBT
Interest rate swap
Pay variable/receive fixed $21.0 $21.0 $ 0.6
Average rate paid -- 6
month U.S. LIBOR plus
3.22%
Fixed rate received 7.60%
Interest rate swap
Pay variable/receive fixed $22.0 $22.0 $ 0.7
Average rate paid -- 6
month U.S. LIBOR plus
3.25%
Fixed rate received 7.60%
Interest rate swap
Pay variable/receive fixed $21.0 $21.0 $ 0.7
Average rate paid -- 6
month U.S. LIBOR plus
3.30%
Fixed rate received 7.60%
===== ===== ===== ===== ===== ========== ===== =====
Credit Risk
The Company sells its products to many customers in several markets across
multiple geographic areas. The ten largest customers, primarily the larger
distributors and communications companies, constitute in aggregate approximately
54%, 55% and 55% of revenues in 2003, 2002 and 2001, respectively.
During 2003, 2002 and 2001, the Company recorded total bad debt expense of $0.8
million, $2.1 million and $8.9 million, respectively. Included in the 2001
amount was $8.4 million related to a single financially troubled VAR that
purchased Communications segment products.
54
In December 2003, the Company recorded a $3.0 million receivable related to
"sales incentive" compensation due from a major private-label customer. This
receivable was outstanding at December 31, 2003; however it was paid in January
2004. In December 2002, the Company recorded a $12.5 million receivable related
to "take-or-pay" and "sales incentive" compensation due from a major
private-label customer. This receivable was outstanding at December 31, 2002;
however, it was paid in January 2003. In December 2001, the Company recorded an
$8.3 million receivable related to "take-or-pay" compensation due from a major
private-label customer. This receivable was outstanding at December 31, 2001;
however, it was paid in February 2002.
The following table reflects the receivables that represent the only significant
concentrations of credit to which the Company was exposed at December 31, 2003
and 2002. Historically, these customers generally pay all outstanding
receivables within thirty to sixty days of invoice receipt.
December 31, 2003 2002
- -------------------------------------- ---------------------------- ----------------------------
(in thousands, except % data) PERCENT OF NET Percent of Net
AMOUNT RECEIVABLES Amount Receivables
- -------------------------------------- -------- -------------- -------- --------------
Customer 1 $ 15,262 15% $ 12,412 11%
Customer 2 519 1% 6,147 6%
-------- -------------- -------- --------------
Total $ 15,781 16% $ 18,559 17%
======== ============== ======== ==============
At December 31, 2003, the Company had receivables in the amount of $4.3 million
outstanding from a value-added reseller that purchases Communications segment
products on an ongoing basis. Historically, this customer generally pays all
outstanding receivables within thirty to sixty days of invoice receipt.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Belden Inc.
We have audited the accompanying consolidated balance sheets of Belden Inc. as
of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Belden Inc. at
December 31, 2003 and 2002, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 in the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," in 2002.
/s/ Ernst & Young LLP
St. Louis, Missouri
February 5, 2004
56
CONSOLIDATED BALANCE SHEETS
December 31, 2003 2002
- ------------------------------------------------------------- -------- --------
(in thousands, except par value and number of shares)
ASSETS
Current assets:
Cash and cash equivalents $ 94,967 $ 19,409
Receivables, less allowance for doubtful accounts
of $3,593 at 2003 and $3,477 at 2002 99,112 109,180
Inventories 128,460 159,817
Income taxes receivable 1,770 2,428
Deferred income taxes 18,535 15,097
Other current assets 6,547 7,818
-------- --------
Total current assets 349,391 313,749
Property, plant and equipment, less accumulated depreciation 238,027 337,196
Goodwill and other intangibles, less accumulated amortization
of $13,768 at 2003 and $13,546 at 2002 79,462 79,588
Other long-lived assets 6,675 13,006
-------- --------
$673,555 $743,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $117,182 $118,268
Current maturities of long-term debt 65,951 -
-------- --------
Total current liabilities 183,133 118,268
Long-term debt 136,000 203,242
Postretirement benefits other than pensions 10,201 10,732
Deferred income taxes 44,317 71,470
Other long-term liabilities 25,494 32,632
Stockholders' equity:
Preferred stock, par value $.01 per share, 25,000,000 shares
authorized, no shares outstanding - -
Common stock, par value $.01 per share, 100,000,000 shares
authorized, 26,203,603 shares issued, and 25,656,313 and
25,112,153 shares outstanding at 2003 and 2002,
respectively 262 262
Additional paid-in capital 39,022 40,917
Retained earnings 237,087 302,900
Accumulated other comprehensive income/(loss) 7,461 (17,859)
Unearned deferred compensation (1,700) (2,014)
Treasury stock, at cost, 547,290 and 1,091,450 shares
at 2003 and 2002, respectively (7,722) (17,011)
-------- --------
Total stockholders' equity 274,410 307,195
-------- --------
$673,555 $743,539
======== ========
See accompanying notes.
57
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2003 2002 2001
- ------------------------------------------------------------ -------- -------- --------
(in thousands, except per share amounts)
Revenues $826,521 $813,348 $968,369
Cost of sales 712,166 690,336 799,463
-------- -------- --------
Gross profit 114,355 123,012 168,906
Selling, general and administrative expenses 108,462 107,439 114,832
Amortization of goodwill - - 2,136
Other operating expenses/(earnings) 89,769 21,621 (8,318)
-------- -------- --------
Operating earnings/(loss) (83,876) (6,048) 60,256
Nonoperating earnings - - (1,200)
Interest expense 12,299 13,730 18,585
-------- -------- --------
Income/(loss) before taxes and cumulative effect of
change in accounting principle (96,175) (19,778) 42,871
Income tax expense/(benefit) (35,445) (3,885) 11,662
-------- -------- --------
Income/(loss) before cumulative effect of change in
accounting principle (60,730) (15,893) 31,209
Cumulative effect of change in accounting principle - - (251)
-------- -------- --------
Net income/(loss) $(60,730) $(15,893) $ 30,958
======== ======== ========
Basic average shares outstanding 25,158 24,763 24,499
Basic earnings/(loss) per share before cumulative
effect of change in accounting principle $ (2.41) $ (.64) $ 1.27
Basic earnings/(loss) per share $ (2.41) $ (.64) $ 1.26
======== ======== ========
Diluted average shares outstanding 25,158 24,763 24,766
Diluted earnings/(loss) per share before cumulative
effect of change in accounting principle $ (2.41) $ (.64) $ 1.26
Diluted earnings/(loss) per share $ (2.41) $ (.64) $ 1.25
======== ======== ========
See accompanying notes.
58
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 2003 2002 2001
- ------------------------------------------------------------------- --------- --------- -------
(in thousands)
Cash flow from operating activities:
Income/(loss) before cumulative effect of change in accounting
principle $ (60,730) $ (15,893) $31,209
Adjustments to reconcile income/(loss) before cumulative effect
of change in accounting principle to net cash provided by
operating activities:
Depreciation and amortization 35,765 39,651 40,292
Asset impairment charges 92,752 32,719 -
Deferred income tax provision/(benefit) (33,774) (1,930) 9,644
Retirement savings plan contributions 3,739 - -
Employee stock purchase plans 2,149 1,647 3,199
Stock compensation 148 - -
Gain on business divestiture - - (1,200)
Amortization of unearned deferred compensation 1,502 1,140 508
Changes in operating assets and liabilities(1):
Receivables 20,609 9,089 46,147
Inventories 40,718 12,276 18,294
Accounts payable and accrued liabilities (27,303) (548) (58,481)
Current and deferred income taxes, net 4,403 16,113 (14,501)
Other assets and liabilities, net 14,608 1,184 (2,367)
--------- --------- -------
Net cash provided by operating activities 94,586 95,448 72,744
Cash flows from investing activities:
Capital expenditures (16,738) (32,830) (37,072)
Cash used to acquire business - (11,300) -
Proceeds from business divestiture - - 1,400
Proceeds from disposal of property, plant and equipment 246 202 247
--------- --------- -------
Net cash used for investing activities (16,492) (43,928) (35,425)
Cash flows from financing activities:
Net payments under credit agreements - (31,461) (38,635)
Proceeds from exercise of stock options 170 1,198 1,515
Cash dividends paid (5,083) (4,878) (4,895)
--------- --------- -------
Net cash used for financing activities (4,913) (35,141) (42,015)
Effect of exchange rate changes on cash and cash equivalents 2,377 231 99
--------- --------- -------
Increase/(decrease) in cash and cash equivalents 75,558 16,610 (4,597)
Cash and cash equivalents, beginning of period 19,409 2,799 7,396
--------- --------- -------
Cash and cash equivalents, end of period $ 94,967 $ 19,409 $ 2,799
--------- --------- -------
Supplemental cash flow information
Income tax refunds received $ 18,614 $ 21,377 $ 718
Income taxes paid (13,630) (2,852) (15,450)
Interest paid, net of amount capitalized (14,543) (14,752) (18,040)
========= ========= =======
(1) Net of the effects of exchange rate changes and acquired businesses.
See accompanying notes.
59
CONSOLIDATED STOCKHOLDERS' EQUITY STATEMENTS
Accumulated
Unearned Other
Common Paid-In Retained Treasury Deferred Comprehensive
Stock Capital Earnings Stock Compensation Income/(Loss) Total
------ ------- -------- -------- ------------ ------------- -----
(in thousands)
Balance at December 31, 2000 $ 262 $47,379 $297,625 $(35,664) $ - $ (21,933) 287,669
Net income 30,958 30,958
Foreign currency translation (2,541) (2,541)
Unrealized loss on derivative
instruments (245) (245)
Minimum pension liability, net
of tax of $1.2 million (1,906) (1,906)
-------
Comprehensive income 26,266
Issuance of treasury stock
Stock options (1,013) 2,528 1,515
Stock compensation (345) 2,086 (1,741) -
Employee stock purchase plan (2,248) 5,447 3,199
Amortization of unearned
deferred compensation 508 508
Cash dividends ($.20 per share
of common stock) (4,912) (4,912)
------ ------- -------- -------- ------------ ------------- --------
Balance at December 31, 2001 262 43,773 323,671 (25,603) (1,233) (26,625) 314,245
Net loss (15,893) (15,893)
Foreign currency translation 21,357 21,357
Unrealized gain on derivative
instruments 245 245
Minimum pension liability, net
of tax of $9.5 million (12,836) (12,836)
-------
Comprehensive loss (7,127)
Issuance of treasury stock
Stock options (593) 1,791 1,198
Stock compensation (426) 2,412 (1,921) 65
Retirement savings plan (576) 1,481 905
Employee stock purchase plan (1,261) 2,908 1,647
Amortization of unearned
deferred compensation 1,140 1,140
Cash dividends ($.20 per share
of common stock) (4,878) (4,878)
------ ------- -------- -------- ------------ ------------- --------
Balance at December 31, 2002 262 40,917 302,900 (17,011) (2,014) (17,859) 307,195
NET LOSS (60,730) (60,730)
FOREIGN CURRENCY TRANSLATION 24,650 24,650
MINIMUM PENSION LIABILITY, NET
OF TAX OF $8.7 MILLION 670 670
-------
COMPREHENSIVE LOSS (35,410)
ISSUANCE OF TREASURY STOCK
STOCK OPTIONS 1 169 170
STOCK COMPENSATION (560) 1,896 (1,188) 148
RETIREMENT SAVINGS PLAN (713) 4,452 3,739
EMPLOYEE STOCK PURCHASE PLAN (623) 2,772 2,149
AMORTIZATION OF UNEARNED
DEFERRED COMPENSATION 1,502 1,502
CASH DIVIDENDS ($.20 PER SHARE
OF COMMON STOCK) (5,083) (5,083)
------ ------- -------- -------- ------------ ------------- --------
BALANCE AT DECEMBER 31, 2003 $ 262 $39,022 $237,087 $ (7,722) $ (1,700) $ 7,461 $274,410
====== ======= ======== ======== ============ ============= ========
See accompanying notes.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
Belden Inc. (the Company) designs, manufactures and markets metallic and fiber
optic wire and cable products for the electronics and communications markets.
The Company has manufacturing facilities in North America and Europe and had a
manufacturing facility in Australia until June 2003.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements include the Company and all
of its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. In addition, the Consolidated Financial Statements
include the operating results of each acquired operation from its respective
acquisition date (Note 6).
Foreign Currency Translation
For international operations with functional currencies other than the United
States dollar, asset and liability accounts are translated at current exchange
rates; income and expenses are translated using average exchange rates.
Resulting translation adjustments, as well as gains and losses from certain
affiliate transactions, are reported in accumulated other comprehensive
income/(loss), a separate component of stockholders' equity. Exchange gains and
losses on transactions are included in operating earnings/(loss).
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 2001 and 2002 Consolidated
Financial Statements in order to conform to the 2003 presentation.
Cash and Cash Equivalents
The Company classifies cash on hand and deposits in banks, including commercial
paper, money market accounts and other investments with an original maturity of
three months or less, that the Company may hold from time to time, as cash and
cash equivalents.
Trade Receivables and Related Allowances
The Company classifies amounts owed to the Company and due within twelve months,
arising from the sale of goods or services in the normal course of business to
an unrelated party, as trade receivables. Trade receivables due after twelve
months are reclassified as other long-lived assets.
Interest charged on delinquent trade receivables is accrued but the income is
deferred as a receivables allowance until the interest is collected.
61
The Company evaluates the collectibility of accounts receivable based on the
specific identification method. A considerable amount of judgment is required in
assessing the realization of accounts receivable, including the current
creditworthiness of each customer and related aging of the past due balances. In
order to assess the collectibility of the accounts receivable, the Company
performs ongoing credit evaluations of its customers' financial condition.
Through these evaluations, the Company may become aware of a situation where a
customer may not be able to meet its financial obligations due to deterioration
of its financial viability, credit ratings or bankruptcy. In circumstances where
the Company is aware of a customer's inability or unwillingness to pay
outstanding amounts, the Company records a specific reserve for bad debts
against amounts due to reduce the receivable to its estimated collectible
balance. The Company recorded bad debt expense of $0.8 million, $2.1 million and
$8.9 million in 2003, 2002 and 2001, respectively. Included in the 2001 expense
was $8.4 million for an individual customer (value-added reseller) of the
Communications segment that filed for bankruptcy. The allowance for doubtful
accounts at December 31, 2003 and 2002 was $3.6 million and $3.5 million,
respectively. The Company does not anticipate that any other major customers
will be unable to pay for outstanding receivables.
Inventories and Related Reserves
Inventories, including raw materials, work-in-process and finished goods, are
carried at cost or, if lower, market value. Inventory values include direct
material, direct labor and production overhead costs. On the basis of current
costs, 68% and 65% of inventories in 2003 and 2002, respectively, were carried
on the last-in, first-out (LIFO) method. The remaining inventories were carried
on the first-in, first-out (FIFO) method.
The Company evaluates the realizability of its inventory on a product-by-product
basis in light of anticipated sales demand, technological changes, product life
cycle, component cost trends, product pricing and inventory condition. In
circumstances where inventory levels are in excess of anticipated market demand,
where inventory is deemed technologically obsolete or not saleable due to
condition or where inventory cost exceeds net realizable value, the Company
records a charge to cost of goods sold and reduces the inventory to its net
realizable value. At December 31, 2003 and 2002, the Company had inventory
reserves of $11.9 million and $18.5 million, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the related assets
ranging from ten to forty years for buildings, five to twelve years for
machinery and equipment and five years for business information systems.
Construction in process reflects amounts incurred for the configuration and
build-out of property, plant and equipment and for property, plant and equipment
not yet placed into service. Maintenance and repairs are charged to expense as
incurred. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 34, Capitalization of Interest Costs, the Company capitalizes interest costs
associated with the construction of capital assets for business operations and
amortizes the costs over the assets' useful lives.
62
Impairment of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company reviews long-lived assets to determine whether an
event or change in circumstances indicates the carrying value of the asset may
not be recoverable. The Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets and any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether
impairment has occurred through the use of an undiscounted cash flows analysis
at the lowest level for which identifiable cash flows exist. If impairment has
occurred, the Company recognizes a loss for the difference between the carrying
amount and the fair value of the asset. Fair value is the amount at which the
asset could be bought or sold in a current transaction between a willing buyer
and seller other than in a forced or liquidation sale and can be measured as the
asset's quoted market price in an active market or, where an active market for
the asset does not exist, the Company's best estimate of fair value based on
either discounted cash flow analysis or present value analysis (Note 10).
Goodwill and Other Indefinite-Lived Intangibles
Goodwill represents the excess of acquisition costs over the fair market value
of the net assets of acquired businesses and, prior to the Company's adoption of
SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, was
amortized on a straight-line basis over an estimated useful life of 40 years. On
January 1, 2002, the Company adopted the new rules of accounting under SFAS No.
142. As of December 31, 2003, and during the year then ended, the Company had no
indefinite-lived intangible assets other than goodwill. Application of the
nonamortization provision of SFAS No. 142 during the year ended December 31,
2001 would have resulted in an increase in net income for that period of $1.4
million ($2.1 million pretax), or $0.06 per diluted share. The Electronics
segment and the Communications segment reported goodwill, net of accumulated
amortization, at December 31, 2003 in the amounts of $76.8 million and $2.6
million, respectively. There was no significant change in the allocation of
goodwill by reportable segment between December 31, 2002 and December 31, 2003.
In accordance with SFAS No. 142, the Company evaluates goodwill for impairment
annually or at other times if events have occurred or circumstances exist that
indicate the carrying value of goodwill may no longer be recoverable. The
provision of SFAS No. 142 requires that a two-step impairment test be performed
on goodwill. In the first step, the Company compares the fair value of each
reporting unit to its carrying value. The Company determines the fair value
using the income approach. Under the income approach, the Company calculates the
fair value of a reporting unit based on the present value of estimated future
cash flows. If the fair value of the reporting unit exceeds the carrying value
of the net assets assigned to that unit, goodwill is not impaired and the
Company is not required to perform further testing. If the carrying value of the
reporting unit's net assets exceeds the fair value of the reporting unit, then
the Company must perform the second step in order to determine the implied fair
value of the reporting unit's goodwill. If the carrying value of a reporting
unit's goodwill exceeds its implied fair value, then an impairment of goodwill
has occurred and the Company recognizes an impairment loss for the difference
between the carrying amount and the implied fair value of goodwill as a
component of operating expenses.
63
At December 31, 2003, the carrying value of all goodwill was considered
recoverable. At December 31, 2002, carrying value of goodwill in the amount of
$0.2 million related to the Company's Australia operation was deemed impaired
and the associated loss was included as other operating expense in the
Consolidated Statement of Operations. The remaining carrying value of goodwill
at December 31, 2002 was deemed recoverable.
Pension and Other Postretirement Benefits
The Company's 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 and other factors. The Company bases
the discount rate assumptions on current investment yields on AA-rated corporate
long-term bonds. The salary growth assumptions reflect the Company's 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. The Company's health care cost
trend assumptions are developed based on historical cost data, the near-term
outlook and an assessment of likely long-term trends. The Company's key
assumptions are described in further detail in Note 14. Actual results that
differ from the Company's assumptions are accumulated and, if in excess of the
lesser of 10% of the project benefit obligation or the fair market value of plan
assets, amortized over the estimated future working life of the plan
participants.
Comprehensive Income/(Loss)
Comprehensive income/(loss) consists of net income/(loss), foreign currency
translation adjustments, unrealized gain/(loss) on derivative instruments and
minimum pension liability adjustments, and is presented in the accompanying
consolidated statements of stockholders' equity.
Revenue Recognition
Revenue is recognized in the period title to product passes to customers and
collectibility of the resulting accounts receivable is reasonably assured. As
part of the revenue recognition process, the Company determines whether the
resulting accounts receivable are reasonably assured of collection based on a
variety of factors, including an evaluation of whether there has been
deterioration in the credit quality of its customers, which could result in the
Company being unable to collect the accounts receivable. In situations where it
is unclear as to whether the Company will be able to sell or collect the
accounts receivable, the Company will request alternative financing
arrangements, such as prepayment or commercial letters of credit, from the
customer.
The Company grants incentive allowances to selected customers as part of its
sales programs. The incentives are determined based on certain targeted sales
volumes. In certain instances, the Company also grants selected product price
protection allowances. Certain distribution customers are also allowed to return
inventory at the customer's 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. Sales revenues are reduced when incentives, allowances or returns
are anticipated or projected. Revenues are reduced by recording a separate
deduction in gross revenues. The Company follows guidance provided by Securities
Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, and Emerging Issues Task Force Abstract (EITF) No. 00-14,
Accounting for Certain Sales Incentives.
64
Shipping and Handling Costs
In accordance with EITF No. 00-10, Accounting for Shipping and Handling Fees and
Costs, the Company includes fees earned on the shipment of product to customers
in revenues and includes costs incurred on the shipment of product to customers
as cost of sales. Certain handling costs primarily incurred at the Company's
distribution centers totaling $6.5 million, $7.2 million and $5.8 million were
included in selling, general and administrative expenses for 2003, 2002 and
2001, respectively.
Research and Development
Research and development expenditures are charged to expense as incurred.
Expenditures for research and development sponsored by the Company were $10.4
million, $7.6 million and $8.2 million for 2003, 2002 and 2001, respectively.
Environmental Remediation and Compliance
Environmental remediation costs are accrued, except to the extent costs can be
capitalized, based on estimates of known environmental remediation exposures.
Environmental compliance costs include maintenance and operating costs with
respect to ongoing monitoring programs. Such costs are expensed as incurred.
Capitalized environmental costs are depreciated generally utilizing a 15-year
life.
Minimum Requirements Contracts
Amounts recognized under minimum requirements ("take-or-pay" or "sales
incentive") contracts are classified in other operating earnings/(expense).
Stock-Based Compensation
During the years ended December 31, 2003, 2002 and 2001, the Company sponsored
four stock compensation plans -- the Belden Inc. 2003 Long-term Incentive Plan
and the Belden Inc. 1994 Incentive Plan (together, the Incentive Plans) as well
as the Belden Inc. 2003 Employee Stock Purchase Plan and the Belden Inc. 1994
Employee Stock Purchase Plan (together, the Stock Purchase Plans).
Under the Incentive Plans, certain employees of the Company are eligible to
receive awards in the form of stock options, stock appreciation rights,
restricted stock grants and performance shares. To date, the Company has not
issued stock appreciation rights or performance shares. The Company accounts for
stock options using the intrinsic value method provided in Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees.
Accordingly, no compensation cost has been recognized for options granted under
the Incentive Plans. The Company accounts for restricted stock grants under APB
No. 25 as fixed-plan awards since both the aggregate number of awards issued and
the aggregate amount to be paid by the participants for the common stock is
known. Compensation related to the grants is measured as the difference between
the market price of the Company's common stock at the grant date and the amount
to be paid by the participants for the common stock.
Under the Stock Purchase Plans, all full-time employees and part-time employees
who work 20 or more hours per week in Canada, Germany, the Netherlands and the
United States receive the right to purchase a specified amount of common stock
at the lesser of 85% of the fair market value on the offering date or 85% of the
fair market value on the exercise date. The Company accounts for these purchase
rights using the intrinsic value method provided by APB No. 25. Accordingly, no
compensation cost has been recognized for purchase rights granted under the
Stock Purchase Plans.
65
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. The effect on operating results of
calculating the Company's stock compensation using the fair value method
presented in SFAS No. 123 is as follows:
Years Ended December 31, 2003 2002 2001
- ------------------------------------------------------------ -------- ------- ------
(in thousands, except per share amounts)
AS REPORTED
Stock-based employee compensation cost, net of tax $ 926 $ 649 $ 313
Net income/(loss) (60,730) (15,893) 30,958
Basic earnings/(loss) per share (2.41) (.64) 1.26
Diluted earnings/(loss) per share (2.41) (.64) 1.25
PRO FORMA
Stock-based employee compensation cost, net of tax $ 2,099 $ 2,428 $2,468
Net income/(loss) (61,903) (17,672) 28,803
Basic earning/(loss) per share (2.46) (.71) 1.18
Diluted earnings/(loss) per share (2.46) (.71) 1.16
======== ======== =======
The fair value of common stock options outstanding under the Incentive Plans and
the fair value of stock purchase rights outstanding under the Stock Purchase
Plans were estimated at the date of grant using the Black-Scholes option-pricing
model.
For the years ended December 31, 2003, 2002, and 2001, assumptions used in the
determination of the fair value of the stock options and stock purchase rights
include the following:
Years Ended December 31, 2003 2002 2001
- ------------------------------------------------------------ -------- ------- ------
Dividend yield 6.36% 4.63% 4.09%
Expected volatility 41.05% 40.35% 41.15%
Expected option life (in years) 4.31 4.78 5.27
Risk free interest rate 2.46% 3.41% 4.61%
======== ======== =======
For the years ended December 31, 2003, 2002 and 2001, the weighted average per
share fair value of options granted under the Incentive Plans and purchase
rights granted under the Stock Purchase Plans during each period were as
follows:
Years Ended December 31, 2003 2002 2001
- ------------------------------------------------------------ -------- ------- ------
Incentive Plan $ 1.58 $ 4.45 $ 6.80
Stock Purchase Plan 5.98 3.09 4.19
======== ======== =======
The Black-Scholes option-pricing model was developed to estimate the fair value
of market-traded options. Incentive stock options and stock purchase rights have
certain characteristics, including vesting periods and non-transferability,
which market-traded options do not possess. Due to the significant effect that
changes in assumptions and differences in option and purchase right
characteristics might have on the fair values of stock options and stock
purchase rights, the models may not accurately reflect the fair values of the
stock options and stock purchase rights.
66
Interest Expense
The Company presents interest expense net of capitalized interest costs and
interest income earned on cash equivalents.
Years ended December 31, 2003 2002 2001
- ------------------------------------------------------------ ------- -------- --------
(in thousands)
Gross interest expense $13,276 $ 15,751 $ 20,583
Capitalized interest costs (429) (789) (698)
Interest income earned on cash equivalents (548) (1,232) (1,300)
------- -------- --------
Net interest expense $12,299 $ 13,730 $ 18,585
======= ======== ========
Income Taxes
Income taxes are provided based on earnings reported for financial statement
purposes. The provision for income taxes differs from the amounts currently
payable due to the recognition of revenues and expenses in different periods for
income tax and financial statement purposes. Income taxes are provided as if
operations in all countries, including the United States, were stand-alone
businesses filing separate tax returns. In the first quarter of 2001, the
Company determined under APB No. 23, Accounting for Income Taxes - Special
Areas, that undistributed earnings from its international subsidiaries would not
be remitted to the United States in the foreseeable future and, therefore, no
additional provision for United States taxes was made.
The Company recognizes deferred tax assets resulting from tax credit
carryforwards, net operating loss carryforwards and deductible temporary
differences between taxable income/(loss) on its income tax returns and
income/(loss) before income taxes under accounting principles generally accepted
in the United States. 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 the Company's
Consolidated Financial Statements become deductible for income tax purposes. A
valuation allowance is required when it is more likely that some portion or all
of the deferred tax assets will not be realized. The Company is 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 or not to record a valuation allowance for part or all of a
deferred tax asset. As of December 31, 2003 and 2002, the Company has
approximately $39.9 million and $30.3 million of deferred tax assets related in
part to domestic and foreign loss carryforwards, net of valuation allowances
totaling $9.8 million and $6.8 million, respectively. The realization of these
assets is partially based upon estimates of future taxable income. Based on
these estimates, the Company believes the deferred tax assets net of valuation
allowances will be realized.
Financial Risk Management
The Company is exposed to various market risks such as changes in foreign
currency exchange rates, commodity pricing and interest rates (Note 12). To
manage the volatility relating to these exposures, the Company nets the
exposures on a consolidated basis to take advantage of natural offsets. For
residual exposures, the Company sometimes enters into various derivative
transactions pursuant to the Company's policies in areas such as counterparty
exposure and hedging practices. The Company does not hold or issue derivative
instruments for trading purposes. The terms of such instruments and the
transactions to which they relate generally do not exceed twelve months.
67
Foreign Currency Exchange Rate Management
The Company manufactures and sells its products in a number of countries
throughout the world, and, as a result, is exposed to movements in foreign
currency exchange rates. The primary purpose of the Company's foreign currency
exchange rate management activities is to manage the volatility associated with
foreign currency purchases of materials or sales of finished product and other
assets and liabilities created in the normal course of business. The Company's
foreign currency exchange rate management strategy involves the use of natural
techniques, where possible, such as the offsetting or netting of like-currency
cash flows. Where natural techniques are not possible, the Company will
sometimes use foreign currency derivatives, typically foreign currency forward
contracts, with durations of generally 12 months or less.
The Company did not have any foreign currency derivatives outstanding at
December 31, 2003 and did not employ foreign currency derivatives during the
year then ended.
The Company generally views as long-term its investments in international
subsidiaries with functional currencies other than the United States dollar. As
a result, the Company does not generally use derivatives to manage these net
investments. In terms of foreign currency translation risk, the Company is
exposed primarily to the euro, the British pound, the Hungarian forint, the
Canadian dollar and the Australian dollar.
The Company's net foreign currency investment in foreign subsidiaries and
affiliates translated into United States dollars using year-end exchange rates
was $109.0 million and $119.1 million at December 31, 2003 and 2002,
respectively.
Commodity Price Management
Certain raw materials used by the Company are subject to price volatility caused
by supply conditions, political and economic variables and other unpredictable
factors. The primary purpose of the Company's commodity price management
activities is to manage the volatility associated with purchases of commodities
in the normal course of business.
The Company is exposed to price risk related to its purchase of copper used in
the manufacture of its products. The Company's copper price management strategy
involves the use of natural techniques, where possible, such as purchasing
copper for future delivery at fixed prices (Note 17). Where natural techniques
are not possible, the Company will sometimes use commodity price derivatives,
typically exchange-traded forward contracts, with durations of generally twelve
months or less.
The Company did not have any commodity price derivatives outstanding at December
31, 2003 and did not employ commodity price derivatives during the year then
ended.
68
The Company is also exposed to price risk related to its purchase of selected
commodities derived from petroleum and natural gas used in the manufacture of
its products. The Company generally purchases these commodities based upon
market prices established with the vendors as part of the purchase process.
Recent trends indicate that pricing of these commodities may become more
volatile due to the increased prices of both petroleum and natural gas as well
as the current threat of terrorist activities. Historically, the Company has not
used commodity financial instruments to hedge prices for commodities derived
from petroleum and natural gas. There is a modest correlation, primarily in the
Communications segment, between costs for commodities derived from petroleum and
natural gas and the ultimate selling price of the product. Exposures to most
changes in costs for commodities derived from petroleum and natural gas remain
unprotected.
Impact of Newly Issued Accounting Standards
In November 2002, the Financial Accounting Standards Board (FASB) issued EITF
No. 02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor. EITF No. 02-16 provides accounting
guidance on how a customer should characterize consideration received from a
vendor and both when and how to recognize and measure that consideration in its
financial records. Under EITF No. 02-16, cash consideration received by a
customer from a vendor is presumed to be a reduction of the prices of the
vendor's products or services and should, therefore, be characterized as a
reduction of cost of sales when recognized in the customer's income statement
unless the consideration is either (a) a payment for assets or services
delivered to the vendor, in which case the consideration should be characterized
as revenue or other income, as appropriate, when recognized in the customer's
income statement, or (b) a reimbursement of costs incurred by the customer to
sell the vendor's products, in which case the consideration should be
characterized as a reduction of that cost when recognized in the customer's
income statement. EITF No. 02-16 also requires that a rebate or refund of
consideration that is payable pursuant to a binding arrangement only if the
customer completes a specified cumulative level of purchases or remains a
customer for a specified time period should be recognized as a reduction of the
cost of sales based on a systematic and rational allocation of the consideration
offered to each of the underlying transactions that results in progress by the
customer toward earning the rebate or refund provided the amounts are probable
and reasonably estimable. If the rebate or refund is not probable and reasonably
estimable, it should be recognized as the milestones are achieved. EITF No.
02-16 was effective for new arrangements, including modifications of existing
arrangements, initiated after December 31, 2002 and for new binding arrangements
in which consideration is payable only if the customer completes a specified
cumulative level of purchases or remains a customer for a specified period of
time initiated after November 21, 2002.
During the year ended December 31, 2003, the Company did receive cash
consideration from certain vendors. This consideration was characterized as a
reduction of cost of sales when recognized in the Consolidated Statement of
Operations. The consideration received under binding arrangements that required
the Company to complete a cumulative level of purchases was recognized as a
reduction of cost of sales based on a systematic and rational allocation of the
consideration offered to each of the underlying transactions when the amounts
were probable and reasonably estimable; otherwise, the consideration was
recognized as a reduction of cost of sales as the arrangement milestones were
achieved. The Company accounted for consideration received from vendors in a
similar manner in prior years. The adoption of EITF No. 02-16 has not had a
material impact on the Company's Consolidated Financial Statements.
69
In April 2003, the FASB issued SFAS No. 149, Amendment of FASB Statement No. 133
on Derivative and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments imbedded in other contracts and for hedging activities
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 149 is effective for contracts initiated or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 has not had a material impact on the Company's
Consolidated Financial Statements.
In May 2003, the FASB issued EITF No. 03-4, Determining the Classification and
Benefit Attribution Method for a "Cash Balance" Pension Plan. EITF 03-4 defines
a "cash balance" pension plan as a plan that contains a defined
principal-crediting rate as a percentage of salary and a defined, non-contingent
interest-crediting rate that entitles participants to future interest credits as
a stated, fixed rate until retirement. EITF No. 03-4 requires that "cash
balance" pension plans be considered defined benefit pension plans for the
purpose of applying SFAS No. 87, Employers' Accounting for Pensions. EITF No.
03-4 also declares the traditional unit credit method to be the appropriate cost
attribution approach for "cash balance" pension plans. Although the Company
sponsors "cash balance" pension plans for certain of its locations, the plans do
not have the characteristics of the "cash balance" pension plans covered by EITF
No. 03-4. The plans sponsored by the Company contain an interest-crediting rate
that entitles participants to future interest credits at a variable rate until
retirement. The adoption of EITF No. 03-4 has not had a material impact on the
Company's Consolidated Financial Statements.
In January 2004, the FASB issued FASB Staff Position (FAS) No. 106-1, Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. FAS No. 106-1 allows postretirement
health care plan sponsors to defer recognizing the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (Act) in accounting
for the plans under SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, and in providing disclosures related to the plans
required by SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, until authoritative guidance on the accounting for the
federal subsidy provided in the Act is issued or until certain other events
addressed in FAS No. 106-1 occur. Regardless of whether a plan sponsor elects
the deferral, FAS No. 106-1 requires that certain other disclosures be included
in the sponsors' annual or interim financial statements. FAS No. 106-1 was
effective for interim or annual financial statements of fiscal years ending
after December 7, 2003. The Company sponsors postretirement health care plans
for certain of its locations and expects that the Act will eventually reduce its
costs for some of these plans. At this point, the Company's investigation into
its response to the Act is preliminary as it awaits guidance from various
governmental and regulatory agencies concerning the requirements that must be
met to obtain these cost reductions as well as the manner in which such savings
would be measured. Because of the various uncertainties related to the Company's
response to the Act and the appropriate accounting methodology for this event,
the Company has elected to defer financial recognition of the Act until the FASB
issues final accounting guidance. When issued, the final guidance could require
the Company to change previously reported information.
70
NOTE 3: SHARE INFORMATION
Common Stock Treasury Stock
------------ --------------
(number of shares in thousands)
Balance at December 31, 2000 26,204 (1,774)
Issuance of treasury stock
Stock options - 80
Stock compensation - 66
Employee stock purchase plan - 185
--------- ---------
Balance at December 31, 2001 26,204 (1,443)
Issuance of treasury stock
Stock options - 69
Stock compensation - 89
Retirement savings plan - 62
Employee stock purchase plan - 132
--------- ---------
Balance at December 31, 2002 26,204 (1,091)
ISSUANCE OF TREASURY STOCK
STOCK OPTIONS - 10
STOCK COMPENSATION - 103
RETIREMENT SAVINGS PLAN - 249
EMPLOYEE STOCK PURCHASE PLANS - 182
--------- ---------
BALANCE AT DECEMBER 31, 2003 26,204 (547)
========= =========
NOTE 4: EARNINGS/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings/(loss) per share:
Years Ended December 31, 2003 2002 2001
- ----------------------------------------------------------- -------- -------- -------
(in thousands, except per share amounts)
Numerator:
Income/(loss) before cumulative effect of change in
accounting principle (CECAP) $(60,730) $(15,893) $31,209
Net income/(loss) $(60,730) $(15,893) $30,958
======== ======== =======
Denominator:
Basic average shares outstanding 25,158 24,763 24,499
Effect of dilutive common stock equivalents - - 267
-------- -------- -------
Diluted average shares outstanding 25,158 24,763 24,766
======== ======== =======
Basic earnings/(loss) per share before CECAP $ (2.41) $ (.64) $ 1.27
Basic earnings/(loss) per share $ (2.41) $ (.64) $ 1.26
======== ======== =======
Diluted earnings/(loss) per share before CECAP $ (2.41) $ (.64) $ 1.26
Diluted earnings/(loss) per share $ (2.41) $ (.64) $ 1.25
======== ======== =======
Due to the net losses recognized in 2003 and 2002, the Company did not include
any common stock equivalents in the diluted computations for those years because
they would have been antidilutive. In 2001, the Company did not include 1.3
million common stock equivalents in the diluted earnings per share computations
because they would have been antidilutive.
71
NOTE 5: ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Foreign Unrealized
Currency Gain/(Loss) on Minimum Accumulated Other
Translation Derivative Pension Comprehensive
(in thousands) Adjustments Instruments Liability Income/(Loss)
- ---------------------------------------- ----------- -------------- --------- -----------------
Balance at December 31, 2001 $ (24,474) $ (245) $ (1,906) $ (26,625)
Current Period Change 21,357 245 (12,836) 8,766
----------- -------------- --------- -----------------
Balance at December 31, 2002 (3,117) - (14,742) (17,859)
CURRENT PERIOD CHANGE 24,650 - 670 25,320
----------- -------------- --------- -----------------
BALANCE AT DECEMBER 31, 2003 $ 21,533 $ - $ (14,072) $ 7,461
=========== ============== ========= =================
NOTE 6: BUSINESS ACQUISITION
On October 31, 2002, the Company purchased certain assets and assumed certain
liabilities of the NORCOM wire and cable business in Kingston, Ontario, Canada
(NORCOM) from Cable Design Technologies Corporation for cash of $11.3 million.
NORCOM manufactured and marketed metallic cable products primarily for the
Canadian and United States communications markets. The purchase price was
allocated to the net assets acquired based on their fair market value. The
purchase price is subject to additional contingency payments up to three years
of as much as $6.7 million depending mainly on the Company's achievement of
future business levels. No goodwill was recorded with respect to this
transaction. On January 9, 2003, the Company announced its decision to close the
Kingston facility and relocate production to its other facilities. The Company
recorded $11.4 million as accrued severance and other plant closing costs
incident to the purchase in 2002. At December 31, 2003, the accrued severance
related to closure is approximately $0.2 million. Operating results of this
acquisition are included in the Company's consolidated operating results since
its acquisition date.
NOTE 7: BUSINESS DIVESTITURE
In February 2001, the Company completed the sale of its 70% ownership interest
in MCTEC B.V. of Venlo, Netherlands to STS Biopolymers Inc. The Company received
cash proceeds of approximately $1.4 million and recorded a gain as a result of
the transaction of approximately $1.2 million before tax or $0.7 million ($.03
per diluted share) after tax.
NOTE 8: INVENTORIES
December 31, 2003 2002
- ------------------------------------ -------- --------
(in thousands)
Raw materials $ 22,957 $ 22,988
Work-in-process 18,581 21,673
Finished goods 106,428 134,375
Perishable tooling and supplies 4,310 4,887
-------- --------
Gross inventories 152,276 183,923
Excess of current standard
costs over LIFO costs (11,961) (5,596)
Obsolescence and other reserves (11,855) (18,510)
-------- --------
Net inventories $128,460 $159,817
======== ========
Inventories are stated at the lower of cost (last-in, first-out and first-in,
first-out methods) or market. Costs include direct material, direct labor and
applicable production overhead costs.
72
NOTE 9: PROPERTY, PLANT AND EQUIPMENT
December 31, 2003 2002
- ------------------------------------ -------- --------
(in thousands)
Land and land improvements $ 31,299 $ 30,208
Buildings and leasehold improvements 85,168 110,175
Machinery and equipment 376,512 456,113
Construction in process 5,914 17,241
-------- --------
498,893 613,737
Accumulated depreciation (260,866) (276,541)
-------- --------
$238,027 $337,196
======== ========
NOTE 10: IMPAIRMENT OF LONG-LIVED ASSETS
During 2003, a general deterioration of the North American telecommunications
market required downward revisions to the expected future results of operations.
Reasons for the market deterioration included the general economic slowdown,
network overcapacity, network build-out delays and limited availability of
capital. As a result, sales and results of operations have been and may continue
to be adversely affected. The significant slowdown in capital spending in target
markets has created uncertainty as to the level of demand, which can change
quickly and can vary over short periods of time, including month to month. As a
result of this uncertainty, accurate forecasting of near- and long-term results,
earnings and cash flow remains difficult. In addition, since a limited number of
customers account for a significant portion of revenue in the telecommunications
market, results are subject to volatility from changes in spending by one or
more of these significant customers.
The North American operations of the Company's Communications segment
experienced an operating loss before asset impairment of $17.0 million in 2003.
The Company does not currently see market conditions improving sufficiently to
return this business to operating profitability in 2004. Accordingly, in the
fourth quarter of 2003 the Company's Board of Directors decided to seek
strategic alternatives for this portion of the Company's Communications segment.
In accordance with SFAS No. 144, the Company performed an evaluation of the
recoverability of the carrying value of long-lived assets using undiscounted
cash flow projections. Based on the gross undiscounted cash flow projections,
the Company determined that all long-lived asset groups within the North
American operations of its Communications segment were impaired. The Company
then estimated fair values using a variety of techniques including discounted
cash flows and comparable market data. Calculating the estimated fair values
involves significant assumptions. Assumptions utilized in estimating fair values
under continued asset use included long-term forecasts of revenue growth, gross
margins and capital expenditures. Comparable market data was obtained from
appraisals and other third party valuation estimates. During the fourth quarter
of 2003 the Company determined that fair values of asset groups within the North
American operations of its Communications segment were less than carrying
amounts by $92.4 million. The Company recognized this impairment loss in 2003.
In connection with the closure of the Company's manufacturing operations in
Germany, an impairment loss of $0.4 million was incurred in 2003.
73
During the fourth quarter of 2002, the Company formulated a plan to exit the
production of certain products such as special wires for deflection coils used
in televisions and CRTs, electrical cords for consumer products, galvanized wire
for electronics assemblies, and long-line, single-mode fiber optic cable for the
communications and CATV markets. In addition, the Company elected to dispose of
certain excess and inefficient equipment used in the manufacturing of certain
products with communications applications. The Company also decided to dispose
of certain real estate and buildings in order to rationalize production
capabilities. In accordance with SFAS No. 144, the Company estimated the fair
value of the assets based upon anticipated net proceeds from the sale of the
equipment, buildings, and real estate and recognized an impairment loss of $32.5
million based on the difference between the carrying value of the assets and
their fair value. This loss is included as other operating expense on the
Consolidated Statement of Operations. The Electronics and Communications
segments recognized impairment losses in the amounts of $17.3 million and $15.2
million, respectively.
Impairment losses totaling $92.8 million and $32.5 million were recorded as
other operating expense in the Consolidated Statements of Operations for 2003
and 2002, respectively.
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, 2003 2002
- ------------------------------------ -------- --------
(in thousands)
Trade accounts $ 66,341 $ 52,257
Wages, severance and related taxes 12,789 28,329
Employee benefits 22,197 21,307
Interest 4,682 4,895
Contingent acquisition price(1) 2,200 -
Other (individual items less than
5% of total current liabilities) 8,973 11,480
-------- --------
$117,182 $118,268
======== ========
(1) During 2003, the Company reclassified contingent acquisition price in the
amount of $2.2 million from other long-term liabilities to accounts payable
and accrued liabilities, as it is potentially payable within one year.
Acquisition-Related Severance and Other Related Benefits
On December 31, 2002, the Company accrued severance and other related benefits
costs of $11.3 million associated with the announced manufacturing facility
closing in Canada in connection with the NORCOM acquisition. These costs were
recognized as a liability assumed in the purchase and included in the allocation
of the cost to acquire NORCOM in accordance with EITF No. 95-3, Recognition of
Liabilities in Connection with a Purchase Business Combination. 197 employees
were eligible for severance payments.
74
Facility Consolidation Severance and Other Related Benefits
On December 31, 2002, the Company recorded severance and other related benefits
costs in the amount of $8.3 million related to the announced manufacturing
facility closings in Germany and Australia as operating expense ($5.9 million in
cost of sales and $2.4 million in selling, general and administrative expenses)
within the Electronics segment in accordance with EITF No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). During the
second quarter of 2003, the Company recorded additional severance and other
related benefits costs in the amount of $2.5 million related to the
manufacturing facility closings in Germany and Australia as operating expense
($1.9 million in cost of sales and $0.6 million in selling, general and
administrative expenses). During the fourth quarter of 2003, the Company
recorded additional severance and other related benefits costs in the amount of
$0.1 million related to the manufacturing facility closing in Germany as
selling, general and administrative expense. 266 employees were eligible for
severance payments, subject to finalization of negotiations under collective
bargaining agreements.
Other Severance and Other Related Benefits
In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, the Company recorded severance and other related benefits
costs in the amount of $2.7 million in the third and fourth quarters of 2003
related to personnel reductions within the Electronics segment in the United
States, Canada and the Netherlands and within the Communications segment in the
United Kingdom as operating expense ($1.4 million in cost of sales and $1.3
million in selling, general and administrative expenses). 132 employees were
notified, prior to December 31, 2003, of their pending termination as well as
the amount of severance and other related benefits they should expect to
receive.
In accordance with SFAS No. 88, Employers' Accounting for Settlements &
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the
Company recorded severance and other related benefits costs in the amount of
$1.4 million in the third and fourth quarters of 2003 related to personnel
reductions within the Electronics segment in the United States as operating
expense ($0.3 million in cost of sales and $1.1 million in selling, general and
administrative expenses). 20 employees were offered and accepted termination
packages prior to December 31, 2003.
The Company anticipates making substantially all severance payments against
these accruals within one year of each accrual date.
The following table sets forth termination activity that occurred during the
year ended December 31, 2003:
Acquisition- Facility Total Number
Related Consolidation of Employees
Severance Severance Other Total Eligible for
and and Severance and Severance and Severance and
Other Related Other Related Other Related Other Related Other Related
Benefits Benefits Benefits Benefits Benefits
- ------------------------------ ------------- ------------- ------------- ------------- -------------
(in thousands, except number
of employees)
- ------------------------------ ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2002 $ 11,317 $ 8,344 $ - $ 19,661 456
Cash payments/terminations (8,576) (10,787) (1,719) (21,082) (484)
Foreign currency translation 1,189 733 36 1,958 -
Charges/other adjustments (3,735) 2,538 4,069 2,872 147
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2003 $ 195 $ 828 $ 2,386 $ 3,409 119
============= ============= ============= ============= =============
75
Charges/other adjustments for acquisition-related severance and other related
benefits reflect the reduction of charges originally accrued as of the
acquisition date due to unanticipated early retirements of certain employees. In
accordance with SFAS No. 141, Business Combinations, the original purchase price
allocation for the NORCOM acquisition was revised, resulting in a like reduction
in property, plant and equipment. Charges/other adjustments for facility
consolidation severance and other related benefits reflect additional charges
recognized during the second and fourth quarters of 2003 related to the
manufacturing facility closures in Australia and Germany. Charges/other
adjustments for other severance and other related benefits reflects charges
recognized during the third and fourth quarters of 2003 related to Electronics
segment personnel reductions in the United States, Canada and the Netherlands
and charges recognized in the fourth quarter of 2003 related to Communications
segment personnel reductions in the United Kingdom.
NOTE 12: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
December 31, 2003 2002
- ----------------------------------------------------------------------------- -------- --------
(in thousands)
Variable-rate bank revolving credit agreement, due 2006 $ - $ -
Short-term borrowings - -
Medium-term notes, face amount of $75,000 due from 2005 through 2009,
contractual interest rate 6.92%, effective interest rate 6.92% 75,000 75,000
Medium-term notes, face amount of $64,000 due 2004, contractual interest rate
7.60%, effective interest rate 4.65% 64,000 64,000
Medium-term notes, face amount of $44,000 due 2006, contractual interest rate
7.74%, effective interest rate 7.75% 44,000 44,000
Medium-term notes, face amount of $17,000 due 2009, contractual interest rate
7.95%, effective interest rate 8.06% 17,000 17,000
Interest rate swaps fair value 1,951 3,242
-------- --------
$201,951 $203,242
======== ========
Medium-Term Notes
In 1999, the Company completed a private placement of $64.0, $44.0 and $17.0
million of unsecured medium-term notes. The agreement for the notes contains
various customary affirmative and negative covenants and other provisions,
including restrictions on the incurrence of debt, maintenance of maximum
leverage ratio and minimum net worth.
In 1997, the Company completed a private placement of $75.0 million of unsecured
medium-term notes. The notes bear interest at 6.92% and mature 12 years from
closing with an average life of 10 years. The agreement for the notes contains
various customary affirmative and negative covenants and other provisions,
including restrictions on the incurrence of debt, maintenance of maximum
leverage ratio and minimum net worth.
76
Payments due on medium-term notes during each of the five years subsequent to
December 31, 2003 are as follows:
(in thousands)
- --------------------------
2004 $ 64,000
2005 15,000
2006 59,000
2007 15,000
2008 15,000
Thereafter 32,000
--------
$200,000
========
Credit Agreement
The Company entered into a credit agreement with a group of 6 banks on October
9, 2003 (Credit Agreement). The Credit Agreement provides for a secured,
variable-rate and revolving credit facility not to exceed $75 million expiring
in June 2006. In general, the Company's assets in the United States, other than
real property, secure any borrowing under the Credit Agreement. The amount of
any such borrowing is subject to a borrowing base comprised of the Company's
receivables and inventories located in the United States. A fixed charge
coverage ratio covenant becomes applicable if the Company's excess borrowing
availability falls below $25.0 million. The banks party to the Credit Agreement
can advance loans to the Company based on their respective commitments
(syndicated loans). Syndicated loans accrue interest at the option of the
Company at LIBOR plus 1.75% to 3.25%, or the higher of the prime rate or the
federal funds rate plus 0.00% to 1.50%. An unused commitment fee of 0.375% to
0.750% per annum is charged on the unused credit. The Credit Agreement replaced
the $100.0 million credit agreement dated June 2001 between the Company and a
group of 7 banks that would have expired in June 2004. The Company cancelled the
old credit agreement in June 2003.
The Company's borrowing capacity under the Credit Agreement at December 31, 2003
was $58.2 million. There were no outstanding borrowings under the Credit
Agreement at December 31, 2003.
Short-Term Borrowings
At December 31, 2003, the Company had unsecured, uncommitted arrangements with 3
banks under which it could borrow up to $7.6 million at prevailing interest
rates. There were no outstanding borrowings under these arrangements at December
31, 2003.
At December 31, 2002, the Company had unsecured, uncommitted arrangements with 6
banks under which it could borrow up to $38.2 million at prevailing interest
rates. There were no outstanding borrowings under these arrangements at December
31, 2002.
Unused Letters of Credit
At December 31, 2003 and 2002, the Company was party to unused standby letters
of credit totaling $3.9 million and $12.6 million, respectively.
77
Interest Rate Management
The Company manages its debt portfolio by using interest rate swap agreements to
achieve an overall desired position of fixed and floating rates. As of December
31, 2002, the Company was party to interest rate swap agreements relating to
7.60% medium-term notes that mature in 2004. The swaps convert a notional amount
of $64.0 million from fixed rates to floating rates and mature in 2004. These
arrangements have been designated and qualify as fair value hedges of the
associated medium-term notes in accordance with SFAS No. 133.
Based on current interest rates for similar transactions, the fair values of the
Company's interest rate swap agreements at December 31, 2003 and 2002 were $2.0
million and $3.2 million, respectively.
Credit and market risk exposures on these agreements are limited to the net
interest differentials. Net interest differentials earned from the interest rate
swaps of $1.9 million pretax ($0.05 per diluted share) and $1.1 million pretax
($0.03 per diluted share) were recorded as reductions to interest expense for
the years ended December 31, 2003 and 2002, respectively. Net interest
differentials earned from the interest rate swaps reduced the Company's average
interest rate on long-term debt by 0.97 percentage points and 0.47 percentage
points for the years ended December 31, 2003 and 2002, respectively. The Company
is exposed to credit loss in the event of nonperformance by counterparties on
the agreements, but does not anticipate nonperformance by any of the
counterparties.
At December 31, 2003, the fair value of the interest rate swap agreements was
reflected in other current assets on the Consolidated Balance Sheet. At December
31, 2002, the fair value of the interest rate swap agreements was reflected in
other long-lived assets on the Consolidated Balance Sheet.
NOTE 13: INCOME TAXES
The net tax benefit of $35.4 million for the year ended December 31, 2003
resulted from a net loss before taxes of $96.2 million. The Company's effective
tax rate after asset impairment, severance and bad debt (Charges) was 40.0%.
This rate was adjusted to 36.9% because of valuation allowances recorded against
the state and foreign net operating loss carryforwards and deferred tax assets
resulting from the Charges. Earnings from foreign subsidiaries are considered to
be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been made for these earnings. Upon
distribution of foreign subsidiary earnings the Company may be subject to United
States income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries.
The Company is party to a Tax Sharing and Separation Agreement (Tax Agreement)
with its former owner, Cooper Industries, Inc. (Cooper). The Tax Agreement
requires the Company to pay Cooper most of the tax benefits resulting from basis
adjustments arising from the Company's initial public offering on October 6,
1993. The effect of the Tax Agreement is to put the Company in the same
financial position it would have been in had there been no increase in the tax
basis of the Company's assets (except for a retained 10% benefit). The retained
10% benefit reduced income tax expense for the years ended December 31, 2003,
2002 and 2001 by $1.2 million each year. Included in 2003 and 2001 taxes paid
are $8.7 million and $10.2 million, respectively, paid to Cooper in accordance
with the Tax Agreement. There were no payments to Cooper in 2002.
78
Years Ended December 31, 2003 2002 2001
- ------------------------ ---- ---- ----
(in thousands)
Income/(loss) before taxes and CECAP:
United States operations $ (96,869) $ 3,911 $ 31,546
Foreign operations 694 (23,689) 11,325
--------- --------- --------
$ (96,175) $ (19,778) $ 42,871
========= ========= ========
Income tax expense/(benefit):
Currently payable/(receivable):
United States federal $ - $ (729) $ 253
United States state and local - 489 (33)
Foreign (1,671) (1,715) 1,798
--------- --------- --------
(1,671) (1,955) 2,018
Deferred:
United States federal (34,222) (491) 7,333
United States state and local (1,321) (667) 1,132
Foreign 1,769 (772) 1,179
--------- --------- --------
(33,774) (1,930) 9,644
--------- --------- --------
Total income tax expense/(benefit) $ (35,445) $ (3,885) $ 11,662
========= ========= ========
Years Ended December 31, 2003 2002 2001
- ------------------------ ---- ---- ----
Effective income tax rate reconciliation:
United States federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes 1.4 0.9 2.6
Foreign income tax rate differences and other 0.5 (16.3) (5.1)
favorable resolution of prior-period income
tax contingency - - (5.3)
---- ---- ----
Effective income tax rate 36.9% 19.6% 27.2%
==== ==== ====
December 31, 2003 2002
- ------------ ---- ----
(in thousands)
Components of deferred income tax balances:
Deferred income tax liabilities, net:
Plant, equipment and intangibles $(65,677) $(86,687)
(65,677) (86,687)
Deferred income tax assets:
Postretirement benefits 11,847 14,246
Reserves and accruals 25,744 17,416
Facility impairment 3,397 3,756
Net operating loss carryforwards 8,699 1,701
Valuation allowances (9,792) (6,805)
-------- --------
39,895 30,314
-------- --------
Net deferred income tax liability $(25,782) $(56,373)
======== ========
December 31, 2003 2002
(in thousands) CURRENT NONCURRENT TOTAL Current Noncurrent Total
- -------------- ------- ---------- ----- ------- ---------- -----
Deferred income tax
assets $ 18,535 $ 21,360 $ 39,895 $15,097 $ 15,217 $ 30,314
Deferred income tax
liabilities - (65,677) (65,677) - (86,687) (86,687)
-------- -------- --------- ------- -------- ---------
$ 18,535 $(44,317) $ (25,782) $15,097 $(71,470) $ (56,373)
======== ======== ========= ======= ======== =========
79
Deferred income taxes have been established for differences in the basis of
assets and liabilities for financial statement and tax reporting purposes as
adjusted for the Tax Agreement with Cooper.
The Company's net operating loss carryforwards totaled $8.7 million at December
31, 2003. Unless otherwise utilized, net operating loss carryforwards totaling
$3.3 million and $1.5 million will expire between 2005 and 2009 and between 2010
and 2023, respectively. Net operating loss carryforwards, which are available
for an indefinite carryforward period, total $3.9 million. Net operating loss
carryforwards are presented net of liabilities related to the Tax Agreement with
Cooper.
NOTE 14: RETIREMENT PLANS
Substantially all employees are covered by defined benefit or defined
contribution pension plans maintained by the Company. Annual contributions to
retirement plans equal or exceed the minimum funding requirements of applicable
local regulations. The assets of the pension plans are maintained in various
trusts and invested primarily in equity and fixed income securities and money
market funds.
Benefits provided to employees under defined contribution plans include cash
contributions by the Company based on either hours worked by the employee or a
percentage of the employee's compensation and in certain plans a partial
matching of employees' salary deferrals with Company common stock. Defined
contribution expense for the years ended December 31, 2003, 2002 and 2001 was
$4.9 million, $4.9 million and $5.7 million, respectively.
The Company sponsors an unfunded postretirement (medical and life insurance)
benefit plan. The medical benefit portion of the plan is only for employees who
retired prior to 1989 as well as certain other employees who were near
retirement and elected to receive certain benefits.
80
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
2003 and 2002 as well as a statement of the funded status and balance sheet
reporting for these plans as of December 31, 2003 and 2002:
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
Years Ended December 31, 2003 2002 2003 2002
- ------------------------ ---- ---- ---- ----
(in thousands)
Change in benefit obligation:
Benefit obligation, beginning of year $(167,100) $(140,519) $ (17,808) $ (18,215)
Service cost (7,156) (6,670) (26) (32)
Interest cost (11,003) (9,998) (1,077) (1,215)
Participant contributions (783) (788) (63) (74)
Plan amendments -- 12 (52) --
Actuarial gain/(loss) and other (6,339) (5,291) -- (115)
Foreign currency exchange rate changes (13,565) (9,307) -- --
Benefits paid 7,643 5,461 2,021 1,843
--------- --------- --------- ---------
Benefit obligation, end of year $(198,303) $(167,100) $ (17,005) $ (17,808)
========= ========= ========= =========
Change in plan assets:
Fair value of plan assets, beginning of year $ 114,867 $ 122,797 $ -- $ --
Actual return on plan assets 20,997 (18,975) -- --
Employer contributions 6,685 8,214 1,958 1,769
Plan participant contributions 783 788 63 74
Foreign currency exchange rate changes 9,522 7,504 -- --
Benefits paid (7,643) (5,461) (2,021) (1,843)
--------- --------- --------- ---------
Fair value of plan assets, end of year $ 145,211 $ 114,867 $ -- $ --
========= ========= ========= =========
Funded status:
Funded status $ (53,092) $ (52,233) $ (17,005) $ (17,808)
Unrecognized net actuarial (gain)/loss 44,327 43,189 7,530 7,908
Unrecognized prior service cost (182) (222) (726) (832)
--------- --------- --------- ---------
Accrued benefit cost $ (8,947) $ (9,266) $ (10,201) $ (10,732)
========= ========= ========= =========
Amounts recognized in the balance sheets:
Prepaid benefit cost $ 4,029 $ 5,828 $ -- $ --
Accrued benefit liability (current) (17,170) (15,245) (10,201) (10,732)
Accrued benefit liability (noncurrent) (18,531) (24,057) -- --
Noncurrent deferred taxes 8,654 9,466 -- --
Accumulated other comprehensive
income/(loss) 14,071 14,742 -- --
--------- --------- --------- ---------
Net amount recognized $ (8,947) $ (9,266) $ (10,201) $ (10,732)
========= ========= ========= =========
The change in benefit obligation for pension and other benefits attributable to
actuarial gains or losses for 2003 results primarily from a decrease in the
discount rates used in the computation of such benefits partially offset by a
decrease in the assumed rate of salary increase for the Netherlands and United
States pension plans.
The change in benefit obligation for pension and other benefits attributable to
actuarial gains or losses for 2002 results primarily from a decrease in the
discount rates used in the computation of such benefits partially offset by a
decrease in the interest credit rate for the United States pension plan.
The accumulated benefit obligation for all defined benefit pension plans was
$171.0 million and $140.8 million at December 31, 2003 and 2002, respectively.
81
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with an accumulated benefit obligation in
excess of plan assets were $100.3 million, $98.1 million and $69.9 million,
respectively, as of December 31, 2003 and $91.5 million $88.8 million and $59.7
million, respectively, as of December 31, 2002.
A minimum pension liability adjustment is required when the actuarial present
value of accumulated benefits exceeds the fair value of plan assets and accrued
pension liabilities. As of December 31, 2003, the Company recorded minimum
pension liabilities of $22.9 million with offsets to noncurrent deferred taxes,
accumulated other comprehensive income and long-lived assets in the amounts of
$8.7 million, $14.1 million and $0.1 million, respectively. As of December 31,
2002, the Company recorded minimum pension liabilities of $24.4 million with
offsets to noncurrent deferred taxes, accumulated other comprehensive loss and
long-lived assets in the amounts of $9.5 million, $14.8 million and $0.1
million, respectively. The change in the amount included in accumulated other
comprehensive income/(loss) due to a change in the additional minimum pension
liability was $(0.7) million and $12.9 million for the years ended December 31,
2003 and 2002, respectively.
The following table provides the components of net periodic benefit costs for
the plans for the years ended December 31, 2003, 2002 and 2001:
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
Years Ended December 31, 2003 2002 2001 2002 2002 2001
- ------------------------ ---- ---- ---- ---- ---- ----
(in thousands)
Components of net periodic benefit cost:
Service cost $ 7,156 $ 6,670 $ 5,942 $ 26 $ 32 $ 31
Interest cost 11,003 9,998 8,815 1,077 1,215 1,300
Expected return on plan assets (13,112) (12,681) (12,437) - - -
Amortization of prior service cost (40) (40) (30) (106) (706) (706)
Net (gain)/loss recognition 246 61 (937) 430 516 482
-------- -------- -------- ------ ------ ------
Net periodic benefit cost $ 5,253 $ 4,008 $ 1,353 $1,427 $1,057 $1,107
======== ======== ======== ====== ====== ======
82
The following table presents the assumptions used in determining benefit
obligations as of December 31, 2003 and 2002 and the net periodic costs amounts
for the years ended December 31, 2003 and 2002.
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
December 31, 2003 2002 2003 2002
- ------------ ---- ---- ---- ----
(in thousands)
Weighted average assumptions for benefit
obligations at year-end:
Discount rate 5.7% 6.5% 6.0% 6.8%
Salary increase 4.0% 4.4% N/A N/A
Weighted-average assumptions for net periodic
cost for the year:
Discount rate 6.5% 6.9% 6.8% 7.0%
Salary increase 4.4% 4.4% N/A N/A
Expected return on assets 8.6% 8.8% N/A N/A
Assumed health care cost trend rates:
Health care cost trend rate assumed
for next year N/A N/A 8.5% 9.0%
Rate that the cost trend rate
gradually declines to N/A N/A 5.5% 5.5%
Year that the rate reaches the rate it
is assumed to remain at N/A N/A 2010 2010
Measurement date 12/31/03 12/31/02 12/31/03 12/31/02
======== ======== ======== ========
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one percentage-point change in assumed
health care cost trend rates would have the following effects on 2003 expense
and year-end liabilities.
(in thousands) 1% Increase 1% Decrease
- -------------- ----------- -----------
Effect on total of service and interest cost components $ 65 $ (59)
Effect on postretirement benefit obligation $ 1,169 $(1,044)
======= =======
The following table reflects the pension plans' asset allocation as of December
31, 2003 and 2002, and the 2004 target allocation.
Target Actual Actual
Asset Category 2004 2003 2002
- -------------- ---- ---- ----
Equity securities 64% 68% 62%
Debt securities 36% 32% 38%
Real estate 0% 0% 0%
Other 0% 0% 0%
--- --- ---
Total 100% 100% 100%
=== === ===
83
The target asset allocation for the investment of the Company's pension plan
assets reflects a desired allocation of 25% to debt securities and 75% to equity
securities adjusted for regulatory constraints on asset allocations in certain
international jurisdictions. The plans only invest in debt and equity
instruments for which there is a ready public market. The Company develops its
expected long-term rate of return assumptions based on the historical rates of
return for equity and debt securities of the types in which the plan invests.
The Company anticipates contributing $17.2 million and $2.2 million to its
pension plans and other postretirement plan, respectively, during 2004.
NOTE 15: STOCK COMPENSATION PLANS
During the years ended December 31, 2003, 2002 and 2001, the Company sponsored
four stock compensation plans -- the Belden Inc. 2003 Long-term Incentive Plan
and the Belden Inc. 1994 Incentive Plan (together, the Incentive Plans) as well
as the Belden Inc. 2003 Employee Stock Purchase Plan and the Belden Inc. 1994
Employee Stock Purchase Plan (together, the Stock Purchase Plans).
Incentive Plans
Under the Incentive Plans, certain employees of the Company are eligible to
receive awards in the form of stock options, stock appreciation rights,
restricted stock grants and performance shares. Under the Belden Inc. 1994
Incentive Plan, 3.8 million shares of Company common stock were originally
reserved for issuance. Under the Belden Inc. 2003 Long-term Incentive Plan, 0.8
million shares of Company common stock were originally reserved for issuance.
Options to purchase stock are granted at not less than fair market value, become
exercisable in equal amounts on each of the first 3 anniversaries of the grant
date and expire 10 years from the grant date. As of December 31, 2003, options
to purchase approximately 2.3 million shares of Company common stock were
outstanding and vested.
The following table summarizes the Company's stock option activity and related
information for the years ended December 31, 2003, 2002, and 2001:
Years Ended December 31, 2003 2002 2001
- ------------------------ ---- ---- ----
WEIGHTED Weighted Weighted
AVERAGE Average Average
(in thousands, except weighted EXERCISE Exercise Exercise
average exercise price) OPTIONS PRICE Options Price Options Price
- ----------------------- ------- ----- ------- ----- ------- -----
Outstanding at beginning of year 2,741 $26.08 2,556 $26.33 2,243 $26.56
Granted 207 13.08 341 21.06 442 28.10
Exercised (10) 16.94 (73) 17.51 (80) 17.66
Canceled (153) 25.96 (83) 27.69 (49) 26.29
----- ------ ----- ------ ----- -----
Outstanding at end of year 2,785 $25.17 2,741 $26.08 2,556 $26.33
----- ------ ----- ------ ----- -----
Exercisable at end of year 2,262 $26.58 1,967 $27.27 1,636 $28.14
===== ====== ===== ====== ===== ======
84
The following table summarizes information about fixed stock options outstanding
at December 31, 2003:
(in thousands, except weighted
average amounts) Options Outstanding Options Exercisable
- ---------------- ------------------- -------------------
Weighted
Range of Average Weighted Weighted
Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
------ ------- ---------------- -------------- ------- --------------
$11 to 21 1,044 6.5 years $17.97 648 $18.68
21 to 27 949 6.3 years 23.65 822 23.25
27 to 32 244 2.0 years 30.68 244 30.68
32 to 37 56 3.2 years 35.19 56 35.19
37 to 42 492 3.9 years 39.53 492 39.53
----- --------- ------ ----- ------
$11 to 42 2,785 5.5 years $25.17 2,262 $26.58
===== ========= ====== ===== ======
The Company issued the following restricted stock awards to a number of its key
employees during the years ending December 31, 2003, 2002 and 2001. Participants
receive a stated amount of the Company's common stock, as well as dividends
declared on that stock that have accumulated during the vesting period, provided
they remain employed with the Company for three years from the grant date.
(in thousands) Awards
- -------------- ------
February 2001 66,000
February 2002 97,000
May 2002 5,000
February 2003 93,500
May 2003 1,000
-------
262,500
=======
The following tables summarize the Company's activity and related information
regarding restricted stock awards issued to key employees for the years ended
December 31, 2003, 2002 and 2001:
SHARES AND ACCUMULATED DIVIDENDS
Years Ended December 31, Awards Accumulated Dividends
- ------------------------ ------ ---------------------------------
(in thousands) 2003 2002 2001 2003 2002 2001
- -------------- ---- ---- ---- ---- ---- ----
Outstanding at beginning of period 155 66 - $ 43 $ 13 $ -
Granted / Declared 94 102 66 50 32 13
Forfeited (3) (13) - (2) (2) -
--- --- -- ------ ------ ------
Outstanding at end of period 246 155 66 $ 91 $ 43 $ 13
=== === == ====== ====== ======
COMPENSATION
Years Ended December 31, Unearned Deferred Compensation Compensation Expense
- ------------------------ ------------------------------ --------------------------------
(in thousands) 2003 2002 2001 2003 2002 2001
- -------------- ---- ---- ---- ---- ---- ----
Balance at beginning of period $ 2,014 $ 1,233 $ - $ - $ - $ -
Restricted stock awarded 1,255 2,142 1,741 - - -
Restricted stock forfeited (21) (221) - (46) (89) -
Amortization (1,548) (1,140) (508) 1,548 1,140 508
-------- -------- ------ ------ ------ -----
Balance at end of period $ 1,700 $ 2,014 $1,233 $1,502 $1,051 $ 508
======== ======== ====== ====== ====== =====
85
The Company issued 12,000 shares of restricted stock to its nonemployee
Directors during the year ended December 31, 2003. This restricted stock vested
immediately but each recipient is restricted from selling, transferring,
pledging or otherwise disposing of his shares until he departs from the
Company's Board of Directors and then, no sooner than 6 months after the date of
issue. Each recipient does receive cash dividends on a quarterly basis in the
amount of $.05 per share. The aggregate market value of the restricted stock on
the date the shares were issued was recognized as administrative expense in the
Company's Consolidated Statement of Operations.
The Belden Inc. 1994 Incentive Plan expired by its own terms in October 2003 and
no future awards are available under this plan. At December 31, 2003, 788,000
shares of Company common stock were available for future awards under the Belden
Inc. 2003 Long-term Incentive Plan.
Stock Purchase Plans
Under the Stock Purchase Plans, all full-time employees and part-time employees
whose customary employment is for 20 or more hours per week and 5 or more months
per year in Canada, Germany, the Netherlands and the United States receive the
right to purchase a specified amount of common stock at the lesser of 85% of the
average selling price on the offering date or 85% of the average selling price
on the exercise date. Under the Belden Inc. 1993 Employee Stock Purchase Plan,
1.3 million shares of common stock were originally reserved for issuance. Under
the Belden Inc. 2003 Employee Stock Purchase Plan, 1.2 million shares of common
stock were originally reserved for issuance.
The following table summarizes the Company's activity and related information
regarding the Stock Purchase Plans for the years ended December 31, 2003, 2002
and 2001:
Shares Purchased or Participants Acquiring Shares or
Exercise to Holding Rights to Acquire Exercise Price
Offering Date be Purchased Shares per Share
- -------- ---- ------------ ------ ---------
1999 December 7, 2001 182,199 754 $ 17.32
2001 December 6, 2002 131,169 752 $ 13.46
2002 December 5, 2003 177,920 831 $ 11.74
2003 December 6, 2004 154,169(1) 918(1) $ 14.92(2)
================ ======= === ========
(1) Shares to be purchased and participants with rights to acquire shares were
determined as of December 31, 2003. The actual number of shares to be
purchased on the exercise date of December 6, 2004 could be materially
different from this estimate due to participant withdrawals from the
Offering during 2004 and the average selling price of the Company's common
stock on the exercise date.
(2) Exercise price per share under 2003 Offering will be the lesser of $14.92
or 85% of the average selling price on the exercise date.
The Belden Inc. 1993 Employee Stock Purchase Plan expired by its own term in
September 2003 and no future purchase rights are available under this plan. At
December 31, 2003, 1.2 million shares of Company common stock were available for
future awards under the Belden Inc. 2003 Employee Stock Purchase Plan.
86
NOTE 16: STOCKHOLDER RIGHTS PLAN
Under the Company's Stockholder Rights Plan, each share of common stock
generally has "attached" to it one preferred share purchase right. Each right,
when exercisable, entitles the holder to purchase 1/100th of a share of the
Company's Series A Junior Participating Preferred Stock at a purchase price of
$100. Each 1/100th of a share of Series A Junior Participating Preferred Stock
will be substantially equivalent to one share of common stock and will be
entitled to one vote, voting together with the shares of common stock. The
rights will become exercisable only if, without the prior approval of the Board
of Directors, a person or group of persons acquires or announces the intention
to acquire 15% or more of the common stock. If the Company is acquired through a
merger or other business combination transaction, each right will entitle the
holder to purchase $200 worth of the surviving company's common stock for $100
(subject to adjustment). In addition, if a person or group of persons acquires
15% or more of the common stock, each right not owned by the 15% or greater
shareholder would permit the holder to purchase $200 worth of common stock for
$100 (subject to adjustment). The rights are redeemable, at the option of the
Company, at $.01 per right at any time until ten business days after a person or
group of persons acquires 15% or more of the common stock. The rights expire on
July 18, 2005.
NOTE 17: UNCONDITIONAL PURCHASE OBLIGATIONS
At December 31, 2003, the Company was not a party to any foreign currency
exchange contracts. At December 31, 2003, the Company was committed to purchase
approximately 18.2 million pounds of copper at an aggregate cost of $17.2
million. At December 31, 2003, there were unrealized gains of $1.9 million on
these commitments based on the current market price of copper obtained from the
New York Mercantile Exchange. The commitments mature as follows:
(in millions)
- -------------
Quarter 1, 2004 $8.2
Quarter 2, 2004 9.0
Quarter 3, 2004 -
Quarter 4, 2004 -
Thereafter -
====
NOTE 18: OPERATING LEASES
Operating lease expense incurred primarily for office space and machinery and
equipment was $5.5 million, $5.3 million and $4.5 million in 2003, 2002 and
2001, respectively.
Minimum annual lease payments for noncancelable operating leases in effect at
December 31, 2003 are as follows:
(in thousands)
- --------------
2004 $3,825
2005 1,916
2006 619
2007 169
2008 2
Thereafter -
------
$6,531
======
87
NOTE 19: MINIMUM REQUIREMENTS CONTRACTS
The Company had a contractual ("take-or-pay") agreement with a Communications
segment customer that requires the customer to purchase minimum quantities of
product from the Company or pay the Company compensation according to
contractual terms through 2002.
- - During 2002, the customer did not make the minimum required purchases and
the Company was entitled to receive compensation according to the terms of
the agreement. As a result, the Company recorded $8.1 million in other
operating earnings that represented $9.5 million in "take-or-pay"
compensation net of a $1.4 million charge to write off inventory reserved
for the customer. This $9.5 million receivable as of December 31, 2002 was
paid in January 2003.
- - During 2001, the customer did not make the minimum required purchases and
the Company was entitled to receive compensation according to the terms of
the agreement. As a result, the Company recorded $8.3 million in other
operating earnings as "take-or-pay" compensation. This $8.3 million
receivable as of December 31, 2001 was paid in February 2002.
- - This contract terminated on December 31, 2002.
The Company has a second contractual ("sales incentive") agreement with the same
Communications segment customer that requires the customer to purchase
quantities of product from the Company generating at a minimum $3.0 million in
gross profit per annum or pay the Company compensation according to contractual
terms through 2005.
- - During 2003, the customer did not make the minimum required purchases and
the Company was entitled to receive compensation according to the terms of
the agreement. As a result, the Company recorded $3.0 million in other
operating earnings as "sales incentive" compensation. This $3.0 million
receivable as of December 31, 2003 was paid in January 2004.
- - During 2002, the customer did not make the minimum required purchases and
the Company was entitled to receive compensation according to the terms of
the agreement. As a result, the Company recorded $3.0 million in other
operating earnings as "sales incentive" compensation. This $3.0 million
receivable as of December 31, 2002 was paid in January 2003.
- - In February 2002, the customer prepaid $1.5 million of "sales incentive"
compensation as required by the agreement. The Company recorded the $1.5
million received as deferred revenue in the Consolidated Financial
Statements.
88
NOTE 20: MAJOR CUSTOMERS, CONCENTRATIONS OF CREDIT AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Major Customers
The following table presents revenues generated from sales to the Company's two
major customers for the years ended December 31, 2003, 2002 and 2001.
2003 2002 2001
---- ---- ----
YEARS ENDED DECEMBER 31, PERCENT OF Percent of Percent of
- ------------------------ TOTAL Total Total
(in thousands, except %DATA) AMOUNT(1) REVENUES Amount Revenues Amount Revenues
- ---------------------------- --------- -------- ------ -------- ------ --------
Customer 1 $125,042 15% $ 133,110 16% $ 107,312 11%
Customer 2 81,564 10% 93,505 11% 162,588 17%
======== == ========= == ========= ==
(1) The Electronics segment earned 93% of the 2003 revenues generated from the
sale of products to Customer 1. The Communications segment earned the
remaining 7% of 2003 revenues generated from the sale of products to this
customer. The Communications segment earned 100% of the 2003 revenues
generated from the sale of products to Customer 2.
Concentrations of Credit
The Company sells its products to many customers in several markets across
multiple geographic areas. The ten largest customers, primarily the larger
distributors and communications companies, constitute in aggregate approximately
54%, 55% and 55% of revenues in 2003, 2002 and 2001 respectively.
During 2003, the Company recorded total bad debt expense of $0.8 million. During
2002, the Company recorded total bad debt expense of $2.1 million. During 2001,
the Company recorded total bad debt expense of $8.9 million. Included in this
amount was $8.4 million related to a single financial troubled VAR that
purchased Communications segment products.
In December 2003, the Company recorded a $3.0 million receivable related to
"sales incentive" compensation due from a major private-label customer. This
receivable was outstanding at December 31, 2003; however, it was paid in January
2004. In December 2002, the Company recorded a $12.5 million receivable related
to "take-or-pay" and "sales incentive" compensation due from a major
private-label customer. This receivable was outstanding at December 31, 2002;
however, it was paid in January 2003.
The following table reflects the receivables that represent the only significant
concentrations of credit to which the Company was exposed at December 31, 2003
and 2002. Historically, these customers generally pay all outstanding
receivables within thirty to sixty days of invoice receipt.
2003 2002
December 31, ---- ----
- ------------ PERCENT OF NET Percent of Net
(in thousands, except % data) AMOUNT RECEIVABLES Amount Receivables
- ----------------------------- ------ ----------- ------ -----------
Customer 1 $15,262 15% $12,412 11%
Customer 2 519 1% 6,147 6%
------- -- ------- --
Total $15,781 16% $18,559 17%
======= == ======= ==
At December 31, 2003, the Company had receivables in the amount of $4.3 million
outstanding from a value-added reseller that purchases Communications segment
products on an ongoing basis. Historically, this customer generally pays all
outstanding receivables within thirty to sixty days of invoice receipt.
89
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments and interest
rate swap agreements. At December 31, 2003 and 2002, the book values of cash and
cash equivalents, trade receivables, trade payables and interest rate swap
agreements are considered representative of their respective fair values. The
book value of the Company's debt instruments at December 31, 2003 was $202.0
million. The fair value of the debt instruments at December 31, 2003 was
approximately $201.2 million estimated on a discounted cash flow basis using
current obtainable rates for similar financing.
NOTE 21: CONTINGENT LIABILITIES
General
Various claims are asserted against the Company in the ordinary course of
business including those pertaining to income tax examinations and product
liability, customer, vendor and patent matters. Based on facts currently
available, management believes that the disposition of the claims that are
pending or asserted will not have a materially adverse effect on the financial
position of the Company.
Severance and Other Related Benefits
The Company recently completed the sale of part of its business in Germany to a
management-led buyout group. The Company will retain liability for severance and
other related benefits estimated to be $3.0 million at December 31, 2003 in the
event the buyout group terminates transferred employees within three years of
the buyout date. The severance and other related benefits amounts are reduced
based upon the transferred employees' duration of employment with the buyout
group.
Intercompany Guarantees
An intercompany guarantee is a contingent commitment issued by either Belden
Inc. or one of its subsidiaries to guarantee the performance of either Belden
Inc. or one of its subsidiaries to a third party in a borrowing arrangement or
similar transaction. The terms of these intercompany guarantees are equal to the
terms of the related borrowing arrangements or similar transactions and range
from 1 year to 12 years. The only intercompany guarantees outstanding at
December 31, 2003 are the guarantees executed by Belden Wire & Cable Company and
Belden Communications Company related to the $200.0 million indebtedness of
Belden Inc. under various medium-term note purchase agreements and the guaranty
executed by Belden Inc. related to $7.5 million of potential indebtedness under
an overdraft line of credit between Belden Wire & Cable B.V. and its local cash
management bank. The maximum potential amount of future payments Belden Inc. or
its subsidiaries could be required to make under these intercompany guarantees
at December 31, 2003 is $207.5 million. In accordance with the scope exceptions
provided by FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, the Company has not measured and recorded the carrying values of these
guarantees in its Consolidated Financial Statements. The Company also does not
hold collateral to support these guarantees.
90
NOTE 22: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The Company conducts its operations through two business segments -- the
Electronics segment and the Communications segment. The Electronics segment
designs, manufactures and markets metallic and fiber optic wire and cable
products with industrial, networking, entertainment/OEM and communications
applications. These products are sold primarily through distributors. The
Communications segment designs, manufactures and markets metallic cable products
primarily with communications and networking applications. These products are
sold chiefly to Local Exchange Carriers (LECs) either directly or through
value-added resellers designated by the LECs.
The Company evaluates segment performance and allocates resources based on
operating earnings before interest and income taxes. Operating earnings of the
two principal segments include all the ongoing costs of operations. Allocations
to or from these business segments are not significant. With the exception of
certain unallocated tax assets, substantially all the business assets are
utilized by the business segments.
Amounts reflected in the column entitled "Other" in the tables below represent
corporate headquarters operating, treasury and income tax expenses and the
elimination of intersegment revenues and cost of sales.
Business Segment Information
YEAR ENDED DECEMBER 31, 2003 ELECTRONICS COMMUNICATIONS OTHER CONSOLIDATED
- ---------------------------- ----------- -------------- ----- ------------
(IN THOUSANDS)
REVENUES TO THIRD PARTIES $ 553,743 $ 272,778 $ - $ 826,521
INTERSEGMENT REVENUES 7,968 3,123 (11,091) -
DEPRECIATION & AMORTIZATION 21,054 14,449 262 35,765
OPERATING EARNINGS/(LOSS) 32,163 (104,524) (11,515) (83,876)
ASSET IMPAIRMENT EXPENSE 352 92,400 - 92,752
INTEREST EXPENSE - - 12,299 12,299
INCOME/(LOSS) BEFORE TAXES AND CECAP 32,163 (104,524) (23,814) (96,175)
IDENTIFIABLE ASSETS 381,352 208,987 83,216 673,555
ACQUISITION OF PROPERTY, PLANT & EQUIPMENT 9,510 7,228 - 16,738
========= ========= ======== =========
Year Ended December 31, 2002 Electronics Communications Other Consolidated
- ---------------------------- ----------- -------------- ----- ------------
(in thousands)
Revenues to third parties $ 567,126 $ 246,222 $ - $ 813,348
Intersegment revenues 9,937 1,849 (11,786) -
Depreciation & amortization 25,847 13,538 266 39,651
Asset impairment expense 17,512 15,207 - 32,719
Operating earnings/(loss) 11,315 (6,857) (10,506) (6,048)
Interest expense - - 13,730 13,730
Income/(loss) before taxes and CECAP 11,315 (6,857) (24,236) (19,778)
Identifiable assets 410,997 309,353 23,189 743,539
Acquisition of property, plant &
equipment 18,584 22,595(1) 7 41,186
========= ========= ======== =========
(1) Includes $8,356 for acquired property, plant & equipment related to the
NORCOM acquisition.
91
Year Ended December 31, 2001 Electronics Communications Other Consolidated
- ---------------------------- ----------- -------------- ----- ------------
(in thousands)
Revenues to third parties $ 635,630 $ 332,739 $ - $ 968,369
Intersegment revenues 7,848 12,279 (20,127) -
Depreciation & amortization 27,142 12,884 266 40,292
Operating earnings/(loss) 61,925 6,283 (7,952) 60,256
Interest expense - - 18,585 18,585
Income/(loss) before taxes and CECAP 63,125 6,283 (26,537) 42,871
Identifiable assets 422,355 285,718 14,617 722,690
Acquisition of property, plant &
equipment 19,902 17,168 2 37,072
========= ========= ======== ==========
Geographic Information
The following table identifies revenues by country based on the location of the
customer and long-lived assets by country based on physical location.
United United Continental Rest of
States Canada Kingdom Europe World Total
------ ------ ------- ------ ----- -----
(in thousands)
YEAR ENDED DECEMBER 31, 2003
REVENUES $ 484,068 $ 84,603 $ 82,747 $ 102,637 $ 72,466 $ 826,521
PERCENT OF TOTAL REVENUES 59% 10% 10% 12% 9% 100%
LONG-LIVED ASSETS $ 212,597 $ 14,859 $ 28,800 $ 67,372 $ 536 $ 324,164
Year ended December 31, 2002
Revenues $ 514,891 $ 54,480 $ 84,081 $ 88,500 $ 71,396 $ 813,348
Percent of total revenues 63% 7% 10% 11% 9% 100%
Long-lived assets $ 314,573 $ 20,155 $ 27,982 $ 63,617 $ 3,463 $ 429,790
Year ended December 31, 2001
Revenues $ 642,464 $ 40,315 $ 88,044 $ 116,298 $ 81,248 $ 968,369
Percent of total revenues 66% 4% 9% 12% 9% 100%
Long-lived assets $ 329,004 $ 12,106 $ 25,226 $ 62,088 $ 10,736 $ 439,160
========= ======== ======== ========= ======== =========
NOTE 23: QUARTERLY OPERATING RESULTS (UNAUDITED)
2003 (BY QUARTER) 1 2 3 4
- ----------------- -------- -------- --------- ---------
(in thousands, except per share amounts)
REVENUES $196,309 $214,052 $207,568 $208,592
GROSS PROFIT 27,032 29,717 30,029 27,577
OPERATING EARNINGS/(LOSS) (166) 2,539 2,293 (88,542)(1)
NET INCOME/(LOSS) (2,298) (753) 833 (58,512)(1)
BASIC EARNINGS/(LOSS) PER SHARE $ (.09) $ (.03) $ .03 $ (2.32)(1)
DILUTED EARNINGS/(LOSS) PER SHARE $ (.09) $ (.03) $ .03 $ (2.32)(1)
======== ======== ======== ========
(1) Includes asset impairment expense totaling $92.4 million.
92
2002 (by quarter) 1 2 3 4
- ----------------- -------- -------- --------- ---------
(in thousands, except per share amounts)
Revenues $207,075 $207,689 $199,514 $199,070
Gross profit 32,473 36,545 33,969 20,025
Operating earnings 5,581 10,383 7,257 (29,269)(1)
Net income 1,169 4,696 2,762 (24,520)(1)
Basic earnings/(loss) per share $ .05 $ .19 $ .11 $ (.99)(1)
Diluted earnings/(loss) per share $ .05 $ .19 $ .11 $ (.99)(1)
======== ======== ======== ========
(1) Includes asset impairment expense totaling $32.7 million.
NOTE 24: SUBSEQUENT EVENT (UNAUDITED)
On February 4, 2004, the Company entered into an Agreement and Plan of Merger
(the Merger) with Cable Design Technologies Corporation (CDT). If the Merger is
consummated, the combined company will focus on products for the specialty
electronics and data networking markets, including connectivity. Completion of
the Merger is subject to various conditions including approval by stockholders
of both companies and by certain domestic and international regulatory agencies.
Under terms of the Merger, Belden common stockholders would receive 2 shares of
CDT common stock (or 1 share of CDT common stock if a proposed reverse stock
split of CDT common stock is effected prior to the Merger) for every 1 share of
Belden common stock. If the proposed stock split of CDT common stock is effected
prior to the Merger, the combined company would have approximately 46 million
shares of common stock outstanding. The former CDT stockholders will own
approximately 45% of the combined company and the former Belden stockholders
will own approximately 55% of the combined company. Upon completion of the
Merger, Belden will become a wholly-owned subsidiary of CDT. The Company
anticipates that annual dividends in the aggregate of $0.20 per common share
will be paid to all common stockholders of the merged companies starting in the
third calendar quarter of 2004. The Company anticipates the Merger will be
completed during the second quarter of 2004 and accounted for as a reverse
acquisition under the purchase method of accounting with Belden deemed the
acquiring entity and CDT deemed the acquired entity in accordance with SFAS No.
141, Business Combinations, because Belden's owners as a group will retain or
receive the larger portion of the voting rights in the combined entity and
Belden's senior management will represent a majority of the senior management of
the combined entity.
The following is a summary of selected unaudited balance sheet information of
CDT as of its most recent reported quarter ended October 31, 2003:
(in thousands)
- --------------
Current assets $ 273,214
Total assets 509,109
Current liabilities, excluding debt 73,527
Current maturities of long-term debt 1,956
Long-term debt, excluding current maturities 112,337
Total liabilities 220,459
Stockholders' equity 288,650
=========
93
The following is a summary of selected unaudited income statement information of
CDT for the most recent reported twelve months ended October 31, 2003:
(in thousands)
- --------------
Revenues $ 494,270
Operating earnings before restructuring charges 19,602
Restructuring charges (5,350)
Operating earnings 14,252
Net income 3,115
=========
Based on the net assets of CDT as of October 31, 2003, subject to changes of net
assets through closing date and determination of the final cost of CDT and
allocations of such cost, the aggregate fair values of net assets are expected
to be in excess of the book values of net assets by approximately $150 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures were effective as of the end of
the period covered by this report. There was no change in the Company's internal
control over financial reporting during the Company's fourth fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
94
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference to "Matters
Being Submitted to a Vote of Belden Stockholders Only--Proposal No. 2, Election
of Directors," as described in the Joint Proxy Statement. Information regarding
executive officers is set forth in Part I herein under the heading "Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to "Belden's Board Structure and
Compensation--Director Compensation," "--Executive Compensation" and
"Performance Graph," as described in the Joint Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Incorporated herein by reference to "Belden's Board Structure and
Compensation--Executive Compensation--Equity Compensation Plan Information,"
"--Beneficial Ownership--Beneficial Ownership Table of Directors, Nominees and
Executive Officers," "--Beneficial Ownership--Beneficial Ownership Table of
Shareholders Owning more than Five Percent" and "Securities Authorized for
Issuance under Equity Compensation Plans" as described in the Joint Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference to "Belden's Board Structure and
Compensation--The Audit Committee--Fees Paid to Ernst & Young," as described in
the Joint Proxy Statement.
95
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2003
and December 31, 2002
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 2003
Consolidated Cash Flow Statements for Each of the Three Years
in the Period Ended December 31, 2003
Consolidated Stockholders' Equity Statements for Each of the
Three Years in the Period Ended December 31, 2003
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
II - Valuation and Qualifying Accounts
All other financial statement schedules not included in this Annual
Report on Form 10-K have been omitted because they are not applicable.
3. EXHIBITS The following exhibits are filed herewith or incorporated
herein by reference. DOCUMENTS INDICATED BY AN ASTERISK (*) ARE FILED HEREWITH;
DOCUMENTS INDICATED BY A DOUBLE ASTERISK IDENTIFY EACH MANAGEMENT CONTRACT OR
COMPENSATORY PLAN. Documents not indicated by an asterisk are incorporated
herein by reference to the document indicated. References to (i) the
"Registration Statement" are to the Belden Inc. Registration Statement on Form
S-1, File Number 33-66830, (ii) the "Form 10-Q" are to the Belden Inc. Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1993, File Number
1-12280, (iii) the "Form 8-A" are to the Belden Inc. Registration Statement on
Form 8-A filed with the Commission and effective on July 25, 1995, (iv) the
"Form 8-A/A" are to the Form 8-A/A (Amendment No. 1) filed with the Commission
on February 23, 2004, (v) the "Form 10-K 1995" are to the Belden Inc. Report on
Form 10-K for 1995, File Number 1-12280, (vi) the "Form 10-K 1997" are to the
Belden Inc. Report on Form 10-K for 1997, File Number 1-12280, (vii) the "Form
10-Q, First Quarter, 1998" are to the Belden Inc. Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1998, File Number 1-12280, (viii) the "Form 10-K
1999" are to the Belden Inc. Report on Form 10-K for 1999, File Number 1-12280,
(ix) the "Form 10-Q, First Quarter, 2000" are to the Belden Inc. Quarterly
Report on Form 10-Q for the Quarter ended March 31, 2000, File Number 1-12280,
(x) the "Form 10-Q, Second Quarter, 2000" are to the Belden Inc. Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000, File Number 1-12280,
(xi) the "Form 10-Q, Third Quarter, 2000" are to the Belden Inc. Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000, File Number
1-12280, (xii) the "Form 8-K, July 1999" are to the Belden Inc. Report on Form
8-K, filed with the Commission on July 12, 1999, (xiii) the "2000 Form S-8" are
to the Belden Inc. Registration Statement on Form S-8, filed in connection with
the Belden Inc. Long-Term Incentive Plan, File Number 333-51088, (xiv) the "Form
10-Q, Third Quarter, 2001" are to the Belden Inc. Quarterly Report on Form 10-Q
for the Quarter ended September 30, 2001, File Number 1-12280, (xv) the "2001
Form S-8" are to the Belden Inc. Registration Statement on Form S-8, filed in
connection with the Belden U.K. Employee Share Ownership
96
Plan, File Number 333-75350, (xvi) the "Form 10-K 2001" are to the Belden Inc.
Report on Form 10-K for 2001, File Number 1-12280, (xvii) the "Form 8-K,
December 2002" are to the Belden Inc. Report on Form 8-K, filed with the
Commission on December 23, 2002, (xviii) the "Form 10-K 2002" are to the Belden
Inc. Report on Form 10-K for 2002, File Number 1-12280, (xix) the "July 2003
Form S-8" are to the Belden Inc. Registration Statement on Form S-8, filed in
connection with the Belden Inc. 2003 Long-Term Incentive Plan, File Number
333-107241, (xx) the "September 2003 Form S-8" are to the Belden Inc.
Registration Statement on Form S-8, filed in connection with the Belden Inc.
2003 Employee Stock Purchase Plan, File Number 333-109219, (xxi) the "Form 8-K,
October 2003" are to the Belden Inc. Report on Form 8-K, filed with the
Commission on October 20, 2003, (xxii) the "December 2003 Form S-8" are to the
Belden Inc. Registration Statement on Form S-8, filed in connection with the
Belden Wire & Cable Company Retirement Savings Plan, File No. 333-111297 and
(xxiii) the "Form 8-K, February 5, 2004" are to the Belden Inc. Report on Form
8-K, filed with the Commission on February 5, 2004.
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated May 21, 1999, among Belden
Inc., Ashes Merger Corp., Cable Systems Holding Company, Cable
Systems Holding, LLC, Citicorp Venture Capital, Ltd. and the other
Ultimate Owners (Exhibit 2 to Form 8-K, July 1999)
2.2 Agreement and Plan of Merger, dated as of February 4, 2004, by and
among Cable Design Technologies Corporation, BC Merger Corp., and
Belden Inc. (Exhibit 2.1 to Form 8-K, February 5, 2004)
3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to
Registration Statement)
3.2 Bylaws of the Company (Exhibit 3.2 to Registration Statement)
4.1 Specimen Common Stock Certificate (Exhibit 4.1 to Form 10-K 1995)
4.2 Amendment to Specimen Common Stock Certificate (Exhibit 4.2 to Form
10-K 1997)
4.3 Rights Agreement, dated as of July 6, 1995, between Belden Inc. and
First Chicago Trust Company of New York, as Rights Agent; Mellon
Investor Services LLC has superseded First Chicago Trust Company of
New York as Rights Agent (Exhibit 1 to Form 8-A)
4.4 Amendment No. 1 to Rights Agreement, dated as of February 4, 2004
(Exhibit 2 to Form 8-A/A)
4.5 Note Purchase Agreement, dated as of August 1, 1997, providing for
up to $200,000,000 aggregate principal amount of Senior Notes
issuable in series, with an initial series of Senior Notes in the
aggregate principal amount of $75,000,000, between Belden Inc. as
issuer and, as purchasers, Swanbird and Company, Mutual of Omaha
Insurance Company, United of Omaha Life Insurance Company,
Nationwide Mutual Insurance Company, State Farm Life Insurance
Company, Principal Mutual Life Insurance Company, Nippon Life
Insurance Company of America, and Cudd and Company (Exhibit 4.4 to
Form 10-K 1997)
4.6 First Amendment to Note Purchase Agreement listed above as Exhibit
4.5, dated as of September 1, 1999 (Exhibit 4.5 to Form 10-K 1999)
4.7 Amended and Restated Series 1997-A Guaranty of Belden Wire & Cable
Company and Cable Systems International Inc. (now Belden
Communications Company) dated as of September 1, 1999, pertaining
to the First Amendment to Note Purchase Agreement listed above as
Exhibit 4.6 (Exhibit 4.6 to Form 10-K 1999)
4.8 Note Purchase Agreement, dated as of September 1, 1999, providing
for $125,000,000 aggregate principal amount of Senior Notes
issuable in series, with three series of Senior Notes in the
principal amounts of $64,000,000, $44,000,000, and $17,000,000,
respectively, between Belden Inc. as issuer and, as purchasers,
Principal Life Insurance Company, Commercial Union Life Insurance
Company of America, State Farm Life Insurance Company, State Farm
Life and
97
Accident Assurance Company, Allstate Life Insurance Company,
Primerica Life Insurance Company, First Trenton Indemnity Company,
United of Omaha Life Insurance Company, American United Life
Insurance Company, The State Life Insurance Company, CIG and
Company, Ameritas Variable Life Insurance Company, Ameritas Life
Insurance Corporation, The Canada Life Assurance Company, Canada
Life Insurance Company of America, Canada Life Insurance Company of
New York, Modern Woodmen of America, Woodmen Accident and Life
Company, Swanbird and Company, Mac and Company, Tral and Company,
Emseg and Company, and Chimebridge and Company (Exhibit 4.7 to Form
10-K 1999)
4.9 Guaranty of Belden Wire & Cable Company and Cable Systems
International Inc. (now Belden Communications Company) dated as of
September 1, 1999, pertaining to the Note Purchase Agreement listed
above as Exhibit 4.8 (Exhibit 4.8 to Form 10-K 1999)
10.1 Asset Transfer Agreement by and between Cooper Industries, Inc. and
Belden Wire & Cable Company, with schedules and exhibits thereto
(Exhibit 10.1 to Form 10-Q)
10.2 Canadian Asset Transfer Agreement by and between Cooper Industries
(Canada) Inc. and Belden (Canada) Inc. (Exhibit 10.11 to Form 10-Q)
10.3 Trademark License Agreement by and between Belden Wire & Cable
Company and Cooper Industries, Inc. (Exhibit 10.2 to Form 10-Q)
10.4 Stock Agreement by and between Cooper Industries, Inc. and Belden
Inc. (Exhibit 10.4 to Form 10-Q)
10.5 Tax Sharing and Separation Agreement by and among Belden Inc.,
Cooper Industries, Inc., and Belden Wire & Cable Company (Exhibit
10.6 to Form 10-Q)
** 10.6 Change of Control Employment Agreements, dated as of July 31, 2001,
between Belden Inc. and each of C. Baker Cunningham, Richard K.
Reece, Peter J. Wickman, Cathy O. Staples and Kevin L. Bloomfield
(Exhibit 10.1 to Form 10-Q, Third Quarter, 2001)
** 10.7 Change of Control Employment Agreement, dated as of April 15,
2002, between Belden Inc. and D. Larrie Rose, and Change of Control
Employment Agreement, dated as of May 13, 2002, between Belden Inc.
and Robert W. Matz (Exhibit 10.5 to Form 8-K, December 2002)
** 10.8 Change of Control Employment Agreement, dated as of February 17,
2003, between Belden Inc. and Stephen H. Johnson (Exhibit 10.10 to
Form 10-K 2002)
** 10.9 Letter Agreement dated April 15, 2002 between Belden Inc. and
Richard K. Reece (Exhibit 10.4 to Form 8-K, December 2002)
**10.10 Trust Agreement ("Rabbi Trust"), dated January 1, 1998, between
Belden Wire & Cable Company and Bankers Trust Company; Deutsche
Bank A.G. is the successor to Bankers Trust Company (Exhibit 10.8
to Form 10-K 1997)
**10.11 Belden Inc. Long-Term Incentive Plan (Exhibit 4.6 to 2000
Form S-8)
***10.12 Amendment to Belden Inc. Long-Term Incentive Plan
** 10.13 Belden Inc. 2003 Long-Term Incentive Plan (Exhibit 4.6 to July 2003
Form S-8)
***10.14 Amendment to Belden Inc. 2003 Long-Term Incentive Plan
** 10.15 Belden Inc. Long-Term Cash Performance Plan (Exhibit 10.14 to Form
10-K 2002)
***10.16 Belden Inc. Annual Cash Incentive Plan
10.17 Belden Wire & Cable Company Retirement Savings Plan (Exhibit 10.16
to Form 10-K 2002)
10.18 Third Amendment to the Belden Wire & Cable Company Retirement
Savings Plan (Exhibit 4.7 to December 2003 Form S-8)
** 10.19 Belden Inc. 2003 Employee Stock Purchase Plan (Exhibit 4.6 to
September 2003 Form S-8)
10.20 Belden U.K. Employee Share Ownership Plan (Exhibit 4.6 to 2001 Form
S-8)
** 10.21 Belden Wire & Cable Company Supplemental Excess Defined Benefit
Plan, as amended and restated as of January 1, 1998 (Exhibit 10.14
to Form 10-K 2001)
** 10.22 First Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Benefit Plan (Exhibit 10.15 to Form 10-K 2001)
98
** 10.23 Second Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Benefit Plan (Exhibit 10.21 to Form 10-K 2002)
** 10.24 Belden Wire & Cable Company Supplemental Excess Defined
Contribution Plan, as amended and restated as of January 1, 1998
(Exhibit 10.16 to Form 10-K 2001)
** 10.25 First Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Contribution Plan (Exhibit 10.17 to Form 10-K 2001)
** 10.26 Second Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Contribution Plan (Exhibit 10.24 to Form 10-K 2002)
** 10.27 Indemnification Agreements entered into between Belden Inc. and
each of its directors and executive officers as of October 6, 1993
(Exhibit 10.10 to Form 10-Q)
** 10.28 Indemnification Agreements between Belden Inc. and each of
Christopher I. Byrnes and Bernard G. Rethore dated as of November
14, 1995 and February 27, 1997, respectively (Exhibit 10.15 to Form
10-K 1997)
** 10.29 Indemnification Agreement, dated as of August 16, 1997, between
Belden Inc. and Cathy O. Staples (Exhibit 10.2 to Form 10-Q, First
Quarter, 1998)
** 10.30 Indemnification Agreements, dated as of May 4, 2000, between Belden
Inc. and each of John M. Monter and Whitson Sadler (Exhibit 10.1 to
Form 10-Q, First Quarter, 2000)
** 10.31 Indemnification Agreement, dated as of July 3, 2000, between Belden
Inc. and Stephen H. Johnson (Exhibit 10.1 to Form 10-Q, Second
Quarter, 2000)
** 10.32 Indemnification Agreement, dated as of August 17, 2000, between
Belden Inc. and Arnold W. Donald (Exhibit 10.1 to Form 10-Q, Third
Quarter, 2000)
** 10.33 Indemnification Agreement, dated as of May 15, 2002, between Belden
Inc. and Robert W. Matz (Exhibit 10.6 to Form 8-K, December 2002)
10.34 Credit and Security Agreement dated as of October 9, 2003, among
Belden Inc., Belden Technologies, Inc., Belden Communications
Company, and Belden Wire & Cable Company, as Borrowers, the Lenders
listed therein, Wachovia Bank, National Association, as Agent, and
U.S. Bank National Association, as Syndication Agent. (Exhibit 5 to
Form 8-K, October 2003)
*21.1 List of Subsidiaries of Belden Inc.
*23.1 Consent of Ernst & Young LLP
*24.1 Powers of Attorney from Members of the Board of Directors of Belden
Inc.
*31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer
*31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer
*32.1 Section 1350 Certification of the Chief Executive Officer
*32.2 Section 1350 Certification of the Chief Financial Officer
Copies of the above Exhibits are available to shareholders at a charge of $.25
per page, minimum order of $10.00. Direct requests to:
Belden Inc., Attention: Secretary
7701 Forsyth Boulevard, Suite 800
St. Louis, Missouri 63105
(b) REPORTS ON FORM 8-K. On October 20, 2003, the Company filed a report on
Form 8-K relating to Belden Inc., Belden Technologies, Inc., Belden
Communications Company and Belden Wire & Cable Company entering into a
Credit and Security Agreement with Wachovia Bank, National Association and
others. On October 23, 2003, the Company furnished a report on Form 8-K
relating to the announcement of the Company's financial results for the
three-month period ended September 30, 2003.
99
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS DEDUCTIONS
--------- ----------
CHARGED
TO
BEGINNING COSTS AND DIVESTURES/ WRITE CURRENCY ENDING
(in thousands) BALANCE EXPENSES ACQUISITIONS OFFS MOVEMENT BALANCE
- -------------- ------- -------- ------------ ---- -------- -------
Year Ended December 31, 2001
Allowance for doubtful accounts $ 6,672 $ 9,287 $ - $ 610 $ - $ 15,349
-------- ------- ------ ------- ----- --------
Inventory obsolescence and other
reserves $ 10,815 $ 5,928 $ - $ 6,310 $ - $ 10,433
-------- ------- ------ ------- ----- --------
Year Ended December 31, 2002
Allowance for doubtful accounts $ 15,349 $ 2,268 $ - $14,140 $ - $ 3,477
-------- ------- ------ ------- ----- --------
Inventory obsolescence and other
reserves $ 10,433 $ 9,545 $3,527 $ 4,995 $ - $ 18,510
-------- ------- ------ ------- ----- --------
YEAR ENDED DECEMBER 31, 2003
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 3,477 $ 1,167 $ - $ 1,060 $ 9 $ 3,593
-------- ------- ------ ------- ----- --------
INVENTORY OBSOLESCENCE AND OTHER
RESERVES $ 18,510 $ 6,719 $ 757 $13,276 $ 659 $ 11,855
======== ======= ====== ======= ===== ========
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BELDEN INC.
By /s/ C. BAKER CUNNINGHAM
------------------------------------
C. Baker Cunningham
Chairman of the Board, President,
Date: March 4, 2004 Chief Executive Officer & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ C. BAKER CUNNINGHAM President, Chairman of the Board March 4, 2004
- -----------------------
C. Baker Cunningham Chief Executive Officer and Director
/s/ RICHARD K. REECE Vice President, Finance, March 4, 2004
- -----------------------
Richard K. Reece and Chief Financial Officer
(Mr. Reece also is the Company's
Chief Accounting Officer)
/s/ LORNE D. BAIN* Director March 4, 2004
- -----------------------
Lorne D. Bain
/s/ JOHN M. MONTER* Director March 4, 2004
- -----------------------
John M. Monter
/s/ WHITSON SADLER* Director March 4, 2004
- -----------------------
Whitson Sadler
/s/ BERNARD G. RETHORE* Director March 4, 2004
- -----------------------
Bernard G. Rethore
/s/ ARNOLD W. DONALD* Director March 4, 2004
- -----------------------
Arnold W. Donald
/s/ CHRISTOPHER I. BYRNES* Director March 4, 2004
- -----------------------
Christopher I. Byrnes
/s/ C. Baker Cunningham
- -----------------------------------------
*By C. Baker Cunningham, Attorney-in-fact
101
INDEX TO EXHIBITS
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated May 21, 1999, among Belden
Inc., Ashes Merger Corp., Cable Systems Holding Company, Cable
Systems Holding, LLC, Citicorp Venture Capital, Ltd. and the other
Ultimate Owners (Exhibit 2 to Form 8-K, July 1999)
2.2 Agreement and Plan of Merger, dated as of February 4, 2004, by and
among Cable Design Technologies Corporation, BC Merger Corp., and
Belden Inc. (Exhibit 2.1 to Form 8-K, February 5, 2004)
3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to
Registration Statement)
3.2 Bylaws of the Company (Exhibit 3.2 to Registration Statement)
4.1 Specimen Common Stock Certificate (Exhibit 4.1 to Form 10-K 1995)
4.2 Amendment to Specimen Common Stock Certificate (Exhibit 4.2 to Form
10-K 1997)
4.3 Rights Agreement, dated as of July 6, 1995, between Belden Inc. and
First Chicago Trust Company of New York, as Rights Agent; Mellon
Investor Services LLC has superseded First Chicago Trust Company of
New York as Rights Agent (Exhibit 1 to Form 8-A)
4.4 Amendment No. 1 to Rights Agreement, dated as of February 4, 2004
(Exhibit 2 to Form 8-A/A)
4.5 Note Purchase Agreement, dated as of August 1, 1997, providing for
up to $200,000,000 aggregate principal amount of Senior Notes
issuable in series, with an initial series of Senior Notes in the
aggregate principal amount of $75,000,000, between Belden Inc. as
issuer and, as purchasers, Swanbird and Company, Mutual of Omaha
Insurance Company, United of Omaha Life Insurance Company,
Nationwide Mutual Insurance Company, State Farm Life Insurance
Company, Principal Mutual Life Insurance Company, Nippon Life
Insurance Company of America, and Cudd and Company (Exhibit 4.4 to
Form 10-K 1997)
4.6 First Amendment to Note Purchase Agreement listed above as Exhibit
4.5, dated as of September 1, 1999 (Exhibit 4.5 to Form 10-K 1999)
4.7 Amended and Restated Series 1997-A Guaranty of Belden Wire & Cable
Company and Cable Systems International Inc. (now Belden
Communications Company) dated as of September 1, 1999, pertaining
to the First Amendment to Note Purchase Agreement listed above as
Exhibit 4.6 (Exhibit 4.6 to Form 10-K 1999)
4.8 Note Purchase Agreement, dated as of September 1, 1999, providing
for $125,000,000 aggregate principal amount of Senior Notes
issuable in series, with three series of Senior Notes in the
principal amounts of $64,000,000, $44,000,000, and $17,000,000,
respectively, between Belden Inc. as issuer and, as purchasers,
Principal Life Insurance Company, Commercial Union Life Insurance
Company of America, State Farm Life Insurance Company, State Farm
Life and Accident Assurance Company, Allstate Life Insurance
Company, Primerica Life Insurance Company, First Trenton Indemnity
Company, United of Omaha Life Insurance Company, American United
Life Insurance Company, The State Life Insurance Company, CIG and
Company, Ameritas Variable Life Insurance Company, Ameritas Life
Insurance Corporation, The Canada Life Assurance Company, Canada
Life Insurance Company of America, Canada Life Insurance Company of
New York, Modern Woodmen of America, Woodmen Accident and Life
Company, Swanbird and Company, Mac and Company, Tral and Company,
Emseg and Company, and Chimebridge and Company (Exhibit 4.7 to Form
10-K 1999)
102
4.9 Guaranty of Belden Wire & Cable Company and Cable Systems
International Inc. (now Belden Communications Company) dated as of
September 1, 1999, pertaining to the Note Purchase Agreement listed
above as Exhibit 4.8 (Exhibit 4.8 to Form 10-K 1999)
10.1 Asset Transfer Agreement by and between Cooper Industries, Inc. and
Belden Wire & Cable Company, with schedules and exhibits thereto
(Exhibit 10.1 to Form 10-Q)
10.2 Canadian Asset Transfer Agreement by and between Cooper Industries
(Canada) Inc. and Belden (Canada) Inc. (Exhibit 10.11 to Form 10-Q)
10.3 Trademark License Agreement by and between Belden Wire & Cable
Company and Cooper Industries, Inc. (Exhibit 10.2 to Form 10-Q)
10.4 Stock Agreement by and between Cooper Industries, Inc. and Belden
Inc. (Exhibit 10.4 to Form 10-Q)
10.5 Tax Sharing and Separation Agreement by and among Belden Inc.,
Cooper Industries, Inc., and Belden Wire & Cable Company (Exhibit
10.6 to Form 10-Q)
** 10.6 Change of Control Employment Agreements, dated as of July 31, 2001,
between Belden Inc. and each of C. Baker Cunningham, Richard K.
Reece, Peter J. Wickman, Cathy O. Staples and Kevin L. Bloomfield
(Exhibit 10.1 to Form 10-Q, Third Quarter, 2001)
**10.7 Change of Control Employment Agreement, dated as of April 15, 2002,
between Belden Inc. and D. Larrie Rose, and Change of Control
Employment Agreement, dated as of May 13, 2002, between Belden Inc.
and Robert W. Matz (Exhibit 10.5 to Form 8-K, December 2002)
** 10.8 Change of Control Employment Agreement, dated as of February 17,
2003, between Belden Inc. and Stephen H. Johnson (Exhibit 10.10 to
Form 10-K 2002)
**10.9 Letter Agreement dated April 15, 2002 between Belden Inc. and
Richard K. Reece (Exhibit 10.4 to Form 8-K, December 2002)
**10.10 Trust Agreement ("Rabbi Trust"), dated January 1, 1998, between
Belden Wire & Cable Company and Bankers Trust Company; Deutsche
Bank A.G. is the successor to Bankers Trust Company (Exhibit 10.8
to Form 10-K 1997)
**10.11 Belden Inc. Long-Term Incentive Plan (Exhibit 4.6 to 2000 Form S-8)
***10.12 Amendment to Belden Inc. Long-Term Incentive Plan
**10.13 Belden Inc. 2003 Long-Term Incentive Plan (Exhibit 4.6 to July 2003
Form S-8)
***10.14 Amendment to Belden Inc. 2003 Long-Term Incentive Plan
**10.15 Belden Inc. Long-Term Cash Performance Plan (Exhibit 10.14 to Form
10-K 2002)
***10.16 Belden Inc. Annual Cash Incentive Plan
10.17 Belden Wire & Cable Company Retirement Savings Plan (Exhibit 10.16
to Form 10-K 2002)
10.18 Third Amendment to the Belden Wire & Cable Company Retirement
Savings Plan (Exhibit 4.7 to December 2003 Form S-8)
**10.19 Belden Inc. 2003 Employee Stock Purchase Plan (Exhibit 4.6 to
September 2003 Form S-8)
10.20 Belden U.K. Employee Share Ownership Plan (Exhibit 4.6 to 2001 Form
S-8)
**10.21 Belden Wire & Cable Company Supplemental Excess Defined Benefit
Plan, as amended and restated as of January 1, 1998 (Exhibit 10.14
to Form 10-K 2001)
**10.22 First Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Benefit Plan (Exhibit 10.15 to Form 10-K 2001)
**10.23 Second Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Benefit Plan (Exhibit 10.21 to Form 10-K 2002)
**10.24 Belden Wire & Cable Company Supplemental Excess Defined
Contribution Plan, as amended and restated as of January 1, 1998
(Exhibit 10.16 to Form 10-K 2001)
**10.25 First Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Contribution Plan (Exhibit 10.17 to Form 10-K 2001)
**10.26 Second Amendment to Belden Wire & Cable Company Supplemental Excess
Defined Contribution Plan (Exhibit 10.24 to Form 10-K 2002)
103
**10.27 Indemnification Agreements entered into between Belden Inc. and
each of its directors and executive officers as of October 6, 1993
(Exhibit 10.10 to Form 10-Q)
**10.28 Indemnification Agreements between Belden Inc. and each of
Christopher I. Byrnes and Bernard G. Rethore dated as of November
14, 1995 and February 27, 1997, respectively (Exhibit 10.15 to Form
10-K 1997)
**10.29 Indemnification Agreement, dated as of August 16, 1997, between
Belden Inc. and Cathy O. Staples (Exhibit 10.2 to Form 10-Q, First
Quarter, 1998)
**10.30 Indemnification Agreements, dated as of May 4, 2000, between Belden
Inc. and each of John M. Monter and Whitson Sadler (Exhibit 10.1 to
Form 10-Q, First Quarter, 2000)
**10.31 Indemnification Agreement, dated as of July 3, 2000, between Belden
Inc. and Stephen H. Johnson (Exhibit 10.1 to Form 10-Q, Second
Quarter, 2000)
**10.32 Indemnification Agreement, dated as of August 17, 2000, between
Belden Inc. and Arnold W. Donald (Exhibit 10.1 to Form 10-Q, Third
Quarter, 2000)
**10.33 Indemnification Agreement, dated as of May 15, 2002, between
Belden Inc. and Robert W. Matz (Exhibit 10.6 to Form 8-K, December
2002)
10.34 Credit and Security Agreement dated as of October 9, 2003, among
Belden Inc., Belden Technologies, Inc., Belden Communications
Company, and Belden Wire & Cable Company, as Borrowers, the Lenders
listed therein, Wachovia Bank, National Association, as Agent, and
U.S. Bank National Association, as Syndication Agent. (Exhibit 5 to
Form 8-K, October 2003)
* 21.1 List of Subsidiaries of Belden Inc.
* 23.1 Consent of Ernst & Young LLP
* 24.1 Powers of Attorney from Members of the Board of Directors of Belden
Inc.
* 31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer
* 31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer
* 32.1 Section 1350 Certification of the Chief Executive Officer
* 32.2 Section 1350 Certification of the Chief Financial Officer
104