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EX-32.2 - EXHIBIT 32.2 - BELDEN INC.exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - BELDEN INC.exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - BELDEN INC.exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - BELDEN INC.exhibit311.htm
EX-24.1 - EXHIBIT 24.1 - BELDEN INC.exhibit241.htm
EX-23.1 - EXHIBIT 23.1 - BELDEN INC.exhibit231.htm
EX-21.1 - EXHIBIT 21.1 - BELDEN INC.exhibit211.htm
EX-12.1 - EXHIBIT 12.1 - BELDEN INC.exhibit121.htm
EX-10.31 - EXHIBIT 10.31 - BELDEN INC.exhibit1031.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
or
o    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission File No. 001-12561
BELDEN INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
36-3601505
(State or Other Jurisdiction of
(IRS Employer
Incorporation or Organization)
Identification No.)

1 North Brentwood Boulevard
15th Floor
St. Louis, Missouri 63105
(Address of Principal Executive Offices and Zip Code)
(314) 854-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
Name of Each Exchange
Title of Each Class
 
on Which Registered
Common Stock, $0.01 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 if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  þ   No  o.
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o  No  þ.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ  No  o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  o.



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ   Accelerated filer ¨       Non-accelerated filer ¨  (Do not check if a smaller reporting company) Smaller reporting company ¨    Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No   þ.
At July 2, 2017, the aggregate market value of Common Stock of Belden Inc. held by non-affiliates was $2,453,273,327 based on the closing price ($75.43) of such stock on such date.
There were 41,930,562 shares of registrant’s Common Stock outstanding on February 9, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement for its annual meeting of stockholders within 120 days of the end of the fiscal year ended December 31, 2017 (the “Proxy Statement”). Portions of such proxy statement are incorporated by reference into Part III.




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




Part I
Item 1.        Business
General
Belden Inc. (Belden, the Company, us, we, or our) is an innovative signal transmission solutions company built around four global business platforms – Broadcast Solutions, Enterprise Solutions, Industrial Solutions, and Network Solutions. Each of the global business platforms represents a reportable segment. Financial information about our segments appears in Note 5 to the Consolidated Financial Statements.
Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications. We sell our products to distributors, end-users, installers, and directly to original equipment manufacturers (OEMs). Belden Inc. is a Delaware corporation incorporated in 1988, but the Company’s roots date back to its founding by Joseph Belden in 1902.
As used herein, unless an operating segment is identified or the context otherwise requires, “Belden,” the “Company”, and “we” refer to Belden Inc. and its subsidiaries as a whole.
Strategy and Business Model
Our business model is designed to generate shareholder value:
 
Operational Excellence—The core of our business model is operational excellence and the execution of our Belden Business System. The Belden Business System has three areas of focus. First, we demonstrate a commitment to Lean enterprise initiatives, which improve not only the quality and efficiency of the manufacturing environment, but our business processes on a company-wide basis. Second, we utilize our Market Delivery System (MDS), a go-to-market model that provides the foundation for organic growth. We believe that organic growth, resulting from both market growth and share capture, is essential to our success. Finally, our Talent Management System supports the development of our associates at all levels, which preserves the culture necessary to operate our business consistently and sustainably.
Cash Generation—Our pursuit of operational excellence results in the generation of significant cash flow. We generated cash flows from operating activities of $255.3 million, $314.8 million, and $241.5 million in 2017, 2016, and 2015, respectively.
Portfolio Improvement—We utilize the cash flow generated by our business to fuel our continued transformation and generate shareholder value. We continuously improve our portfolio to ensure we provide the most complete, end-to-end solutions to our customers. Our portfolio is designed with balance across end markets and geographies to ensure we can meet our goals in most economic environments. We have a disciplined acquisition cultivation, execution, and integration system that allows us to invest in outstanding companies that strengthen our capabilities and enhance our ability to serve our customers.

Segments
We operate our business under the following segments:
 
 
Percentage of Segment Revenues (1)
 
2017
 
2016
 
2015
Broadcast Solutions
30.4
%
 
32.6
%
 
31.4
%
Enterprise Solutions
26.4
%
 
25.6
%
 
25.7
%
Industrial Solutions
26.3
%
 
24.8
%
 
25.6
%
Network Solutions
16.9
%
 
17.0
%
 
17.3
%
 
(1)
See Note 6 to the Consolidated Financial Statements for additional information regarding our segment measures.
Broadcast Solutions
The Broadcast Solutions (Broadcast) segment is a leading provider of production, distribution, and connectivity systems for television broadcast, cable, satellite, and IPTV industries. We target end-use customers in markets such as outside broadcast, sport

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venues, broadcast studios, and cable, broadband, satellite, and telecommunications service providers. Our products are used in a variety of applications, including live production signal management, program playout for broadcasters, monitoring for pay-TV operators, and broadband connectivity. Broadcast products and solutions include camera solutions, production switchers, server and storage systems for instant replay applications, interfaces and routers, monitoring systems, in-home network systems, playout systems, outside plant connectivity products, and other cable and connectivity products.

Our hardware and software solutions for the broadcast infrastructure industry span the full breadth of television operations, including creation, playout, and delivery. Many of our broadcast infrastructure solutions are designed for live content creation, which is viewed as a growth opportunity for the segment. For the broadband distribution industry, we manufacture flexible, copper-clad coaxial cable and associated connector products for the high-speed transmission of data, sound, and video (broadband) that are used for the “drop” section of cable television (CATV) systems and satellite direct broadcast systems. Our connectivity solutions include several major product categories: coax connector products that allow for connections from the provider network to the subscribers’ devices; hardline connectors that allow service providers to distribute their services within a city, a town, or a neighborhood; fiber optic micro duct products to support FTTx networks; entry devices that serve to manage and remove network signal noise that could impair performance for the subscriber; and traps and filtering devices that allow service providers to control the signals that are transmitted to the subscriber. Our portfolio of broadband distribution products is well positioned for growth opportunities as broadband consumption continues to increase both in developed and emerging markets.

Broadcast products are sold through a variety of channels, including: broadcast specialty distributors; audio systems installers; directly to the major television networks including ABC, CBS, Fox, and NBC; directly to broadband service providers, including Comcast, DirectTV, Charter Spectrum, and Verizon; directly to specialty system integrators; directly to OEMs; and other distributors.

Enterprise Solutions
The Enterprise Solutions (Enterprise) segment is a leading provider in network infrastructure solutions, as well as cabling and connectivity solutions for broadcast, commercial audio/video, and security applications. We serve customers in markets such as healthcare, education, financial, government, and corporate enterprises, as well as end-markets, including sport venues, broadcast studios, and academias. Enterprise product lines include copper cable and connectivity solutions, fiber cable and connectivity solutions, and racks and enclosures. Our products are used in applications such as local area networks, data centers, access control, and building automation. Enterprise provides true end-to-end copper and fiber network systems to include cable, assemblies, interconnect panels, and enclosures. Our products are also used in a variety of applications, including live production and performance, video display and digital signage, and corporate communications.  Our high-performance solutions support all networking protocols up to and including 100G+ Ethernet technologies. Enterprise’s innovative products can deliver data in addition to power over Ethernet, which meets the higher performance requirements driven by the increasing number of connections in smart buildings. Enterprise products also include intelligent power, cooling, and airflow management for mission-critical data center operations. The Enterprise product portfolio is designed to support Internet Protocol convergence, the increased use of wireless communications, and cloud-based data centers by our customers. Our systems are installed through a network of highly trained system integrators and are supplied through authorized distributors.
Industrial Solutions
The Industrial Solutions (Industrial) segment is a leading provider of high performance networking components and machine connectivity products. Industrial products include physical network and fieldbus infrastructure components and on-machine connectivity systems customized to end user and OEM needs. Products are designed to provide reliability and confidence of performance for a wide range of industrial automation applications. Our mix of business by end market includes discrete manufacturing (65% of 2017 revenues); process, including oil and gas (24%); energy (7%); and transportation (4%). Our products are used in applications such as network and fieldbus infrastructure; sensor and actuator connectivity; power, control, and data transmission. Industrial products include solutions such as industrial and input/output (I/O) connectors, industrial cables, IP and networking cables, I/O modules, distribution boxes, ruggedized controls and sensors, and customer specific wiring solutions.
Our industrial cable products are used in discrete manufacturing and process operations involving the connection of computers, programmable controllers, robots, operator interfaces, motor drives, sensors, printers, and other devices. Many industrial environments, such as petrochemical and other harsh-environment operations, require cables with exterior armor or jacketing that can endure physical abuse and exposure to chemicals, extreme temperatures, and outside elements. Other applications require conductors, insulating, and jacketing materials that can withstand repeated flexing. In addition to cable product configurations for these applications, we supply heat-shrinkable tubing and wire management products to protect and organize wire and cable assemblies. Our industrial connector products are primarily used as sensor and actuator connections in factory automation

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supporting various fieldbus protocols as well as power connections in building automation. These products are used both as components of manufacturing equipment and in the installation and networking of such equipment.
Industrial Solutions products are sold directly to industrial equipment OEMs and through a network of industrial distributors, value-added resellers, and system integrators.

Network Solutions

The Network Solutions (Network) segment provides foundational controls for protecting enterprises against cyberattacks, automating IT regulatory compliance and improving operational efficiency. Network Solutions provides software and services that protect against cyberattacks and data breaches with integrated security controls that discover assets, harden configurations, identify vulnerabilities and detect threats. We target end-use customers in markets such as industrial (including utilities and energy), enterprise (including finance, insurance, technology, communications, retail, and healthcare), and government. The Network Solutions product portfolio of enterprise-class security solutions includes configuration and policy management, file integrity monitoring, vulnerability management and log intelligence. 

Network Solutions products are sold directly to end-use customers, as well as through channel partners.
See Note 6 to the Consolidated Financial Statements for additional information regarding our segments.
Acquisitions
A key part of our business strategy includes acquiring companies to support our growth and product portfolio. Our acquisition strategy is based upon targeting leading companies that offer innovative products and strong brands. We utilize a disciplined approach to acquisitions based on product and market opportunities. When we identify acquisition candidates, we conduct rigorous financial and cultural analyses to make certain that they meet both our strategic plan targets and our goal for return on invested capital of 13-15%.
We have completed a number of acquisitions in recent years as part of this strategy. Most recently, in May 2017, we completed the acquisition of Thinklogical Holdings, LLC (Thinklogical), a leading provider of secure, centralized KVM video switches to the command and control market. The results of Thinklogical have been included in our Consolidated Financial Statements from the acquisition date and are reported in the Broadcast Solutions segment.
In January 2016, we acquired M2FX Limited (M2FX), a manufacturer of fiber optic cable and fiber protection solutions for broadband and telecommunications networks. The results of M2FX are included in our Broadcast Solutions segment.
In January 2015, we acquired Tripwire, Inc. (Tripwire), a leading global provider of advanced threat, security, and compliance solutions. Tripwire’s solutions enable enterprises, service providers, manufacturers, and government agencies to detect, prevent, and respond to growing security threats. The results of Tripwire are included in our Network Solutions segment.
For more information regarding these transactions, see Note 3 to the Consolidated Financial Statements.

Customers
We sell to distributors, OEMs, installers, and end-users. Sales to the distributor Anixter International Inc. represented approximately 12% of our consolidated revenues in 2017. No other customer accounted for more than 10% of our revenues in 2017.
We have supply agreements with distributors and OEM customers. In general, our customers are not contractually obligated to buy our products exclusively, in minimum amounts, or for a significant period of time. We believe that our relationships with our customers and distributors are good and that they are loyal to Belden products as a result of our reputation, the breadth of our product portfolio, the quality and performance characteristics of our products, and our customer service and technical support, among other reasons.
International Operations
In addition to manufacturing facilities in the United States (U.S.), we have manufacturing and other operating facilities in Brazil, Canada, China, Japan, Mexico, and St. Kitts, as well as in various countries in Europe. During 2017, approximately 47% of Belden’s sales were to customers outside the U.S. Our primary channels to international markets include both distributors and direct sales to end users and OEMs.

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Financial information for Belden by country is shown in Note 6 to the Consolidated Financial Statements.
Competition
We face substantial competition in our major markets. The number and size of our competitors vary depending on the product line and segment. Some multinational competitors have greater financial, engineering, manufacturing, and marketing resources than we have. There are also many regional competitors that have more limited product offerings.
The markets in which we operate can be generally categorized as highly competitive with many players. In order to maximize our competitive advantages, we manage our product portfolio to capitalize on secular trends and high-growth applications in those markets. Based on available data for our served markets, we estimate that our market share across our segments is significant, ranging from approximately 5% – 20%. A substantial acquisition in one of our served markets would be necessary to meaningfully change our estimated market share percentage.
The principal competitive factors in all our product markets are technical features, quality, availability, price, customer support, and distribution coverage. The relative importance of each of these factors varies depending on the customer. Some products are manufactured to meet published industry specifications and are less differentiated on the basis of product characteristics. We believe that Belden stands out in many of its markets on the basis of our reputation, the breadth of our product portfolio, the quality and performance characteristics of our products, our customer service, and our technical support.
Research and Development
We conduct research and development on an ongoing basis, including new and existing product development, testing and analysis, and process and equipment development and testing. See the Consolidated Statements of Operations for amounts incurred for research and development. Many of the markets we serve are characterized by advances in information processing and communications capabilities, including advances driven by the expansion of digital technology, which require increased transmission speeds and greater bandwidth. Our markets are also subject to increasing requirements for mobility, information security, and transmission reliability. 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 in our served markets.

Our most significant investments in research and development occur in our Broadcast Solutions and Network Solutions platforms. The research and development investments for these platforms include a focus on the following developments:
 
In the broadcast market, the trend towards increasingly complex broadcast production, management, and distribution environments continues to evolve. Our end-use customers need to increase efficiency and enhance workflow through systems and infrastructure. Our broadcast products allow content producers, broadcasters, and service providers to manage the increasingly complex broadcast signals throughout their operations.
In order to support the demand for additional bandwidth and to improve service integrity, broadband service providers are investing in their networks to enhance delivery capabilities to customers for the foreseeable future. Additional bandwidth requirements as a result of increased traffic expose weak points in the network, which are often connectivity related, causing broadband service operators to improve and upgrade residential networks with higher performing connectivity products.
For network solution products, there is a compelling need among global enterprises, service providers and government agencies to detect, prevent and respond to cyber security threats. This is a long-standing need within corporate networks, but we believe the rapid proliferation of new devices in the “internet of things” will cause this need to broaden and accelerate. Additionally, cyber-attacks are moving beyond traditional targets into critical infrastructure, which will further amplify the importance of our work in network security. Furthermore, there is a growing trend toward adoption of Industrial Ethernet technology, bringing to the critical infrastructure the advantages of digital communication and the ability to network devices made by different manufacturers and integrate them with enterprise systems. While the adoption of this technology is at a more advanced stage in certain regions of the world, we believe that the trend will globalize. This trend will also lead to a rising need for wireless systems for some applications and for cybersecurity to protect this critical infrastructure.
Part of our research and development is focused on creating scalable, efficient technologies to provide real-time instrumentation and analytics across entire networks. This includes delivering high-fidelity visibility and deep intelligence about networked systems, their vulnerabilities, and providing actionable information about how to effectively secure them. Additionally, we have highly-skilled and active research teams who analyze current and

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anticipated threats, and provide offerings to the market to enable customers to quickly detect and resolve cybersecurity threats.
Our research and development efforts are also focused on fiber optic technology, which presents a potential substitute for certain of the copper-based products that comprise a portion of our revenues. Fiber optic cables have certain advantages over copper-based cables in applications where large amounts of information must travel significant distances and where high levels of information security are required. While the cost to interface electronic and optical light signals and to terminate and connect optical fiber remains comparatively high, we expect that in future years the cost difference versus traditional copper networks will diminish. We sell fiber optic infrastructure, and many customers specify these products in combination with copper-based infrastructure. The final stage of most networks remains almost exclusively copper-based, and we expect that it will continue to be copper for the foreseeable future. However, if a significant decrease in the cost of fiber optic systems relative to the cost of copper-based systems were to occur, such systems could become superior on a price/performance basis to copper-based systems. Part of our research and development efforts focus on expanding our fiber-optic based product portfolio.

Patents and Trademarks
We have a policy of seeking patents when appropriate on inventions concerning new products, product improvements, and advances in equipment and processes as part of our ongoing research, development, and manufacturing activities. We own many patents and registered trademarks worldwide that are used by our operating segments, with pending applications for numerous others. We consider our patents and trademarks to be valuable assets. Our most prominent trademarks are: Belden®, Alpha Wire™, Mohawk®, West Penn Wire™, Hirschmann®, Lumberg Automation™, GarrettCom®, Poliron™, Tofino®, PPC®, Grass Valley®, ProSoft Technology®, Tripwire®, and Thinklogical®.

Raw Materials
The principal raw material used in many of our cable products is copper. Other materials we purchase in large quantities include fluorinated ethylene-propylene (FEP), polyvinyl chloride (PVC), polyethylene, aluminum-clad steel and copper-clad steel conductors, aluminum, brass, other metals, optical fiber, printed circuit boards, and electronic components. With respect to all major raw materials used by us, we generally have either alternative sources of supply or access to alternative materials. Supplies of these materials are generally adequate and are expected to remain so for the foreseeable future.
Over the past three years, the prices of metals, particularly copper, have been highly volatile. The chart below illustrates the high and low spot prices per pound of copper over the last three years.
 
 
2017
 
2016
 
2015
Copper spot prices per pound
 
 
 
 
 
High
$
3.29

 
$
2.69

 
$
2.95

Low
$
2.48

 
$
1.94

 
$
2.02

Prices for materials such as PVC and other plastics derived from petrochemical feedstocks have also fluctuated. Since Belden utilizes the first in, first out (FIFO) inventory costing methodology, the impact of copper and other raw material cost changes on our cost of goods sold is delayed by approximately two months based on our rate of inventory turnover.
While we generally are able to adjust our pricing for fluctuations in commodity prices, we can experience short-term favorable or unfavorable variances. When the cost of raw materials increases, we are generally able to recover these costs through higher pricing of our finished products. The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists, which we update from time to time, with new prices typically taking effect a few weeks after they are announced. Some OEM customer contracts have provisions for passing through raw material cost changes, generally with a lag of a few weeks to three months.
Backlog
Our business is characterized generally by short-term order and shipment schedules. Our backlog consists of product orders for which we have received a customer purchase order or purchase commitment and which have not yet been shipped. Orders are generally subject to cancellation or rescheduling by the customer. As of December 31, 2017, our backlog of orders believed to be firm was $259.2 million. The majority of the backlog at December 31, 2017 is scheduled to be shipped in 2018.


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Environmental Matters
We are subject to numerous federal, state, provincial, local, and foreign laws and regulations relating to the storage, handling, emission, and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation, and Liability Act; the Clean Water Act; the Clean Air Act; the Emergency Planning and Community Right-To-Know Act; the Resource Conservation and Recovery Act; and similar laws in the other countries in which we operate. We believe that our existing environmental control procedures and accrued liabilities are adequate, and we have no current plans for substantial capital expenditures in this area.
Employees
As of December 31, 2017, we had approximately 8,800 employees worldwide. We also utilized approximately 300 workers under contract manufacturing arrangements. Approximately 1,800 employees are covered by collective bargaining agreements at various locations around the world. We believe our relationship with our employees is generally good.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). These reports, proxy statements, and other information contain additional information about us. You may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the Public Reference Room. The SEC also maintains a web site that contains reports, proxy and information statements, and other information about issuers who file electronically with the SEC. The Internet address of the site is www.sec.gov.
Belden maintains an Internet web site at www.belden.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports and statements are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the SEC.
We will provide upon written request and without charge a printed copy of our Annual Report on Form 10-K. To obtain such a copy, please write to the Corporate Secretary, Belden Inc., 1 North Brentwood Boulevard, 15th Floor, St. Louis, MO 63105.
Executive Officers
The following table sets forth certain information with respect to the persons who were Belden executive officers as of February 12, 2018. All executive officers are elected to terms that expire at the organizational meeting of the Board of Directors following the Annual Meeting of Shareholders.
 
Name
 
Age
 
Position
John Stroup
 
51
 
President, Chief Executive Officer, and Chairman
Brian Anderson
 
43
 
Senior Vice President, Legal, General Counsel and Corporate Secretary
Henk Derksen
 
49
 
Senior Vice President, Finance, and Chief Financial Officer
Dean McKenna
 
49
 
Senior Vice President, Human Resources
Glenn Pennycook
 
55
 
Executive Vice President, Enterprise and Broadband Solutions
Ross Rosenberg
 
48
 
Senior Vice President, Strategy and Corporate Development
Dhrupad Trivedi
 
51
 
Executive Vice President, Network Solutions
Paul Turner
 
54
 
Senior Vice President, Sales
Roel Vestjens
 
43
 
Executive Vice President, Industrial Solutions and Broadcast IT Solutions
Doug Zink
 
42
 
Vice President and Chief Accounting Officer

John Stroup has been President, Chief Executive Officer and a member of the Board since October 2005. He was elected as Chairman of the Board on November 30, 2016. From 2000 to the date of his appointment with the Company, he was employed by Danaher Corporation, a manufacturer of professional instrumentation, industrial technologies, and tools and components. At Danaher, he initially served as Vice President, Business Development. He was promoted to President of a division of Danaher’s Motion Group and later to Group Executive of the Motion Group. Earlier, he was Vice President of Marketing and General Manager with Scientific Technologies Inc. He has a B.S. in Mechanical Engineering from Northwestern University and an M.B.A. from the University of California at Berkeley Haas School of Business.

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Brian Anderson was appointed Senior Vice President, Legal, General Counsel and Corporate Secretary in April 2015. Prior to that, he served as Corporate Attorney for the Company from May 2008 through March 2015. Prior to joining Belden, Mr. Anderson was in private practice at the law firm Lewis Rice. Mr. Anderson has a B.S.B. in Accounting and an M.B.A. from Eastern Illinois University and holds a J.D. from Washington University in St. Louis.

Henk Derksen has been Senior Vice President, Finance, and Chief Financial Officer since January 2012. Prior to that, he served as Vice President, Corporate Finance from July 2011 to December 2011 and Treasurer and Vice President, Financial Planning and Analysis of the Company from January 2010 to July 2011. In August of 2003, he became Vice President, Finance for the Company’s EMEA division, after joining the Company at the end of 2000. Prior to joining the Company, he was Vice President and Controller of Plukon Poultry, a food processing company from 1998 to 2000, and has 5 years’ experience in public accounting with Price Waterhouse and Baker Tilly. Mr. Derksen has a M.A. in Accounting from the University of Arnhem in the Netherlands and holds a doctoral degree in Business Economics in addition to an Executive Master of Finance & Control from Tias Business School in the Netherlands.

Dean McKenna was appointed Senior Vice President, Human Resources in May 2015. Prior to joining Belden, he was Vice President of Human Resources for the international business of SC Johnson. Prior to SC Johnson, he worked in various senior international human resource, organizational development and talent positions at Ingredion, Akzo Nobel and ICI Group PLC. He received his degree in Strategic Human Resource Management at the Nottingham Business School in the United Kingdom.

Glenn Pennycook has been Executive Vice President, Enterprise Solutions and Broadband Solutions since February 2017. Prior to that, Mr. Pennycook was Executive Vice President, Enterprise Solutions since May 2013. Before serving in that role, Mr. Pennycook as President of the Enterprise Solutions Division, after joining Belden in November 2008. Prior to joining the Company, he spent 5 years with Pregis Corporation as Director of Operations for Protective Packaging Europe, and was promoted to Managing Director for Western Europe in 2005. He has a degree in Chemical Engineering from McMaster University, Hamilton Ontario, Canada.

Ross Rosenberg was appointed Senior Vice President of Strategy & Corporate Development at the Company in February 2013, and became an executive officer in May 2014. Prior to joining the Company, he led corporate development and global marketing at First Solar, the world’s largest provider of utility-scale solar power plant solutions. Prior to First Solar, Mr. Rosenberg ran a division of Danaher, a large diversified industrial technology company. At Danaher, he held several executive management roles, as well as vice president, marketing for a division and group vice president, strategy and business development. Mr. Rosenberg holds a B.S. in Accounting from University of Illinois, an M.B.A. from The Wharton School at the University of Pennsylvania and is a Certified Public Accountant.

Dhrupad Trivedi has been Executive Vice President, Network Solutions since January 2017. He became the Executive Vice President of the former Industrial IT Solutions segment and former Network Security Solutions segment in April 2013 and August 2016, respectively. Prior to that, he was responsible for the Corporate Development and Strategy function since joining Belden in January 2010. Earlier, he was President, Trapeze Networks. Prior to joining the Company, he was responsible for General Management and Corporate Development roles at JDS Uniphase. He has 18 years of experience in the Networking and Communications industry. Dhrupad has an MBA from Duke University and a Ph.D. in Electrical Engineering from University of Massachusetts, Amherst.

Paul Turner has been Senior Vice President, Sales since February 2017. Mr. Turner joined Belden in 2006, and has held a variety of roles of increasing responsibility within Belden’s sales organization since that time. Before joining Belden, Mr. Turner spent five years in the private sector in a subcontract manufacturing company based in the United Kingdom, ultimately serving in the post of Managing Director. Prior to that experience, Mr. Turner spent 13 years with the 3M Company in the United Kingdom, holding roles of increasing responsibility within 3M’s commercial organization across the EMEA region.

Roel Vestjens has been Executive Vice President, Industrial Solutions and Broadcast IT Solutions since January 2017. Prior to that, he was the Executive Vice President, Broadcast Solutions since March 2014. Mr. Vestjens joined Belden in 2006 as Director of Marketing for the EMEA region. In April 2008, Mr. Vestjens was promoted to Director of Sales and Marketing for the Industrial Solutions business, and in January 2009, he was appointed General Manager of Belden’s Wire and Cable Systems business in EMEA. Mr. Vestjens relocated to Asia in November 2010, and became President of the APAC OEM business, followed by President of all APAC Operations in May 2012. Mr. Vestjens joined Belden from Royal Philips Electronics where he held various European sales and marketing positions. Mr. Vestjens holds a bachelor degree in Electrical Engineering and a Master of Science and Management degree from Nyenrode Business University in the Netherlands.


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Doug Zink has been Vice President and Chief Accounting Officer since September 2013. Prior to that, he has served as the Company’s Vice President, Internal Audit; Corporate Controller; and Director of Financial Reporting, after joining Belden in May 2007. Prior to joining the Company, he was a Financial Reporting Manager at TLC Vision Corporation, an eye care service company, from 2004 to 2007, and has five years of experience in public accounting with KPMG LLP and Arthur Andersen LLP. He holds Bachelor’s and Master’s Degrees in Accounting from Texas Christian University and is a Certified Public Accountant.

Cautionary Information Regarding Forward-Looking Statements

We make forward-looking statements in this Annual Report on Form 10-K, in other materials we file with the SEC or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to investors, analysts, the media, and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are not historical facts, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “forecast,” “guide,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” and similar expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. These factors include, among others, those set forth in the following section and in the other documents that we file with the SEC.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Item 1A.    Risk Factors

Following is a discussion of some of the more significant risks that could materially impact our business. There may be additional risks that impact our business that we currently do not recognize as, or that are not currently, material to our business.

A challenging global economic environment or a downturn in the markets we serve could adversely affect our operating results and stock price in a material manner.

A challenging global economic environment could cause substantial reductions in our revenue and results of operations as a result of weaker demand by the end users of our products and price erosion. Price erosion may occur through competitors becoming more aggressive in pricing practices. A challenging global economy could also make it difficult for our customers, our vendors, and us to accurately forecast and plan future business activities. Our customers could also face issues gaining timely access to sufficient credit, which could have an adverse effect on our results if such events cause reductions in revenues, delays in collection, or write-offs of receivables. Further, the demand for many of our products is economically sensitive and will vary with general economic activity, trends in nonresidential construction, investment in manufacturing facilities and automation, demand for information and broadcast technology equipment, and other economic factors.

Global economic uncertainty could result in a significant decline in the value of foreign currencies relative to the U.S. dollar, which could result in a significant adverse effect on our revenues and results of operations; could make it extremely difficult for our customers and us to accurately forecast and plan future business activities; and could cause our customers to slow or reduce spending on our products and services. Economic uncertainty could also arise from fiscal policy changes in the countries in which we operate.

Changes in foreign currency rates and commodity prices can impact the buying power of our customers. For example, a strengthened U.S. dollar can result in relative price increases for our products for customers outside of the U.S., which can have a negative impact on our revenues and results of operations. Furthermore, customers’ ability to invest in capital expenditures, such as our products, can depend upon proceeds from commodities, such as oil and gas markets. A decline in energy prices, therefore, can have a negative impact on our revenues and results of operations.

The global markets in which we operate are highly competitive.

We face competition from other manufacturers for each of our global business platforms and in each of our geographic regions. These companies compete on price, reputation and quality, product technology and characteristics, and terms. Some multinational competitors have greater engineering, financial, manufacturing, and marketing resources than we have. Actions that may be taken by competitors, including pricing, business alliances, new product introductions, market penetration, and other actions, could have

9


a negative effect on our revenues and profitability. Moreover, some competitors that are highly leveraged both financially and operationally could become more aggressive in their pricing of products.

Volatility of credit markets could adversely affect our business.

Uncertainty in U.S. and global financial and equity markets could make it more expensive for us to conduct our operations and more difficult for our customers to buy our products. Additionally, market volatility or uncertainty may cause us to be unable to pursue or complete acquisitions. Our ability to implement our business strategy and grow our business, particularly through acquisitions, may depend on our ability to raise capital by selling equity or debt securities or obtaining additional debt financing. Market conditions may prevent us from obtaining financing when we need it or on terms acceptable to us.

We may be unable to achieve our goals related to growth.

In order to meet the goals in our strategic plan, we must grow our business, both organically and through acquisitions. Our goal is to generate total revenue growth of 5-7% per year in constant currency. We may be unable to achieve this desired growth due to a failure to identify growth opportunities, such as trends and technological changes in our end markets. We may ineffectively execute our Market Delivery System (“MDS”), which is designed to identify and capture growth opportunities. The broadcast, enterprise, and industrial end markets we serve may not experience the growth we expect. Further, those markets may be unable to sustain growth on a long-term basis, particularly in emerging markets. If we are unable to achieve our goals related to growth, it could have a material adverse effect on our results of operations, financial position, and cash flows.

We may be unable to implement our strategic plan successfully.

Our strategic plan is designed to continually enhance shareholder value by improving revenues and profitability, reducing costs, and improving working capital management. To achieve these goals, our strategic priorities are reliant on our Belden Business System, which includes continuing deployment of our MDS so as to capture market share through end-user engagement, channel management, outbound marketing, and careful vertical market selection; improving our recruitment and development of talented associates; developing strong global business platforms; acquiring businesses that fit our strategic plan; and becoming a leading Lean company. We have a disciplined process for deploying this strategic plan through our associates. There is a risk that we may not be successful in developing or executing these measures to achieve the expected results for a variety of reasons, including market developments, economic conditions, shortcomings in establishing appropriate action plans, or challenges with executing multiple initiatives simultaneously. For example, our MDS initiative may not succeed or we may lose market share due to challenges in choosing the right products to market or the right customers for these products, integrating products of acquired companies into our sales and marketing strategy, or strategically bidding against OEM partners. We may fail to identify growth opportunities. We may not be able to acquire businesses that fit our strategic plan on acceptable business terms, and we may not achieve our other strategic priorities.

We may be unable to achieve our strategic priorities in emerging markets.

Emerging markets are a significant focus of our strategic plan. The developing nature of these markets presents a number of risks. We may be unable to attract, develop, and retain appropriate talent to manage our businesses in emerging markets. Deterioration of social, political, labor, or economic conditions in a specific country or region may adversely affect our operations or financial results. Emerging markets may not meet our growth expectations, and we may be unable to maintain such growth or to balance such growth with financial goals and compliance requirements. Among the risks in emerging market countries are bureaucratic intrusions and delays, contract compliance failures, engrained business partners that do not comply with local or U.S. law, such as the Foreign Corrupt Practices Act, fluctuating currencies and interest rates, limitations on the amount and nature of investments, restrictions on permissible forms and structures of investment, unreliable legal and financial infrastructure, regime disruption and political unrest, uncontrolled inflation and commodity prices, fierce local competition by companies with better political connections, and corruption. In addition, the costs of compliance with local laws and regulations in emerging markets may negatively impact our competitive position as compared to locally owned manufacturers.

The presence of substitute products in the marketplace may reduce demand for our products and negatively impact our business.

Fiber optic systems are increasingly substitutable for copper based cable systems. Customers may shift demand to fiber optic systems with greater capabilities than copper based cable systems, leading to a reduction in demand for copper based cable. We may not be able to offset the effects of a reduction in demand for our copper-based cable systems with an increase in demand for our existing fiber optic systems. Further, the supply chain in the fiber market is highly constrained, with a small number of vertically integrated firms controlling critical inputs and the related intellectual property. These factors, either together or in isolation, may negatively impact revenue and profitability.

10



Our future success depends in part on our ability to develop and introduce new products and respond to changes in customer preferences.

Our markets are characterized by the introduction of products with increasing technological capabilities. Our success depends in part on our ability to anticipate and offer products that appeal to the changing needs and preferences of our customers in the various markets we serve. Developing new products and adapting existing products to meet evolving customer expectations requires high levels of innovation, and the development process may be lengthy and costly. If we are not able to anticipate, identify, develop and market products that respond to changes in customer preferences, demand for our products could decline.

The relative costs and merits of our solutions could change in the future as various competing technologies address the market opportunities. We believe that our future success will depend in part upon our ability to enhance existing products and to develop and manufacture new products that meet or anticipate technological changes, which will require continued investment in engineering, research and development, capital equipment, marketing, customer service, and technical support. We have long been successful in introducing successive generations of more capable products, but if we were to fail to keep pace with technology or with the products of competitors, we might lose market share and harm our reputation and position as a technology leader in our markets. See the discussion above in Part I, Item 1, under Research and Development.

The increased prevalence of cloud computing may negatively impact certain aspects of our business.

The nature in which many of our products are purchased or used is evolving with the increasing prevalence of cloud computing and other methods of off-premises computing and data storage. This may negatively impact one or more of our business in a number of ways, including:

Consolidation of procurement power leading to the commoditization of IT products;
Reduction in the demand for infrastructure products previously used to support on-site data centers;
Lowering barriers to entry for certain markets, leading to new market entrants and enhanced competition;
Preferences for software as a service billing and pricing models may reduce demand for non-cloud “packaged” software.

Alterations to our product mix and go-to-market strategies designed to respond to the changes in the marketplace presented by cloud computing may be disruptive to our business and lead to increase expenses, which may result in lower revenues and profitability. Further, if a competitor is able to more quickly or efficiently adapt, or if cloud computing results in significantly lower barriers to entry and new competitors enter our markets, demand for our products may be reduced.

We must complete further acquisitions in order to achieve our strategic plan.

In order to meet the goals in our strategic plan, we must complete further acquisitions. The extent to which appropriate acquisitions are made will affect our overall growth, operating results, financial condition, and cash flows. Our ability to acquire businesses successfully will decline if we are unable to identify appropriate acquisition targets consistent with our strategic plan, the competition among potential buyers increases, the cost of acquiring suitable businesses becomes too expensive, or we lack sufficient sources of capital. As a result, we may be unable to make acquisitions or be forced to pay more or agree to less advantageous acquisition terms for the companies that we are able to acquire.

We may have difficulty integrating the operations of acquired businesses, which could negatively affect our results of operations and profitability.

We may have difficulty integrating acquired businesses and future acquisitions might not meet our performance expectations. Some of the integration challenges we might face include differences in corporate culture and management styles, additional or conflicting governmental regulations, preparation of the acquired operations for adoption of ASC 606, compliance with the Sarbanes-Oxley Act of 2002, financial reporting that is not in compliance with U.S. generally accepted accounting principles, disparate company policies and practices, customer relationship issues, and retention of key personnel. In addition, management may be required to devote a considerable amount of time to the integration process, which could decrease the amount of time we have to manage the other businesses. We may not be able to integrate operations successfully or cost-effectively, which could have a negative impact on our results of operations or our profitability. The process of integrating operations could also cause some interruption of, or the loss of momentum in, the activities of acquired businesses.


11


Our results of operations are subject to foreign and domestic political, economic, and other uncertainties and are affected by changes in currency exchange rates.

In addition to manufacturing and other operating facilities in the U.S., we have manufacturing and other operating facilities in Brazil, Canada, China, Japan, Mexico, St. Kitts, and several European countries. We rely on suppliers in many countries, including China. Our foreign operations are subject to economic and political risks inherent in maintaining operations abroad such as economic and political destabilization, land use risks, international conflicts, restrictive actions by foreign governments, and adverse foreign tax laws. In addition to economic and political risk, a risk associated with our European manufacturing operations is the higher relative expense and length of time required to adjust manufacturing employment capacity. We also face political risks in the U.S., including tax or regulatory risks or potential adverse impacts from legislative impasses over, or significant legislative, regulatory or executive changes in fiscal or monetary policy and other foreign and domestic government policies, including, but not limited to, trade policies and import/export policies.

Approximately 47% of our sales are outside the U.S. Other than the U.S. dollar, the principal currencies to which we are exposed through our manufacturing operations, sales, and related cash holdings are the euro, the Canadian dollar, the Hong Kong dollar, the Chinese yuan, the Japanese yen, the Mexican peso, the Australian dollar, the British pound, and the Brazilian real. Generally, we have revenues and costs in the same currency, thereby reducing our overall currency risk, although any realignment of our manufacturing capacity among our global facilities could alter this balance. When the U.S. dollar strengthens against other currencies, the results of our non-U.S. operations are translated at a lower exchange rate and thus into lower reported revenues and earnings.

Changes in tax laws may adversely affect our financial position.

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law. The Act significantly reforms the Internal Revenue Code of 1986, as amended. The Act, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the immediate expensing of capital expenditures, and puts into effect the migration from a worldwide system of taxation to a territorial system and imposes several other changes to tax law on U.S. corporations. As many of the provisions of the Act do not come into effect until 2018 and further clarification of the law is expected, the total impact on our financial position is uncertain and could be materially adverse.

In addition, many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws. If tax laws and related regulations change, our financial results could be materially impacted. Given the unpredictability of these possible changes and their potential interdependency, it is possible such changes could adversely impact our financial results.

We may experience significant variability in our quarterly and annual effective tax rate which would affect our reported net income.

We have a complex tax profile due to the global nature of our operations, which encompass multiple taxing jurisdictions. Variability in the mix and profitability of domestic and international activities, identification and resolution of various tax uncertainties, changes in tax laws and rates, and the extent to which we are able to realize net operating loss and other carryforwards included in deferred tax assets and avoid potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our effective income tax rate in the future.


12


Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of income and losses in these jurisdictions affects our effective tax rate. For example, relatively more income in higher tax rate jurisdictions would increase our effective tax rate and thus lower our net income. Similarly, if we generate losses in tax jurisdictions for which no benefits are available; our effective income tax rate will increase. Our effective income tax rate may also be impacted by the recognition of discrete income tax items, such as required adjustments to our liabilities for uncertain tax positions or our deferred tax asset valuation allowance. A significant increase in our effective income tax rate could have a material adverse impact on our earnings.
Of our $561.1 million cash and cash equivalents balance as of December 31, 2017, $184.7 million was held outside of the U.S. in our foreign operations. The Tax Cuts and Jobs Act of 2017 included a one-time transition tax of unremitted foreign earnings, and accordingly, we recorded preliminary tax expense related to the transition tax on the one-time mandatory deemed repatriation of all our foreign earnings as of December 31, 2017. See Note 16 Income Taxes in the accompanying notes to our consolidated financial statements.

The increased influence of chief information officers and similar high-level executives may negatively impact demand for our products.

As a result of the increasing interconnectivity of a wide variety of systems, chief information officers and similar executives are becoming more heavily involved in operation areas that have not historically been associated with information technology. As a result, CIOs and IT departments are exercising increased influence over the procurement and purchasing process at the expense of engineers, plant managers and operation personnel that have historically driven demand for many of our products. When making purchasing decisions, CIO’s often value interoperability, standardization, cloud-readiness and security over domain expertise and niche application knowledge. As a result of the increasing influences of CIOs and IT departments, we may face increased competition from IT-industry companies that have not traditionally had major presences in the markets in which we operate. Further, the variance in considerations that drive purchasing decisions between CIOs and those with niche application expertise may result in increased competition based on price and a reduction in demand for our products.

Potential problems with our information systems could interfere with our business and operations.

We rely on our information systems and those of third parties for storing proprietary company information about our products and intellectual property, as well as for processing customer orders, manufacturing and shipping products, billing our customers, tracking inventory, supporting accounting functions and financial statement preparation, paying our employees, and otherwise running our business. Any disruption, whether from hackers or other sources, in our information systems or those of the third parties upon whom we rely could have a significant impact on our business. In addition, we may need to enhance our information systems to provide additional capabilities and functionality. The implementation of new information systems and enhancements is frequently disruptive to the underlying business of an enterprise.  Any disruptions affecting our ability to accurately report our financial performance on a timely basis could adversely affect our business in a number of respects. If we are unable to successfully implement potential future information systems enhancements, our financial position, results of operations, and cash flows could be negatively impacted.

We, and others on our behalf, store “personally identifiable information” (“PII”) with respect to employees, vendors, customers, and others. While we have implemented safeguards to protect the privacy of this information, it is possible that hackers or others might obtain this information. If that occurs, in addition to having to take potentially costly remedial action, we also may be subject to fines, penalties, lawsuits, and reputational damage.

Perceived failure of our signal transmission solutions to provide expected results may result in negative publicity and harm our business and operating results.

Our customers use our signal transmission solutions in a wide variety of IT systems and application environments in order to help reduce security vulnerabilities and demonstrate compliance. Despite our efforts to make clear in our marketing materials and customer agreements the capabilities and limitations of these products, some customers may incorrectly view the deployment of such products in their IT infrastructure as a guarantee that there will be no security breach or policy non-compliance event. As a result, the occurrence of a high profile security breach, or a failure by one of our customers to pass a regulatory compliance IT audit, could result in public and customer perception that our solutions are not effective and harm our business and operating results, even if the occurrence is unrelated to the use of such products or if the failure is the result of actions or inactions on the part of the customer.

Our use of open source software could negatively impact our ability to sell our products and may subject us to unanticipated obligations.


13


The products, services, or technologies we acquire, license, provide, or develop may incorporate or use open source software. We monitor and restrict our use of open source software in an effort to avoid unintended consequences, such as reciprocal license grants, patent retaliation clauses, and the requirement to license our products at no cost. Nevertheless, we may be subject to unanticipated obligations regarding our products which incorporate or use open source software.

Changes in the price and availability of raw materials we use could be detrimental to our profitability.

Copper is a significant component of the cost of most of our cable products. Over the past few years, the prices of metals, particularly copper, have been highly volatile. Prices of other materials we use, such as polyvinylchloride (PVC) and other plastics derived from petrochemical feedstocks, have also been volatile. Generally, we have recovered much of the higher cost of raw materials through higher pricing of our finished products. The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists which we update from time to time, with new prices typically taking effect a few weeks after they are announced. Some OEM contracts have provisions for passing through raw material cost changes, generally with a lag of a few weeks to three months. If we are unable to raise prices sufficiently to recover our material costs, our earnings could decline. If we raise our prices but competitors raise their prices less, we may lose sales, and our earnings could decline. If the price of copper were to decline, we may be compelled to reduce prices to remain competitive, which could have a negative effect on revenues. While we generally believe the supply of raw materials (copper, plastics, and other materials) is adequate, we have experienced instances of limited supply of certain raw materials, resulting in extended lead times and higher prices. If a supply interruption or shortage of materials were to occur (including due to labor or political disputes), this could have a negative effect on revenues and earnings.

Our revenue for any particular period can be difficult to forecast due to the unpredictable timing of large orders.

Our revenue for any particular period can be difficult to forecast, especially in light of the challenging and inconsistent global macroeconomic environment and related market uncertainty. Our revenue may grow at a slower rate than in past periods or even decline on a year-over-year basis.
The timing of large orders can have a significant effect on our operating results in the period in which the order is recognized as revenue. The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue. Similarly, we are often informed by our customers well in advance that such customer intends to place a large order related to a specific project in a given quarter. Such a customer’s timeline for execution of the project, and the resulting purchase order, may be unexpectedly delayed to a future quarter, or cancelled. The frequency of such delays can be difficult to predict. As a result, it is difficult to precisely forecast revenue and operating results for future quarters.

Our revenue and profits would likely decline, at least temporarily, if we were to lose a key distributor.
We rely on several key distributors in marketing our products. Distributors purchase and carry the products of our competitors along with our products. Our largest distributor, Anixter International Inc., accounted for 12% of our revenue in 2017 and our top six distributors, including Anixter, accounted for a total of 23% of our revenue in 2017. If we were to lose one of these key distributors, our revenue and profits would likely decline, at least temporarily. Changes in the inventory levels of our products owned and held by our distributors can result in significant variability in our revenues. Further, certain distributors are allowed to return certain inventory in exchange for an order of equal or greater value. We have recorded reserves for the estimated impact of these inventory policies.

Consolidation of our distributors, particularly where the survivor relies more heavily on our competitors, could adversely impact our revenues and earnings. It could also result in consolidation of distributor inventory, which would temporarily depress our revenues. We have also experienced financial failure of distributors from time to time, resulting in our inability to collect accounts receivable in full. A global economic downturn could cause financial difficulties (including bankruptcy) for our distributors and other customers, which would adversely affect our results of operations.

If we are unable to retain senior management and key employees, our business operations could be adversely affected.

Our success has been largely dependent on the skills, experience, and efforts of our senior management and key employees. The loss of any of our senior management or other key employees, for example sales and product development employees, could have an adverse effect on us. We may not be able to find qualified replacements for these individuals and the integration of potential replacements may be disruptive to our business. More broadly, a key determinant of our success is our ability to attract, develop, and retain talented associates. While this is one of our strategic priorities, we may not be able to succeed in this regard.

14



We might have difficulty protecting our intellectual property from use by competitors, or competitors might accuse us of violating their intellectual property rights.

Disagreements about patents and other intellectual property rights occur in the markets we serve. Third parties have asserted and may in the future assert claims of infringement of intellectual property rights against us or against our customers or channel partners for which we may be liable. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing certain products or performing certain services. We may encounter difficulty enforcing our own intellectual property rights against third parties, which could result in price erosion or loss of market share.

We are subject to laws and regulations worldwide, changes to which could increase our costs and individually or in the aggregate adversely affect our business.

We are subject to laws and regulations affecting our domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect our activities including, but not limited to, in areas of labor, advertising, real estate, billing, e-commerce, promotions, quality of services, property ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental, health and safety.

Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our products and services less attractive to our customers, delay the introduction of new products in one or more regions, or cause us to change or limit our business practices. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations or our policies and procedures.

Specifically with respect to data privacy, the European Commission has approved a data protection regulation, known as the General Data Protection Regulation (GDPR), which has been finalized and is due to come into force in or around May 2018. The GDPR will include operational requirements for companies that receive or process personal data of residents of the European Union that are different than those currently in place in the European Union, and that will include significant penalties for non-compliance. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services.

If our goodwill or other intangible assets become impaired, we would be required to recognize charges that would reduce our income.

Under accounting principles generally accepted in the U.S., goodwill and certain other intangible assets are not amortized but must be reviewed for possible impairment annually or more often in certain circumstances if events indicate that the asset values may not be recoverable. We have incurred significant charges for the impairment of goodwill and other intangible assets in the past, and we may be required to do so again in future periods if the underlying value of our business declines. Such a charge would reduce our income without any change to our underlying cash flows.

Some of our employees are members of collective bargaining groups, and we might be subject to labor actions that would interrupt our business.

Some of our employees, primarily outside the U.S., are members of collective bargaining groups. We believe that our relations with employees are generally good. However, if there were a dispute with one of these bargaining groups, the affected operations could be interrupted, resulting in lost revenues, lost profit contribution, and customer dissatisfaction.
Item 1B.    Unresolved Staff Comments
None.

Item 2.        Properties
Belden owns and leases manufacturing, warehousing, sales, and administrative space in locations around the world. We also have a corporate office that we lease in St. Louis, Missouri. The leases are of varying terms, expiring from 2018 through 2027.

15



The table below summarizes the geographic locations of our manufacturing and other operating facilities utilized by our segments as of December 31, 2017.
 
 
Broadcast
Solutions
 
Enterprise
Solutions
 
Industrial
Solutions
 
Network
Solutions
 
Utilized by
Multiple
Segments
 
Total
Brazil

 

 
1

 

 

 
1

Canada
1

 

 
1

 

 

 
2

China
1

 

 

 

 
1

 
2

Czech Republic

 

 
1

 

 

 
1

Denmark
1

 
1

 

 

 

 
2

Germany

 

 
2

 
2

 

 
4

Hungary

 

 

 

 
1

 
1

Italy

 

 

 

 
1

 
1

Japan
1

 

 

 

 

 
1

Mexico
1

 

 

 

 
2

 
3

Netherlands
1

 

 
1

 

 

 
2

St. Kitts
1

 

 

 

 

 
1

United Kingdom
2

 

 

 

 

 
2

United States
1

 
1

 
4

 
1

 
7

 
14

Total
10

 
2

 
10

 
3

 
12

 
37

In addition to the manufacturing and other operating facilities summarized above, our segments also utilize approximately 30 warehouses worldwide. As of December 31, 2017, we owned or leased a total of approximately 7 million square feet of facility space worldwide. We believe that our production facilities are suitable for their present and intended purposes and adequate for our current level of operations.
Item 3.        Legal Proceedings

PPC Broadband, Inc. v. Corning Optical Communications RF, LLC - On July 5, 2011, the Company’s wholly-owned subsidiary, PPC Broadband, Inc. (“PPC”), filed an action for patent infringement in the U.S. District Court for the Northern District of New York against Corning Optical Communications RF LLC (“Corning”). The Complaint alleged that Corning infringed two of PPC’s patents - U.S. Patent Nos. 6,558,194 and 6,848,940 - each entitled “Connector and Method of Operation.” In July 2015, a jury found that Corning willfully infringed both patents.  In November 2016, following a series of post-trial motions, the trial judge issued rulings for a total judgment in our favor of approximately $61.3 million.  On December 2, 2016, Corning appealed the case to the U.S. Court of Appeals for the Federal Circuit, and that appeal remains pending.  We have not recorded any amounts in our consolidated financial statements related to this matter due to the pendency of the appeal.

We are also a party to various legal proceedings and administrative actions that are incidental to our operations. In our opinion, the proceedings and actions in which we are involved should not, individually or in the aggregate, have a material adverse effect on our financial condition, operating results, or cash flows. However, since the trends and outcome of this litigation are inherently uncertain, we cannot give absolute assurance regarding the future resolution of such litigation, or that such litigation may not become material in the future.
Item 4.    Mine Safety Disclosures
Not applicable.
PART II

Item 5.    Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “BDC.”
As of February 9, 2018, there were 269 record holders of common stock of Belden Inc.

16


We declared a dividend of $0.05 per share of common stock in each quarter of 2017 and 2016. We anticipate that comparable cash dividends will continue to be paid quarterly in the foreseeable future.
Common Stock Prices and Dividends 
 
2017 (By Quarter)
 
1
 
2
 
3
 
4
Dividends per common share
$
0.05

 
$
0.05

 
$
0.05

 
$
0.05

Common stock prices:
 
 
 
 
 
 
 
High
$
79.88

 
$
78.93

 
$
81.35

 
$
86.85

Low
$
65.65

 
$
64.60

 
$
70.03

 
$
77.16

 
 
 
 
 
 
 
 
 
2016 (By Quarter)
 
1
 
2
 
3
 
4
Dividends per common share
$
0.05

 
$
0.05

 
$
0.05

 
$
0.05

Common stock prices:
 
 
 
 
 
 
 
High
$
62.78

 
$
67.19

 
$
75.91

 
$
81.33

Low
$
36.51

 
$
54.97

 
$
56.95

 
$
60.06

In May 2017, our Board of Directors authorized a share repurchase program, which allowed us to purchase up to $200.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. This program is funded by cash on hand and cash flows from operating activities. The program does not have an expiration date and may be suspended at any time at the discretion of the Company. During 2017 and from inception of the plan, we repurchased 0.3 million shares of our common stock under the program for an aggregate cost of $25.0 million and an average price per share of $79.75. Set forth below is information regarding our stock repurchases for the three months ended December 31, 2017.
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
 
 
 
 
 
 
 
 
 
October 2, 2017 through November 5, 2017
 

 
$

 

 
$
188,492,482

November 6, 2017 through December 3, 2017
 
42,094

 
84.22

 
42,094

 
184,947,439

December 4, 2017 through December 31, 2017
 
120,290

 
82.70

 
120,290

 
175,000,000

     Total
 
162,384

 
$
83.09

 
162,384

 
$
175,000,000

 
 
 
 
 
 
 
 
 



17


Stock Performance Graph
The following graph compares the cumulative total shareholder return on Belden’s common stock over the five-year period ended December 31, 2017, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 1500 Industrials Index. The comparison assumes $100 was invested on December 31, 2012, in Belden’s common stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.

stockperformancegraph.jpg

(1)
The chart above and the accompanying data are “furnished,” not “filed,” with the SEC.
Total Return To Shareholders
(Includes reinvestment of dividends)
 
 
 
 
ANNUAL RETURN PERCENTAGE
Years Ending December 31,
Company Name / Index
 
 
 
2013
 
2014
 
2015
 
2016
 
2017
Belden Inc.
 
 
 
57.1
%
 
12.2
%
 
(39.3
)%
 
57.3
%
 
3.5
%
S&P 500 Index
 
 
 
32.4
%
 
13.7
%
 
1.4
 %
 
12.0
%
 
21.8
%
S&P 1500 Industrials Index
 
 
 
41.2
%
 
8.5
%
 
(2.7
)%
 
20.4
%
 
21.1
%
 
 
 
 
INDEXED RETURNS
 
 
 
 
Years Ending December 31,
Company Name / Index
 
Base Period
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Belden Inc.
 
$
100.00

 
$
157.13

 
$
176.27

 
$
106.99

 
$
168.29

 
$
174.15

S&P 500 Index
 
100.00

 
132.39

 
150.51

 
152.59

 
170.84

 
208.14

S&P 1500 Industrials Index
 
100.00

 
141.19

 
153.15

 
149.00

 
179.40

 
217.19


18


Item 6.    Selected Financial Data
 
 
 
 
Years Ended December 31,
 
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
(In thousands, except per share amounts and percentages)
Balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
$
3,840,613

 
$
3,806,803

 
$
3,290,602

 
$
3,232,202

 
$
2,728,687

Long-term debt
1,560,748

 
1,620,161

 
1,725,282

 
1,736,954

 
1,341,470

Long-term debt, including current maturities
1,560,748

 
1,620,161

 
1,727,782

 
1,739,454

 
1,343,970

Total stockholders’ equity
1,434,866

 
1,461,317

 
825,523

 
807,186

 
836,541

Statement of operations data:
 
 
 
 
 
 
 
 
 
Revenues
2,388,643

 
2,356,672

 
2,309,222

 
2,308,265

 
2,069,193

Operating income
234,690

 
223,853

 
140,553

 
163,119

 
201,262

Operating income margin
9.8
%
 
9.5
%
 
6.1
%
 
7.1
%
 
9.7
%
Income from continuing operations
92,853

 
127,646

 
66,508

 
74,432

 
104,734

Basic income per share from continuing operations attributable to Belden common stockholders
1.38

 
2.67

 
1.57

 
1.72

 
2.39

Diluted income per share from continuing operations attributable to Belden common stockholders
1.37

 
2.65

 
1.55

 
1.69

 
2.34

Other data:
 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
42,220

 
42,093

 
42,390

 
43,273

 
43,871

Diluted weighted average common shares outstanding
42,643

 
42,557

 
42,953

 
43,997

 
44,737

Dividends per common share
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

Statement of cash flow data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
255,300

 
314,794

 
241,460

 
200,887

 
175,335

Adjusted results:
 
 
 
 
 
 
 
 
 
Adjusted revenues
2,388,643

 
2,357,805

 
2,360,583

 
2,320,219

 
2,084,490

Adjusted EBITDA
434,276

 
431,201

 
400,688

 
359,425

 
327,210

Adjusted EBITDA margin
18.2
%
 
18.3
%
 
17.0
%
 
15.5
%
 
15.7
%
Free cash flow
192,078

 
261,212

 
187,024

 
157,312

 
138,295

Consolidated Results
Since 2013, we have grown our revenues by 15.4%, from $2.1 billion in 2013 to $2.4 billion in 2017, representing a 2.9% compounded annual growth rate for that period. The majority of our revenue growth has been the result of our inorganic initiatives, described below, as we have been operating in a period of modest end market growth rates.
The trends in our operating income and income from continuing operations from 2013-2017 have been impacted by a number of acquisitions, dispositions, productivity improvement programs, and other matters, as follows:
During 2017, we recognized a $52.4 million loss on debt extinguishment related to our debt refinancing transactions during the year; severance, restructuring, and acquisition integration costs of $42.8 million related to a number of productivity improvement programs; and acquired Thinklogical Holdings, LLC in our fiscal second quarter. 
During 2016, we recognized severance, restructuring, and acquisition integration costs of $38.8 million related to a number of productivity improvement programs. In addition, we acquired M2FX Limited in our fiscal first quarter.

19


During 2015, we recognized severance, restructuring, and acquisition integration costs of $47.2 million related to a number of productivity improvement programs. In addition, we acquired Tripwire in our fiscal first quarter. We also recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards related to our acquisition of Tripwire.
During 2014, we recognized severance, restructuring, and acquisition integration costs of $70.8 million related to the integration of acquired businesses and a productivity improvement program. In 2014, we acquired Grass Valley, ProSoft, and Coast. We recognized purchase accounting effects related to acquisitions, including the adjustment of acquired inventory to fair value, of $8.4 million.
During 2013, we recognized severance and other restructuring costs, including accelerated depreciation expense, of $19.8 million, primarily related to plant consolidation activities in our Broadcast segment, and purchase accounting effects related to acquisitions, including the adjustment of acquired inventory to fair value, of $6.6 million. In 2013, we acquired Softel in our fiscal first quarter.
See further discussion of our acquisitions and productivity improvement programs in Notes 3 and 13 to the Consolidated Financial Statements.
Since 2013, we have grown our operating cash flow by 45.6%, from $175.3 million in 2013 to $255.3 million in 2017, representing a 7.8% compounded annual growth rate for that period. Our strong operating cash flow is driven by our earnings growth, coupled with our efficient use of working capital.
Adjusted Results
Since 2013, we have grown our Adjusted Revenues by 14.6%, from $2.1 billion in 2013 to $2.4 billion in 2017, representing a 2.8% compounded annual growth rate for that period. The majority of our Adjusted Revenue growth has been the result of our inorganic initiatives, described above, as we have been operating in a period of modest end market growth rates.
We have grown our Adjusted EBITDA by 32.7%, from $327.2 million in 2013 to $434.3 million in 2017, representing a 5.8% compounded annual growth rate for that period. Adjusted EBITDA has grown due to the results of our inorganic initiatives, described above, which have transformed our product portfolio. Importantly, however, our Adjusted EBITDA has also grown due to the impact of productivity improvement programs, as we are committed to continuously improving our cost structure in a low organic growth environment. Furthermore, our Adjusted EBITDA has improved as Lean enterprise techniques have been applied at our acquired companies. These factors have all led to the improvement in Adjusted EBITDA margins from 15.7% in 2013 to 18.2% in 2017.
Since 2013, our free cash flow has increased by 38.9% from $138.3 million in 2013 to $192.1 million in 2017, representing a 6.8% compounded annual growth rate for that period. Our strong free cash flow is driven by our earnings growth, coupled with our efficient use of working capital and fixed assets.
Use of Non-GAAP Financial Information
Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.

We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value

20


adjustments because they generally are not related to the acquired businesses' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.

We define free cash flow, which is a non-GAAP financial measure, as net cash from operating activities adjusted for capital expenditures net of the proceeds from the disposal of tangible assets. Prior to 2017, free cash flow was also adjusted for cash payments for severance and other costs for the integration of our acquisition of Grass Valley, non-recurring tax payments related to certain divestitures, and the settlement of a tax sharing agreement. The prior periods have been recasted to conform with this change in the definition of free cash flow. We believe free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases. We use free cash flow, as defined, as one financial measure to monitor and evaluate performance and liquidity. Non-GAAP financial measures should be considered only in conjunction with financial measures reported according to accounting principles generally accepted in the United States. Our definition of free cash flow may differ from definitions used by other companies.

Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures:
 
 
December 31, 2017
 
December 31, 2016
 
Years Ended
December 31, 2015
 
December 31, 2014
 
December 31, 2013
 
 
 
(In thousands, except percentages)
 
 
GAAP revenues
$
2,388,643

 
$
2,356,672

 
$
2,309,222

 
$
2,308,265

 
$
2,069,193

Deferred revenue adjustments (1)

 
6,687

 
51,361

 
11,954

 
15,297

Patent settlement (2)

 
(5,554
)
 

 

 

Adjusted revenues
$
2,388,643

 
$
2,357,805

 
$
2,360,583

 
$
2,320,219

 
$
2,084,490

GAAP net income attributable to Belden
$
93,210

 
$
128,003

 
$
66,204

 
$
74,449

 
$
103,313

Interest expense, net
82,901

 
95,050

 
100,613

 
81,573

 
72,601

Loss on debt extinguishment
52,441

 
2,342

 

 

 
1,612

Income tax expense (benefit)
6,495

 
(1,185
)
 
(26,568
)
 
7,114

 
22,315

Loss (Income) from discontinued operations

 

 
242

 
(579
)
 
1,421

Loss from disposal of discontinued operations

 

 
86

 
562

 

Noncontrolling interest
(357
)
 
(357
)
 
(24
)
 

 

Amortization of intangible assets
103,997

 
98,385

 
103,791

 
58,426

 
50,803

Amortization of software development intangible assets
56

 

 

 

 

Depreciation expense
45,597

 
47,208

 
46,551

 
43,736

 
43,648

Severance, restructuring, and acquisition integration costs (3)
42,790

 
38,770

 
47,170

 
70,827

 
14,888

Impairment of assets held for sale (4)

 
23,931

 

 

 

Deferred gross profit adjustments (1)

 
6,687

 
52,876

 
10,777

 
11,337

Purchase accounting effects related to acquisitions (5)
6,133

 
(2,079
)
 
9,747

 
12,540

 
6,550

Patent settlement (2)

 
(5,554
)
 

 

 

Loss (gain) on sale of assets (4)
1,013

 

 

 

 
(1,278
)
Adjusted EBITDA
$
434,276

 
$
431,201

 
$
400,688

 
$
359,425

 
$
327,210

GAAP net income margin
3.9
%
 
5.4
%
 
2.9
%
 
3.2
%
 
5.0
%
Adjusted EBITDA margin
18.2
%
 
18.3
%
 
17.0
%
 
15.5
%
 
15.7
%
 
(1)
Our adjusted results include revenues that would have been recorded by acquired businesses had they remained as independent entities. Our consolidated results do not include these revenues due to the purchase accounting effect of recording deferred revenue at fair value.

21


(2)
Both our consolidated revenues and gross profit were positively impacted by royalty revenues received during 2016 that related to years prior to 2016 as a result of a patent settlement.
(3)
See Note 13 to the Consolidated Financial Statements, Severance, Restructuring, and Acquisition Integration Activities, for details.
(4)
In 2017 and 2016, we recognized a $1.0 million loss on sale of assets and $23.9 million impairment of assets held for sale, respectively, for the sale of our MCS business and Hirschmann JV. See Note 4, Assets Held for Sale, for details.
(5)
In 2017, we recognized $6.1 million of cost of sales related to the adjustment of acquired inventory to fair value for our Thinklogical acquisition. In 2016, we made a $3.2 million adjustment to reduce the earn-out liability associated with the M2FX acquisition. This adjustment was partially offset by $0.8 million and $0.2 million of cost of sales related to the adjustment of acquired inventory to fair value related our Enterprise segment and M2FX acquisition, respectively. In 2015, we recognized $9.2 million of compensation expense related to the accelerated vesting of acquiree stock based compensation awards associated with our acquisition of Tripwire. In addition, we recognized $0.3 million of cost of sales related to the adjustment of acquired inventory to fair value related to our acquisition of Coast and $0.3 million of acquisition related transaction costs. In 2014, we recognized $8.4 million of cost of sales related to the adjustment of acquired inventory to fair value for our acquisitions of Grass Valley, ProSoft, and Coast, as well as $4.1 million of acquisition related transaction costs. In 2013, we recognized $6.6 million of cost of sales related to the adjustment of acquired inventory to fair value for our acquisition of PPC Broadband. See Note 3 to the Consolidated Financial Statements, Acquisitions.

The following table reconciles our GAAP results to our non-GAAP financial measures:
 
Years ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
 
(In thousands)
 
 
Net cash provided by operating activities
$
255,300

 
$
314,794

 
$
241,460

 
$
200,887

 
$
175,335

Capital expenditures, net of proceeds from the disposal of tangible assets
(63,222
)
 
(53,582
)
 
(54,436
)
 
(43,575
)
 
(37,040
)
Free cash flow
$
192,078

 
$
261,212

 
$
187,024

 
$
157,312

 
$
138,295




22


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

Overview
We are an innovative signal transmission solutions company built around four global business platforms – Broadcast Solutions, Enterprise Solutions, Industrial Solutions, and Network Solutions. Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.
We strive to create shareholder value by:
 
Delivering highly engineered signal transmission solutions for mission-critical applications in a diverse set of global markets;
Maintaining a balanced product portfolio across end markets, applications, and geographies that allows for a disciplined approach to growth;
Capturing additional market share by using our Market Delivery System to improve channel and end-user relationships and to concentrate sales efforts on customers in higher growth geographies and vertical end-markets;
Managing our product portfolio to provide innovative and complete end-to-end solutions for our customers in applications for which we have operational expertise and can drive customer loyalty;
Acquiring leading companies with innovative product portfolios and opportunities for synergies which fit within our strategic framework;
Continuously improving our people, processes, and systems through scalable, flexible, and sustainable business systems for talent management, Lean enterprise, and acquisition cultivation and integration; and
Protecting and enhancing the value of the Belden brands.
We believe our business system, balance across markets and geographies, systematic go-to-market approach, extensive portfolio of innovative solutions, commitment to Lean principles, and improving margin profile present a unique value proposition for our shareholders.
We consider Adjusted revenue growth on a constant currency basis, Adjusted EBITDA margin, free cash flows, and return on invested capital to be our key operating performance indicators. Our current business goals are to:
 
Grow Adjusted Revenues on a constant currency basis by 5-7% per year, from a combination of end market growth, market share capture, and contributions from acquisitions;
Achieve Adjusted EBITDA margins in the range of 20-22%;
Achieve free cash flow growth in the range of 13-15%; and
Realize return on invested capital of 13-15%.
Significant Trends and Events in 2017
The following trends and events during 2017 had varying effects on our financial condition, results of operations, and cash flows.
Foreign currency
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, and Brazilian real. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted.
In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location.


23


Commodity Prices
Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. Importantly, however, there is no exact measure of the effect of changing commodity prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates.
Channel Inventory
Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold our products in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of Belden products owned and held in their inventory, it impacts our revenues. Comparisons of our results between periods can be impacted by changes in the levels of channel inventory. We are dependent upon our channel partners to provide us with information regarding the amount of our products that they own and hold in their inventory. As such, all references to the effect of channel inventory changes are estimates.
Market Growth and Market Share
The markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players. Based on available data for our served markets, we estimate that our market share across our segments is significant, ranging from approximately 5% - 20%. A substantial acquisition in one of our served markets would be necessary to meaningfully change our estimated market share percentage. We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period. We generally expect that our unit sales volume will increase or decrease consistently with the market growth rate. Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate. To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.
Operating Segments
To leverage the Company's strengths in networking, IoT, and cybersecurity technologies, effective January 1, 2017, we formed a new segment called Network Solutions, which represents the combination of the prior Industrial IT Solutions and Network Security Solutions segments.  The formation was a natural evolution in our organic and inorganic strategies for a range of industrial and non-industrial applications.  We revised the prior period segment information to conform to the change in the composition of these reportable segments.  In connection with this change, we re-evaluated the useful life of the Tripwire trademark and concluded that an indefinite life is no longer appropriate. We have estimated a useful life of 10 years and will re-evaluate this estimate if and when our expected use of the Tripwire trademark changes. We began amortizing the Tripwire trademark in the first quarter of 2017, which resulted in amortization expense of $3.1 million for the year ended December 31, 2017. As of December 31, 2017, the net book value of the Tripwire trademark was $27.9 million. See Notes 6 and 11.
Acquisitions
We completed the acquisitions of Thinklogical Holdings, LLC (Thinklogical) on May 31, 2017; M2FX Limited (M2FX) on January 7, 2016; and Tripwire Inc. (Tripwire) on January 2, 2015. The results of Thinklogical and M2FX have been included in our Consolidated Financial Statements from their respective acquisition dates and are reported in the Broadcast Solutions segment. The results of Tripwire have been included in our Consolidated Financial Statements from the acquisition date and are reported in the Network Solutions segment.
Assets Held for Sale
During the fourth quarter of 2016, we committed to a plan to sell our MCS business and Hirschmann JV and determined that we met all of the criteria to classify the assets and liabilities of these businesses as held for sale. During 2016, we reached an agreement in principle to sell this disposal group for a total sales price of $39 million. As the carrying value of the disposal group exceeded

24


the fair value less costs to sell, which we determined based on the expected sales price, by $23.9 million, we recognized an impairment charge equal to this amount in 2016. Effective December 31, 2017, we sold the MCS business and Hirschmann JV and recognized a loss on sale of the assets of $1.0 million. See Note 4.
Long-Term Debt

In July 2017, we issued €450.0 million aggregate principal amount of new senior subordinated notes due 2027 at an interest rate of 3.375%. We used the net proceeds of this offering and cash on hand to repurchase all of our outstanding $700.0 million 5.5% senior subordinated notes due 2022. In September 2017, we issued €300.0 million aggregate principal amount of new senior subordinated notes due 2025 at an interest rate of 2.875%. We used the net proceeds of this offering to repurchase €300.0 million of our outstanding €500.0 million 5.5% senior subordinated notes due 2023. We recognized a loss on debt extinguishment of approximately $51.6 million for the premium paid to the bond holders to retire the 2022 and 2023 notes and for the unamortized debt issuance costs that we wrote off. In connection with these debt transactions, we paid $15.0 million of fees, which we will amortize over the life of the respective Notes. Additionally, in June 2017, we repaid all of the outstanding $5.2 million aggregate principal amount of 9.25% senior subordinated notes due 2019, plus accrued interest, and recognized an immaterial loss on debt extinguishment related to unamortized debt issuance costs.

In May 2017, we entered into an Amended and Restated Credit Agreement (the Revolver) to amend and restate our prior Revolving Credit Agreement. The Revolver provides a $400.0 million multi-currency asset-based revolving credit facility. We recognized a $0.8 million loss on debt extinguishment for unamortized debt issuance costs related to creditors no longer participating in the new Revolver. In connection with executing the Revolver, we paid $2.3 million of fees to creditors and third parties that we will amortize over the remaining term of the Revolver. As of December 31, 2017, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $348.6 million. See Note 14.

Productivity Improvement Programs

Industrial Manufacturing Footprint Program: 2016-2017
In the first quarter of 2016, we began a program to consolidate our manufacturing footprint. The manufacturing consolidation is expected to be completed in 2018. We recognized $30.6 million and $17.8 million of severance and other restructuring costs for this program during 2017 and 2016, respectively. The costs were incurred by the Enterprise Solutions and Industrial Solutions segments, as the manufacturing locations involved in the program serve both platforms. To date, we have incurred a total of $48.4 million in severance and other restructuring costs, including manufacturing inefficiencies for this program. We expect to incur approximately $6 million of additional severance and other restructuring costs for this program in 2018. We expect that the program will generate approximately $13 million of savings on an annualized basis, which we began to realize in the third quarter of 2017.

Results of Operations
Consolidated Income from Continuing Operations before Taxes
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Revenues
$
2,388,643

 
$
2,356,672

 
$
2,309,222

 
1.4
 %
 
2.1
 %
Gross profit
934,039

 
980,994

 
918,173

 
(4.8
)%
 
6.8
 %
Selling, general and administrative expenses
461,022

 
494,224

 
525,518

 
(6.7
)%
 
(6.0
)%
Research and development
134,330

 
140,601

 
148,311

 
(4.5
)%
 
(5.2
)%
Amortization of intangibles
103,997

 
98,385

 
103,791

 
5.7
 %
 
(5.2
)%
Impairment of assets held for sale

 
23,931

 

 
(100.0
)%
 
n/a

Operating income
234,690

 
223,853

 
140,553

 
4.8
 %
 
59.3
 %
Interest expense, net
82,901

 
95,050

 
100,613

 
(12.8
)%
 
(5.5
)%
Loss on debt extinguishment
52,441

 
2,342

 

 
2,139.2
 %
 
n/a

Income from continuing operations before taxes
99,348

 
126,461

 
39,940

 
(21.4
)%
 
216.6
 %


25




2017 Compared to 2016

Revenues increased in 2017 from 2016 due to the following factors:

Acquisitions contributed $30.8 million to the increase in revenues.
Higher copper costs contributed $13.0 million to the increase in revenues.
Currency translation had a $12.2 million favorable impact on revenues.
Lower sales volume resulted in a $24.1 million decrease in revenues.
Gross profit decreased $47.0 million in 2017 from 2016, and gross profit margin decreased 250 basis points from 41.6% in 2016 to 39.1% in 2017. The decrease in gross profit and margin is primarily attributable to the decrease in lower sales volume discussed above; increases in severance, restructuring, and acquisition integration costs; and increases in copper costs. Increases in copper prices result in higher revenues as discussed above, but as they have minimal impact to gross profit dollars, resulting in lower gross profit margins. Gross profit for 2017 included $32.6 million of severance, restructuring, and acquisition integration costs; $6.1 million of cost of sales arising from the adjustment of inventory to fair value related to an acquisition; and $0.8 million of accelerated depreciation in our Enterprise Solutions segment. Gross profit for 2016 included $12.3 million of severance, restructuring, and acquisition integration costs; $1.0 million of cost of sales arising from the adjustment of inventory to fair value related to acquisitions; and $0.9 million of accelerated depreciation in our Enterprise Solutions segment.
Selling, general and administrative expenses decreased by $33.2 million from 2016 to 2017 primarily due to a $15.7 million decrease in severance, restructuring, and acquisition integration costs and improved productivity. Selling, general and administrative expenses included $10.0 million of severance, restructuring, and integration costs in 2017 as compared to $25.7 million in 2016. The remaining decrease is primarily due to realized benefits from our productivity improvement initiatives.
Research and development decreased by $6.3 million in 2017 from 2016 primarily due to productivity improvement initiatives, which contributed $8.8 million to the decline in research and development costs, partially offset by $2.7 million from the acquisition of Thinklogical.
Amortization of intangibles increased $5.6 million in 2017 from 2016 primarily due to the acquisition of Thinklogical and amortization from the Tripwire trademark, which we began amortizing in 2017. These increases were partially offset by the intangible assets classified as held for sale for which we ceased amortizing in the fourth quarter of 2016 (see Note 11).
In 2016, we recognized a $23.9 million impairment of assets held for sale related to our MCS business and Hirschmann JV. The amount of the impairment of assets held for sale represents the excess carrying value over the fair value of the assets. See Note 4, Assets Held for Sale.
Operating income increased by $10.8 million in 2017 from 2016 primarily due to the impairment of assets held for sale in the prior year and the decline in selling, general and administrative expenses; partially offset by the decline in gross profit discussed above.
Interest expense decreased $12.2 million in 2017 from 2016 due to our recent financing activities. In July 2017, we issued €450.0 million aggregate principal amount of new senior subordinated notes due 2027 at an interest rate of 3.375%. We used the net proceeds of this offering and cash on hand to repurchase all of our outstanding $700.0 million 5.5% senior subordinated notes due 2022. In September 2017, we issued €300.0 million aggregate principal amount of new senior subordinated notes due 2025 at an interest rate of 2.875%. We used the net proceeds of this offering to repurchase €300.0 million of our outstanding €500.0 million 5.5% senior subordinated notes due 2023. See Note 14.
Loss on debt extinguishment increased $50.1 million in 2017 from 2016. The loss on debt extinguishment recognized in 2017 represents the premium paid to the bond holders to retire the 2022 and 2023 notes and for the unamortized debt issuance costs written off for the 2022 Notes, 2023 Notes, and creditors no longer participating in the Revolving Credit Agreement, which we refinanced in May 2017. The loss on debt extinguishment recognized in 2016 represents the unamortized debt issuance costs written off for the Term Loan that we repaid in 2016. See Note 14.
Income from continuing operations before taxes decreased by $27.2 million from 2016 to 2017 primarily due to the increase in loss on debt extinguishment discussed above.

26




2016 Compared to 2015
Revenues increased in 2016 from 2015 due to the following factors:

Increases in sales volume resulted in an increase in revenues of $26.2 million. An increase in volume within our broadcast and enterprise markets was partially offset by soft demand for our industrial products. From a geographic perspective, volume growth was most notable in Asia and Europe.
Purchase accounting effects of recording deferred revenue at fair value primarily for our Tripwire acquisition resulted in a revenue increase of $44.7 million in 2016 as compared to 2015.
Royalty revenues from a patent settlement in 2016 resulted in a revenue increase of $10.3 million.
Acquisitions resulted in a revenue increase of $6.6 million.
Lower copper costs resulted in a revenue decrease of $22.7 million.
Unfavorable currency translation, primarily due to the strengthening U.S. dollar compared to the euro and the Canadian dollar, resulted in a revenue decrease of $17.6 million.
Gross profit increased $62.8 million in 2016 from 2015, and gross profit margin increased 180 basis points from 39.8% in 2015 to 41.6% in 2016. The increases in gross profit margins is primarily attributable to the increases in revenues discussed above and improved productivity as a result of our restructuring actions. Gross profit for 2016 included $12.3 million of severance, restructuring, and acquisition integration costs; $1.0 million of cost of sales arising from the adjustment of inventory to fair value related to acquisitions; and $0.9 million of accelerated depreciation in our Enterprise Solutions segment. Gross profit for 2015 included $9.4 million of severance, restructuring, and acquisition integration costs and $0.3 million of cost of sales arising from the adjustment of inventory to fair value related to our acquisition of Coast.
Selling, general and administrative expenses decreased by $31.3 million from 2015 to 2016 primarily due to $9.2 million of compensation expense that we recognized in the prior year as a result of accelerating the vesting of certain acquiree equity awards at the closing of the Tripwire acquisition; a $3.2 million benefit in 2016 as a result of reducing the M2FX earn-out liability to zero; realized benefits from our productivity improvement initiatives; and a reduction in severance, restructuring, and integration costs from the prior year. In 2016 and 2015, selling, general and administrative expenses included $25.7 million and $31.7 million, respectively, of severance, restructuring, and integration costs, representing a $6.1 million decline over the prior year. Favorable currency translation contributed approximately $6.0 million to the decline in selling, general and administrative expenses in 2016.
Research and development decreased by $7.7 million in 2016 from 2015 primarily due to a decline of $5.3 million of severance, restructuring, and integration costs. Favorable currency translation and productivity improvement initiatives also contributed $1.8 million and $1.3 million to the decrease in research and development in 2016, respectively.
Amortization of intangibles decreased $5.4 million in 2016 from 2015 primarily due to favorable currency translation and certain intangible assets becoming fully amortized during 2016. These decreases were partially offset by approximately $1.0 million from the acquisition of M2FX.
In 2016, we recognized a $23.9 million impairment of assets held for sale related to our MCS business and Hirschmann JV. The amount of the impairment of assets held for sale represents the excess carrying value over the fair value of the assets. See Note 4, Assets Held for Sale.
Operating income increased by $83.3 million from 2015 to 2016 primarily due to the increases in gross profit and decreases in selling, general and administrative expenses discussed above.
Interest expense decreased $5.6 million in 2016 from 2015 due to our financing activities. During the fourth quarter of 2015 and the first quarter of 2016, we repaid $150.0 million and $50.0 million, respectively, outstanding under our Revolver, and in the fourth quarter of 2016, we issued €200.0 million ($222.2 million at issuance) 4.125% Senior Subordinated notes due 2026 and paid off our $250.0 million Term Loan. The net impact of these financing activities led to the decrease in interest expense for the year. We recognized a $2.3 million loss on debt extinguishment for the unamortized debt issuance costs associated with the Term Loan.
Income from continuing operations before taxes increased by $86.5 million from 2015 to 2016 primarily due to the increases in operating income discussed above.


27




Income Taxes
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Income before taxes
$
99,348

 
$
126,461

 
$
39,940

 
(21.4
)%
 
216.6
 %
Income tax benefit (expense)
(6,495
)
 
1,185

 
26,568

 
(648.1
)%
 
(95.5
)%
Effective tax rate
6.5
%
 
(0.9
)%
 
(66.5
)%
 
 
 
 

2017 Compared to 2016
We recognized income tax expense of $6.5 million in 2017, representing an effective tax rate of 6.5%. The effective tax rate was impacted by the following significant factors:

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded $28.4 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax expense is comprised of a $36.0 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $29.1 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law. The Company continues to analyze its provisional estimate regarding the non-deductibility of certain covered employee compensation associated with amendments to IRC section 162(m). As of the date of this filing, the Company reasonably believes that the impact of these changes is immaterial.
We recognized a net tax benefit of $19.8 million related to a foreign tax credit planning initiative that enabled us to recognize tax credits from a foreign jurisdiction. This $19.8 million additional foreign tax credit generated in 2017 has been fully utilized in the current year.
We also recognized a net tax benefit of $27.1 million resulting from a non-taxable translation gain associated with a debt instrument that is treated as a loan for U.S. GAAP purposes but as equity for tax purposes.

The net tax benefit described above for 2017 was partially offset by $2.2 million of tax expense to record a liability for uncertain tax positions primarily for our foreign jurisdictions.

Our income tax expense was also impacted by foreign tax rate differences. The statutory tax rates associated with our foreign earnings generally are lower than the 2017 statutory U.S. tax rate of 35%. This had the greatest impact on our income from continuing operations before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively. Foreign tax rate differences reduced our income tax expense by approximately $13.0 million and $17.7 million in 2017 and 2016, respectively.

Our income tax expense and effective tax rate in future periods may be impacted by many factors, including our geographic mix of income and changes in tax laws.

As of December 31, 2017, we maintained a valuation allowance on our deferred tax assets of $151.8 million. Of this amount, approximately $104.3 million relates to net operating loss deferred tax assets for certain of our Grass Valley entities. Certain Grass Valley entities have a history of significant tax losses in their various jurisdictions. We do not currently have sufficient history of taxable income in the relevant jurisdictions to support the realizability of the net operating losses.

The remaining $47.5 million of valuation allowance primarily relates to deferred tax assets for certain U.S foreign tax credits and U.S. state net operating losses and tax credits. The $35.3 million valuation allowance on the foreign tax credits is a direct result of the Act, as described above. The remaining $12.2 million valuation allowance relates to state net operating losses and tax credits.

28


While we have positive evidence in the form of projected sources of income, we determined that these state carryforward assets were not more likely than not realizable as of December 31, 2017 due to a history of net operating losses and tax credits expiring without being utilized in certain states and because the current forecast of income is not sufficient to utilize all of these state net operating losses and tax credits prior to expiration.

2016 Compared to 2015
We recognized an income tax benefit of $1.2 million in 2016, representing an effective tax rate of (0.9%) . The effective tax rate was impacted by the following significant factors:
We recognized a net tax benefit of $13.3 million related to a foreign tax credit planning initiative that enabled us to recognize tax credits from a foreign jurisdiction.
We also recognized a net tax benefit of $9.2 million as a result of reducing deferred tax valuation allowances related to net operating loss carryforwards in foreign jurisdictions.
We also recognized a $7.0 million tax benefit in 2016 for the reduction of deferred tax liabilities related to a previously completed acquisition. We secured a Private Letter Ruling from the Internal Revenue Service that effectively increased the tax basis in the acquired assets to the full fair value. Accordingly, a book-tax difference was eliminated, and we reversed deferred tax liabilities previously recorded, resulting in the tax benefit.
We also recognized a $4.7 million tax benefit in 2016 as the result of securing a significant tax deduction for a foreign currency loss by implementing several transactions related to our international tax structure.
 
The tax benefits described above for 2016 were partially offset by $3.0 million of tax expense to record a liability for uncertain tax positions in one of our foreign jurisdictions.

Our income tax expense was also impacted by foreign tax rate differences. The statutory tax rates associated with our foreign earnings generally are lower than the statutory U.S. tax rate of 35%. This had the greatest impact on our income from continuing operations before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively. Foreign tax rate differences reduced our income tax expense by approximately $17.7 million and $3.4 million in 2016 and 2015, respectively.
Our income tax expense and effective tax rate in future periods may be impacted by many factors, including our geographic mix of income and changes in tax laws.
As of December 31, 2016, we maintained a valuation allowance on our deferred tax assets of $104.8 million. Of this amount, approximately $91.6 million related to net operating loss deferred tax assets for certain of our Grass Valley entities. Certain Grass Valley entities have a history of significant tax losses in their various jurisdictions. We did not have sufficient history of taxable income in the relevant jurisdictions to support the realizability of the net operating losses.
The remaining $13.2 million of valuation allowance primarily related to deferred tax assets for certain U.S. state net operating losses and tax credits. While we had positive evidence in the form of projected sources of income, we determined that these assets were not more likely than not realizable as of December 31, 2016 due to a history of net operating losses and tax credits expiring without being utilized in certain states and because the forecast of income was not sufficient to utilize all of these state net operating losses and tax credits prior to expiration.
Consolidated Adjusted Revenues and Adjusted EBITDA
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Adjusted Revenues
$
2,388,643

 
$
2,357,805

 
$
2,360,583

 
1.3
%
 
(0.1
)%
Adjusted EBITDA
434,276

 
431,201

 
400,688

 
0.7
%
 
7.6
 %
as a percent of adjusted revenues
18.2
%
 
18.3
%
 
17.0
%
 
 
 
 

2017 Compared to 2016
Adjusted Revenues increased in 2017 from 2016 due to the following factors:


29


Acquisitions contributed $30.8 million to the increase in revenues.
Higher copper costs contributed $13.0 million to the increase in revenues.
Currency translation had a $12.2 million favorable impact on revenues.
Lower sales volume resulted in a $25.2 million decrease in revenues.

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

2016 Compared to 2015
Adjusted Revenues decreased in 2016 from 2015 due to the following factors:

Lower copper costs resulted in a revenue decrease of $22.7 million.
Unfavorable currency translation, primarily due to the strengthening U.S. dollar compared to the euro and the Canadian dollar, resulted in a revenue decrease of $17.6 million.
Increases in unit sales volume resulted in an increase in revenues of $26.2 million. An increase in volume within our broadcast and enterprise markets was partially offset by soft demand for our industrial products. From a geographic perspective, volume growth was most notable in Asia and Europe.
Acquisitions resulted in a revenue increase of $6.6 million.
Royalty revenues from a patent settlement resulted in a revenue increase of $4.7 million.
Adjusted EBITDA increased $30.5 million in 2016 from 2015 primarily due to productivity initiatives, which contributed $28.3 million of Adjusted EBITDA. In addition, Adjusted EBITDA increased due to favorable currency translation and acquisitions, with an impact of $5.6 million and $1.0 million, respectively. These factors were partially offset by unfavorable product mix.

Use of Non-GAAP Financial Information
Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
                                                                                                                                                      
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired businesses' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.
Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. See Item 6, Selected Financial Data, for the tables that reconcile our GAAP results to our non-GAAP financial measures.

Segment Results of Operations

30


For additional information regarding our segment measures, see Note 6 to the Consolidated Financial Statements.

Broadcast Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Segment Revenues
$
725,139

 
$
769,753

 
$
739,970

 
(5.8
)%
 
4.0
%
Segment EBITDA
112,849

 
137,870

 
113,638

 
(18.1
)%
 
21.3
%
as a percent of segment revenues
15.6
%
 
17.9
%
 
15.4
%
 
 
 
 

2017 Compared to 2016
Broadcast revenues decreased by $44.6 million in 2017 as compared to 2016 primarily due to decreases in volume and a product line transfer to the Enterprise Solutions segment, which contributed $70.7 million and $5.4 million, respectively, to the decrease in revenues. The decrease in volume was most notable in our Grass Valley business. The decreases discussed above were partially offset by $30.8 million of revenues from the acquisition of Thinklogical as well as $0.6 million for the favorable impact of currency translation.
Broadcast EBITDA decreased $25.0 million in 2017 as compared to 2016 primarily due to the decreases in revenues discussed above; partially offset by improved productivity resulting from of our restructuring actions and acquisition integration activities.  Accordingly, Broadcast EBITDA margins declined 230 basis points from 17.9% in 2016 to 15.6% in 2017.

2016 Compared to 2015
Broadcast revenues increased by $29.8 million from 2015 to 2016. Increases in volume resulted in a $25.6 million increase in revenues. The increase in volume stems in part from the market's reaction for the segment's new and innovative IP solutions. Sales of our broadcast infrastructure products also benefited from a more stable U.S. dollar. The increase in volume was most notable outside of the United States. Broadcast revenues also included royalty revenues related to 2016 of $4.7 million as a result of a patent settlement in 2016. This segment will continue to earn royalty revenues in 2017 and beyond. The acquisition of M2FX also contributed $6.6 million to the increase in revenues. These factors were partially offset by unfavorable currency translation of $7.1 million.
Broadcast EBITDA increased $24.2 million from 2015 to 2016 primarily due to leverage on the increases in revenues discussed above, as well as improved productivity as a result of our restructuring actions and acquisition integration activities. Accordingly, Broadcast EBITDA margins expanded 250 basis points from 15.4% in 2015 to 17.9% in 2016.
Enterprise Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Segment Revenues
$
631,166

 
$
603,188

 
$
605,910

 
4.6
%
 
(0.4
)%
Segment EBITDA
103,650

 
101,298

 
100,214

 
2.3
%
 
1.1
 %
as a percent of segment revenues
16.4
%
 
16.8
%
 
16.5
%
 
 
 
 

2017 Compared to 2016
Enterprise revenues increased $28.0 million in 2017 as compared to 2016 primarily due to higher copper costs, which increased revenues by $15.3 million. A product line transfer from our Broadcast Solutions segment contributed $5.4 million to the increase in revenues year over year. Furthermore, increases in volume and currency translation had a $4.0 million and $3.3 million favorable impact on revenues, respectively.
Enterprise EBITDA increased $2.4 million in 2017 as compared to 2016 primarily due to the increases in revenues discussed above. The 40 basis point decline in EBITDA margins was primarily attributable to the inability to fully and timely pass through the rising copper costs to our customers.

31



2016 Compared to 2015
The decrease in Enterprise revenues in 2016 from 2015 was primarily due to $9.9 million and $5.1 million impacts from lower copper costs and unfavorable currency translation, respectively. These decreases were partially offset by sales volume increases of $12.3 million. Sales volume growth was broad-based globally, and most notable in Canada.
Enterprise EBITDA increased in 2016 from 2015 due to the leverage on higher sales volume discussed above, partially offset by unfavorable currency translation. Accordingly, EBITDA margins improved to 16.8% in 2016 from 16.5% in 2015.

Industrial Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Segment Revenues
$
628,458

 
$
585,476

 
$
603,350

 
7.3
%
 
(3.0
)%
Segment EBITDA
119,642

 
101,248

 
99,941

 
18.2
%
 
1.3
 %
as a percent of segment revenues
19.0
%
 
17.3
%
 
16.6
%
 
 
 
 


2017 Compared to 2016
Industrial Solutions revenues increased $43.0 million in 2017 as compared to 2016 primarily due to volume growth, higher copper costs, and favorable currency translation, which contributed $23.6 million, $14.5 million, and $4.9 million, respectively, to the increase in revenues year over year. Our robust growth in volume stems from our continued strength in discrete manufacturing, our largest vertical.
Industrial EBITDA increased $18.4 million in 2017 as compared to 2016 primarily due to leverage on volume and productivity improvements. Accordingly, Industrial Solutions EBITDA margins expanded 170 basis points to 19.0%.

2016 Compared to 2015
The decrease in Industrial revenues in 2016 from 2015 was primarily due to lower copper costs, unfavorable currency translation, and volume decreases of $12.6 million, $4.9 million, and $0.4 million, respectively. The sales volume declines stemmed from the impact of lower energy prices, which resulted in lower capital spending for industrial projects. Sales volume was most notably down in North America and Latin America, with some offsets in Europe with discrete manufacturers.

Industrial EBITDA increased in 2016 as compared to 2015 primarily due to productivity improvements resulting from our restructuring actions. Accordingly, EBITDA margins improved from 16.6% in 2015 to 17.3% in 2016.
Network Solutions
 
 
 
 
 
 
 
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages)
Segment Revenues
$
403,880

 
$
399,388

 
$
411,353

 
1.1
%
 
(2.9
)%
Segment EBITDA
93,893

 
92,773

 
87,873

 
1.2
%
 
5.6
 %
as a percent of segment revenues
23.2
%
 
23.2
%
 
21.4
%
 
 
 
 


2017 Compared to 2016
Network Solutions revenues increased $4.5 million in 2017 as compared to 2016, primarily due to favorable currency translation and volume growth of $3.5 million and $1.0 million, respectively.
Network Solutions EBITDA increased $1.1 million in 2017 as compared to 2016 due to the growth in revenues discussed above. However, EBITDA margins remained flat at 23.2% primarily as a result of increased investment in research and development.

32



2016 Compared to 2015
Network Solutions revenues decreased in 2016 from 2015, primarily due to a decrease in unit sales volume of $11.5 million. The decline in sales volume was driven by weakness in global oil and gas markets and commercial staffing shortages. Unfavorable currency translation resulted in a decrease in revenues of $0.6 million.
Despite the decrease in revenues for the year, Network Solutions EBITDA increased by $4.9 million as compared to 2015, due to improved productivity as a result of restructuring actions, as well as favorable product mix. Accordingly, Network Solutions EBITDA margins expanded to 23.2% in 2016, up 180 basis points from 2015.

Discontinued Operations
In 2010, we completed the sale of Trapeze Networks, Inc. (Trapeze) for $152.1 million and recognized a pre-tax gain of $88.3 million ($44.8 million after-tax). At the time the transaction closed, a portion of the sale price was placed in escrow as partial security for our indemnity obligations under the sale agreement. During 2015, we agreed to a final settlement with the buyer of Trapeze regarding the escrow, and collected $3.5 million of the escrow receivable and recognized a $0.2 million ($0.1 million net of tax) loss from disposal of discontinued operations. Additionally, we recognized a $0.2 million net loss from discontinued operations for income tax expense related to this disposed business in 2015.
Liquidity and Capital Resources
Significant factors affecting our cash liquidity include (1) cash provided by operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, (4) our available credit facilities and other borrowing arrangements, and (5) cash proceeds from equity offerings. We expect our operating activities to generate cash in 2018 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing were we to complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing.
The following table is derived from our Consolidated Cash Flow Statements:
 
 
Years Ended
December 31,
 
2017
 
2016
 
(In thousands)
Net cash provided by (used for):
 
 
 
Operating activities
$
255,300

 
$
314,794

Investing activities
(230,118
)
 
(73,257
)
Financing activities
(331,448
)
 
401,704

Effects of currency exchange rate changes on cash and cash equivalents
19,258

 
(11,876
)
Increase (decrease) in cash and cash equivalents
(287,008
)
 
631,365

Cash and cash equivalents, beginning of year
848,116

 
216,751

Cash and cash equivalents, end of year
$
561,108

 
$
848,116


Net cash provided by operating activities totaled $255.3 million for 2017 compared to $314.8 million for 2016. This deterioration was primarily due to an unfavorable change in inventory of $86.8 million. Approximately half of the unfavorable change in inventory was due to higher copper prices. Furthermore, safety stock inventory resulting from the closure of one of our plants as part of our industrial manufacturing footprint consolidation program also contributed to a temporary growth in inventory levels over the year ago period.
Net cash used for investing activities totaled $230.1 million for 2017 compared to $73.3 million for 2016. Investing activities for 2017 included payments, net of cash acquired, for the acquisition of Thinklogical of $165.9 million; capital expenditures of $64.3 million; and a $1.0 million payment related to our 2015 acquisition of Tripwire that had previously been deferred. Investing activities for 2016 included capital expenditures of $54.0 million and payments for acquisitions, net of cash acquired, of $18.8 million.

33


Net cash flows from financing activities was a $331.4 million use of cash for 2017, compared to a $401.7 million source of cash for 2016. Financing activities for 2017 included payments under borrowing arrangements of $1,105.9 million, cash dividend payments of $43.4 million, debt issuance costs of $17.3 million, payments under our share repurchase program of $25.0 million, net payments related to share based compensation activities of $6.6 million, and borrowings under credit arrangements of $866.7 million. Financing activities for 2016 included net proceeds from the issuance of preferred stock of $501.5 million, borrowings of $222.1 million to pay off the term loan, repayments of borrowings of $294.4 million, cash dividend payments of $16.1 million, net payments related to share-based compensation activities of $7.5 million, and debt issuance cost payments of $3.9 million.
Our cash and cash equivalents balance was $561.1 million as of December 31, 2017. Of this amount, $184.7 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. The Tax Cuts and Jobs Act of 2017 included a one-time transition tax of unremitted foreign earnings. Accordingly, as of December 31, 2017, we recorded tax expense of $29.1 million, most of which was non-cash, related to the transition tax on the one-time mandatory deemed repatriation of all our foreign earnings. See Note 16 Income Taxes in the accompanying notes to our consolidated financial statements.
Our outstanding debt obligations as of December 31, 2017 consisted of $1.6 billion of senior subordinated notes. As of December 31, 2017, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $348.6 million. Additional discussion regarding our various borrowing arrangements is included in Note 14 to the Consolidated Financial Statements.

Contractual obligations outstanding at December 31, 2017, have the following scheduled maturities:
 
 
Total
 
Less than
1 Year
 
1-3
Years
 
4-5
Years
 
More than
5 Years
 
(In thousands)
Long-term debt payment obligations (1)(2)
1,584,232

 
$

 
$

 
$

 
$
1,584,232

Interest payments on long-term debt obligations
508,215

 
62,372

 
124,743

 
124,743

 
196,357

Operating lease obligations (3)
97,289

 
22,440

 
31,793

 
19,562

 
23,494

Purchase obligations (4)
28,921

 
28,921

 

 

 

Other commitments (5)
8,579

 
1,110

 
7,030

 
439

 

Pension and other postemployment obligations
60,599

 
6,224

 
12,525

 
11,820

 
30,030

Total
$
2,287,835

 
$
121,067

 
$
176,091

 
$
156,564

 
$
1,834,113

 
(1)
As described in Note 14 to the Consolidated Financial Statements.
(2)
Amounts do not include accrued and unpaid interest. Accrued and unpaid interest related to long-term debt obligations is reflected on a separate line in the table.
(3)
As described in Note 23 to the Consolidated Financial Statements.
(4)
Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.
(5)
Does not include accounts payable reflected in the financial statements. Includes obligations for uncertain tax positions (see Note 16 to the Consolidated Financial Statements).
Our commercial commitments expire or mature as follows:
 

34


 
Total
 
Less than
1 Year
 
1-3
Years
 
3-5
Years
 
More than
5 Years
 
(In thousands)
Standby financial letters of credit
$
7,470

 
$
7,431

 
$
39

 
$

 
$

Bank guarantees
1,701

 
1,701

 

 

 

Surety bonds
2,362

 
2,362

 

 

 

Total
$
11,533

 
$
11,494

 
$
39

 
$

 
$

Standby financial letters of credit, bank guarantees, and surety bonds are generally issued to secure obligations we have for a variety of commercial reasons such as workers compensation self-insurance programs in several states and the importation and exportation of product. We expect to replace most of these when they expire or mature.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors.
Current-Year Adoption of Recent Accounting Pronouncements
Discussion regarding our adoption of accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S. (GAAP). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 of our Consolidated Financial Statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (1) persuasive evidence of an arrangement exists, (2) price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Delivery typically occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement.
At the time of sale, we establish an estimated reserve for trade, promotion, and other special price reductions such as contract pricing, discounts to meet competitor pricing, and on-time payment discounts. We also reserve for, among other things, correction of billing errors, incorrect shipments, and settlement of customer disputes. Customers are allowed to return inventory if and when certain conditions regarding the functionality of the inventory and our approval of the return are met. Certain distribution customers are allowed to return inventory at original cost, in an amount not to exceed three percent of the prior year’s purchases, in exchange for an order of equal or greater value. Until we can process these reductions, corrections, and returns (together, the Changes) through individual customer records, we estimate the amount of outstanding Changes and recognize them by reducing revenues and accounts receivable. We determine our estimate based on our historical Changes as a percentage of revenues and the average time period between the original sale and the issuance of the Changes. We also adjust inventory and cost of sales for the estimated level of returns.
We base these estimates on historical and anticipated sales demand, trends in product pricing, and historical and anticipated Changes patterns. We make revisions to these estimates in the period in which the facts that give rise to each revision become known. Future market conditions and product transitions might require us to take actions to further reduce prices and increase customer return authorizations. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or

35


assumptions we use to measure the Changes. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in our sales reserve for such Changes as of December 31, 2017 would have affected net income by less than $1 million in 2017.
At times, we enter into arrangements that involve the delivery of multiple elements. For these arrangements, when the elements can be separated, the revenue is allocated to each deliverable based on that element’s relative selling price and recognized based on the period of delivery for each element. Generally, we determine relative selling price using vendor-specific objective evidence (VSOE).
We have certain products subject to the accounting guidance on software revenue recognition. For such products, software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, collection is probable and VSOE of the fair value of undelivered elements exists. As substantially all of the software licenses are sold in multiple-element arrangements that include either support or professional services, we use the residual method to determine the amount of software license revenue to be recognized. Under the residual method, consideration is allocated to undelivered elements based upon VSOE of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as software license revenue. We have established VSOE of the fair value of support, subscription-based software licenses, and professional services. Software license revenue is generally recognized upon delivery of the software if all revenue recognition criteria are met.
Revenue allocated to support services under our support contracts is typically paid in advance and recognized ratably over the term of the service. Revenue allocated to subscription-based software and remote ongoing operational services is also paid in advance and recognized ratably over the term of the service. Revenue allocated to professional services is recognized as the services are performed.
Income Taxes
We recognize deferred tax assets resulting from tax credit carryforwards, net operating loss carryforwards, and deductible temporary differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred tax assets generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our Consolidated Financial Statements become deductible for income tax purposes. A deferred tax asset valuation allowance is required when some portion or all of the deferred tax assets may not be realized. We are required to estimate taxable income in future years or develop tax strategies that would enable tax asset realization in each taxing jurisdiction and use judgment to determine whether to record a deferred tax asset valuation allowance for part or all of a deferred tax asset.

We consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets associated with net operating losses. We consider the reversals of existing taxable temporary differences as well as projections of future taxable income. We consider the future reversals of existing taxable temporary differences to the extent they were of the same character as the temporary differences giving rise to the deferred tax assets. We also consider whether the future reversals of existing taxable temporary differences will occur in the same period and jurisdiction as the temporary differences giving rise to the deferred tax assets. The assumptions utilized to estimate our future taxable income are consistent with those assumptions utilized for purposes of testing goodwill for impairment, as well as with our budgeting and strategic planning processes.

Significant judgment is required in evaluating our uncertain tax positions. We establish accruals for uncertain tax positions when we believe that the full amount of the associated tax benefit may not be realized. In the future, if we prevail in matters for which accruals have been established previously or pay amounts in excess of reserves, there could be a material effect on our income tax provisions in the period in which such determination is made.

We have significant tax credit carryforwards in the U.S. for which we have recorded a partial valuation allowance as a result of the Tax Cuts and Jobs Act of 2017 (the "Act"). The utilization of these credits is dependent upon the recognition of both U.S. taxable income as well as income characterized as foreign source under the U.S. tax laws. We do not expect to generate enough foreign source income in the future to utilize all of these tax credits due to law changes introduced by the Act. Nevertheless, in 2018 we expect to continue implementation of tax planning strategies that will help generate additional foreign source income in the carryforward period. In addition, we have significant research and development related tax credit carryforwards in Canada on which we have not recorded a valuation allowance. The utilization of these credits is dependent upon the recognition of Canadian taxable income, and we expect to generate enough taxable income in the future to utilize these tax credits.

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax

36


system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded $28.4 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax expense is comprised of a $36.0 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $29.1 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law. The Company continues to analyze its provisional estimate regarding the non-deductibility of certain covered employee compensation associated with amendments to IRC section 162(m). As of the date of this filing, the Company reasonably believes that the impact of these changes is immaterial.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the $36.0 million deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities, the $29.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, the $35.3 million deferred tax expense recorded in connection with a valuation allowance on foreign tax credits, and the $0.0 million deferred tax expense recorded in connection with covered employee compensation were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary to do a more detailed analysis of all provisional amounts associated with the Act referenced above as a result of pending issuance of Notices and Regulations related to the Act, ongoing legal analysis of compensation plans and finalization of foreign earnings and profits for 2017. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.

See Note 16 Income Taxes to the consolidated financial statements for further information regarding income taxes.
Goodwill and Indefinite-Lived Intangible Assets
We test our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment on an annual basis during the fourth quarter or when indicators of impairment exist. We base our estimates on assumptions we believe to be reasonable, but which are not predictable with precision and therefore are inherently uncertain. Actual future results could differ from these estimates.
We test goodwill annually for impairment at the reporting unit level. A reporting unit is an operating segment, or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. We determined that each of our reportable segments (Broadcast, Enterprise, Industrial, and Network Solutions) represents an operating segment. Within those operating segments, we have identified reporting units based on whether there is discrete financial information prepared that is regularly reviewed by segment management. As a result of this evaluation, we have identified three reporting units within Broadcast, two reporting units within Enterprise, four reporting units within Industrial, and three reporting units within Network Solutions for purposes of goodwill impairment testing.
The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such an evaluation is made based on the weight of all available evidence and the significance of all identified events and circumstances that may influence the fair value of a reporting unit. If it is more likely than not that the fair value is less than the carrying value, then a quantitative assessment is required for the reporting unit, as described in the paragraph below. In 2017, we performed a qualitative assessment for seven of our reporting units, which collectively represented approximately $547 million of our consolidated goodwill balance. For those reporting units for which we performed a qualitative assessment, we determined that it was more likely than not that the fair value was greater than the carrying value, and therefore, we did not perform the calculation of fair value for these reporting units as described in the paragraph below.
When we evaluate goodwill for impairment using a quantitative assessment, we compare the fair value of each reporting unit to its carrying value. We determine the fair value using an income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows using growth rates and discount rates that are consistent with current market conditions in our industry. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference. In addition to the income approach, we calculate the fair value of our reporting units under a market approach. The market approach measures

37


the fair value of a reporting unit through analysis of financial multiples of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.
We determined that none of our goodwill was impaired during 2017. The fair values of our five reporting units tested under a quantitative approach were in excess of the carrying values as of our most recent impairment testing date. The assumptions used to estimate fair values were based on the past performance of the reporting unit as well as the projections incorporated in our strategic plan. Significant assumptions included sales growth, profitability, and related cash flows, along with cash flows associated with taxes and capital spending. The discount rate used to estimate fair value was risk adjusted in consideration of the economic conditions in effect at the time of the impairment test. We also considered assumptions that market participants may use. In our quantitative assessments, the discount rates ranged from 9.7% to 13.8% and the long-term growth rate was 3% for all five reporting units. By their nature, these assumptions involve risks and uncertainties, with the primary factor that could have an adverse effect being our assumptions relating to growing revenues consistent with our strategic plan.
We test our indefinite-lived intangible assets, which consist primarily of trademarks, for impairment on an annual basis during the fourth quarter. The accounting guidance related to impairment testing for such intangible assets allows for the performance of an optional qualitative assessment, similar to that described above for goodwill. We did not perform any qualitative assessments as part of our indefinite-lived intangible asset impairment testing for 2017. Rather, we performed a quantitative assessment for each of our indefinite-lived trademarks in 2017. Under the quantitative assessments, we determined the fair value of each trademark using a relief from royalty methodology and compared the fair value to the carrying value. We determined that none of our trademarks were impaired during 2017. Significant assumptions to determine fair value included sales growth, royalty rates, and discount rates.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill and other intangible assets. However, if actual results are significantly different from our estimates or assumptions, we may have to recognize an impairment charge that could be material.
Definite-lived Intangible Assets
The carrying value of our definite-lived intangible assets as of December 31, 2017 was $450.7 million. Customer relationships and developed technology are the most significant definite-lived intangible assets recorded, with carrying values of $222.4 million and $180.3 million, respectively, and weighted average amortization periods of 18.5 years and 6.5 years, respectively, as of December 31, 2017. We also have recorded definite-lived intangible assets for certain trademarks, certain in-service research and development projects, and backlog. The assignment of useful lives and the determination of the method of amortization for our definite-lived intangible assets require significant judgments and the use of estimates.
We record amortization of the definite-lived intangible assets over their estimated useful lives. If an intangible asset has a finite useful life, but the precise length of that life is not known, the asset is amortized over the best estimate of its useful life. We estimate the useful life based on all relevant information available to us regarding the assets, including information utilized to determine the value of the definite-lived intangible asset. For example, for our customer relationships, we consider historical and projected sales data and related customer attrition rates in order to estimate a useful life. For our developed technology, we give consideration to the product life cycle in order to estimate a useful life.
We determine the amortization method for our definite-lived intangible assets based on the pattern in which the economic benefits of the intangible asset are consumed. In the event we cannot reliably determine that pattern, we utilize a straight-line amortization method. In order to determine the amortization method, we evaluate all relevant information available to us regarding the assets, including information utilized to determine the value of the definite-lived intangible asset. For example, for customer relationships, we consider historical and projected sales data, customer attrition rates, and our historical experience with key customers of past acquisitions to determine if a pattern of consumption can be derived. If the data examined does not provide a reliably determinable pattern of consumption, then we utilize a straight-line amortization method.
The determinations of useful lives and amortization methods require a significant use of judgment by management. We believe the useful lives assigned and the amortization methods applied are reasonable based on the data available to us. For our existing and prior definite-lived intangible assets, we have not experienced significant differences between our estimates and actual results. We do not believe there is a reasonable likelihood that there will be a material change in the future of the estimates or assumptions we used to develop the useful lives and amortization methods. However, if actual results are significantly different from our estimates or assumptions, we may have to recognize an impairment charge, shorten the useful life assigned to one or more of our definite-lived intangible assets, or change the amortization method assigned to one or more of our definite-lived intangible assets, which could have a material impact on our results. This could occur, for example, if we were to experience significant customer

38


losses or attrition in excess of our estimates or if our product lives were significantly shortened due to technological developments or obsolescence.
As a sensitivity measure, the effect of a 10% change in the estimated useful life of our definite-lived intangible assets for customer relationships and developed technology would have resulted in a change in 2017 amortization expense of approximately $2.1 million and $10.0 million, respectively.
In addition, the testing of definite-lived assets for impairment also requires significant use of judgment and assumptions, particularly as it relates to the identification of asset groups and the determination of fair market value. We test our definite-lived intangible assets for impairment when indicators of impairment exist. For purposes of impairment testing of long-lived assets, we have identified asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Generally, our asset groups are based on an individual plant or operating facility level. In some circumstances, however, a combination of plants or operating facilities may be considered the asset group due to interdependence of operational activities and cash flows.
Pension and Other Postretirement Benefits
Our pension and other postretirement benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets, health care cost trend rates, mortality tables, and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook. Long-term return on plan assets is determined based on historical portfolio results and management’s expectation of the future economic environment. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Our key assumptions are described in further detail in Note 17 to the Consolidated Financial Statements. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over the estimated future working life of the plan participants.

As a sensitivity measure, the effect of a 50 basis point decline in the assumed discount rate would have resulted in a $0.9 million and $19.0 million increase in the 2017 net periodic benefit cost and the projected benefit obligations as of December 31, 2017, respectively. A 50 basis point decline in the expected return on plan assets would have resulted in an increase in 2017 net periodic benefit cost of approximately $0.9 million.

Conversely, the effect of a 50 basis point rise in the assumed discount rate would have resulted in a $0.9 million and $17.0 million decrease in the 2017 net periodic benefit cost and the projected benefit obligations as of December 31, 2017, respectively. A 50 basis point rise in the expected return on plan assets would have resulted in a decrease in 2017 net periodic benefit cost of approximately $0.9 million.
Business Combination Accounting
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. We use all available information to estimate fair values. We typically engage third party valuation specialists to assist in the fair value determination of inventories, tangible long-lived assets, and intangible assets other than goodwill. The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date. As necessary, we may engage third party specialists to assist in the estimation of fair value for certain liabilities. We adjust the preliminary purchase price allocation, as necessary, typically up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed.
Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.

If actual results are materially different than the assumptions we used to determine fair value of the assets and liabilities acquired through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on our net earnings.

39


See Note 3 to the Consolidated Financial Statements for the acquisition-related information associated with significant acquisitions completed in the last three fiscal years.
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from currency exchange rates, certain commodity prices, interest rates, and credit extended to customers. Each of these risks is discussed below.
Currency Exchange Rate Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries and transactions denominated in currencies other than a location’s functional currency.
Our investments in certain foreign subsidiaries are recorded in currencies other than the U.S. dollar. As these foreign currency denominated investments are translated at the end of each period during consolidation using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These fluctuations and the results of operations for foreign subsidiaries, where the functional currency is not the U.S. dollar, are translated into U.S. dollars using the average exchange rates during the year, while the assets and liabilities are translated using period end exchange rates. The assets and liabilities-related translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in our Consolidated Balance Sheets. We generally view our investments in international subsidiaries with functional currencies other than the U.S. dollar as long-term. As a result, we do not generally use derivatives to manage these net investments. However, we designated euro debt issued in 2017 and 2016 by Belden Inc., a USD functional currency ledger, as a net investment hedge of certain international subsidiaries. See Note 15 for further discussion.
Transactions denominated in currencies other than a location’s functional currency may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign exchange transaction gain or loss that is included in our operating income in the Consolidated Statements of Operations. In 2017, we recorded approximately $2.0 million of net foreign currency transaction gains.
Generally, the currency in which we sell our products is the same as the currency in which we incur the costs to manufacture our products, resulting in a natural hedge. Our currency exchange rate management strategy primarily involves the use of natural techniques, where possible, such as the offsetting or netting of like-currency cash flows. However, we re-evaluate our strategy as the foreign currency environment changes, and it is possible that we could utilize derivative financial instruments to manage this risk in the future. We did not have any foreign currency derivatives outstanding as of December 31, 2017.
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, and Brazilian real.

Commodity Price Risk
Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables, and other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility associated with purchases of commodities in the normal course of business. We do not speculate on commodity prices.
We are exposed to price risk related to our purchase of copper used in our products, although we are generally able to raise selling prices to customers to cover the increase in copper costs. Our copper price management strategy involves the use of natural techniques, where possible, such as purchasing copper for future delivery at fixed prices. We do not generally use commodity price derivatives and did not have any outstanding at December 31, 2017 or 2016.
The following table presents unconditional commodity purchase obligations outstanding as of December 31, 2017. The unconditional purchase obligations will settle during 2018.
 

40


 
Purchase
Amount
 
Fair
Value
 
(In thousands, except average price)
Unconditional copper purchase obligations:
 
 
 
Commitment volume in pounds
2,280

 
 
Weighted average price per pound
$
3.06

 
 
Commitment amounts
$
6,971

 
$
7,478

We are also exposed to price risk related to our purchase of selected commodities derived from petrochemical feedstocks used in our products. We generally purchase these commodities based upon market prices established with the vendors as part of the purchase process. Pricing of these commodities is volatile as they tend to fluctuate with the price of oil. Historically, we have not used commodity financial instruments to hedge prices for commodities derived from petrochemical feedstocks.
Interest Rate Risk
We have occasionally managed our debt portfolio by using interest rate derivative instruments, such as swap agreements, to achieve an overall desired position of fixed and floating rates. We were not a party to any interest rate derivative instruments as of or for the years ended December 31, 2017 or 2016.

The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal amounts by expected maturity dates and fair values as of December 31, 2017.
 
 
Principal Amount by Expected Maturity
 
Fair
Value
 
2018
 
Thereafter
 
Total
 
 
(In thousands, except interest rates)
€450.0 million fixed-rate senior subordinated notes due 2027
$

 
$
540,810

 
$
540,810

 
$
544,704

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

 
$
240,360

 
$
240,360

 
$
257,536

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

 
$
360,540

 
$
360,540

 
$
361,081

Average interest rate
 
 
2.875
%
 
 
 
 
$200.0 million fixed-rate senior subordinated notes due 2024
$

 
$
200,000

 
$
200,000

 
$
206,000

Average interest rate
 
 
5.25
%
 
 
 
 
€200.0 million fixed-rate senior subordinated notes due 2023
$

 
$
242,522

 
$
242,522

 
$
249,997

Average interest rate
 
 
5.50
%
 
 
 
 
Total
 
 
 
 
$
1,584,232

 
$
1,619,318


Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and cash equivalents and accounts receivable. We are exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. We place cash and cash equivalents with various high-quality financial institutions throughout the world, and exposure is limited at any one financial institution. Although we do not obtain collateral or other security to support these financial instruments, we evaluate the credit standing of the counterparty financial institutions. As of December 31, 2017, we had $38.2 million in accounts receivable outstanding from Anixter International Inc. This represented approximately 8% of our total accounts receivable outstanding at December 31, 2017. Anixter generally pays all outstanding receivables within thirty to sixty days of invoice receipt.


41


Item 8.    Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Belden Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Belden Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission 2013 framework and our report dated February 13, 2018 expressed an adverse opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1993.
St. Louis, Missouri
February 13, 2018




42


Belden Inc.
Consolidated Balance Sheets
 
 
December 31,
 
2017
 
2016
 
(In thousands, except par value)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
561,108

 
$
848,116

Receivables, net
473,570

 
388,059

Inventories, net
297,226

 
190,408

Other current assets
40,167

 
29,176

Assets held for sale

 
23,193

Total current assets
1,372,071

 
1,478,952

Property, plant and equipment, less accumulated depreciation
337,322

 
309,291

Goodwill
1,478,257

 
1,385,995

Intangible assets, less accumulated amortization
545,207

 
560,082

Deferred income taxes
42,549

 
33,706

Other long-lived assets
65,207

 
38,777

 
$
3,840,613

 
$
3,806,803

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
376,277

 
$
258,203

Accrued liabilities
302,651

 
310,340

Liabilities held for sale

 
1,736

Total current liabilities
678,928

 
570,279

Long-term debt
1,560,748

 
1,620,161

Postretirement benefits
102,085

 
104,050