Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________________
FORM 10-Q
_________________________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2018
Commission File No. 001-12561 
_________________________________________________ 
BELDEN INC.
(Exact name of registrant as specified in its charter)
_________________________________________________
 
Delaware
 
36-3601505
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1 North Brentwood Boulevard
15th Floor
St. Louis, Missouri 63105
(Address of principal executive offices)
(314) 854-8000
Registrant’s telephone number, including area code
_________________________________________________ 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 ¨.
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 ¨.
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 ¨  No  þ
As of August 2, 2018, the Registrant had 40,638,238 outstanding shares of common stock.



PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
BELDEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
July 1, 2018
 
December 31, 2017
 
(Unaudited)
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
261,449

 
$
561,108

Receivables, net
463,225

 
473,570

Inventories, net
319,133

 
297,226

Other current assets
48,779

 
40,167

Total current assets
1,092,586

 
1,372,071

Property, plant and equipment, less accumulated depreciation
345,593

 
337,322

Goodwill
1,553,269

 
1,478,257

Intangible assets, less accumulated amortization
547,981

 
545,207

Deferred income taxes
65,439

 
42,549

Other long-lived assets
34,551

 
65,207

 
$
3,639,419

 
$
3,840,613

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
302,651

 
$
376,277

Accrued liabilities
309,264

 
302,651

Total current liabilities
611,915

 
678,928

Long-term debt
1,482,928

 
1,560,748

Postretirement benefits
126,023

 
102,085

Deferred income taxes
32,669

 
27,713

Other long-term liabilities
34,774

 
36,273

Stockholders’ equity:
 
 
 
Preferred stock
1

 
1

Common stock
503

 
503

Additional paid-in capital
1,129,490

 
1,123,832

Retained earnings
814,071

 
833,610

Accumulated other comprehensive loss
(68,406
)
 
(98,026
)
Treasury stock
(525,054
)
 
(425,685
)
Total Belden stockholders’ equity
1,350,605

 
1,434,235

Noncontrolling interest
505

 
631

Total stockholders’ equity
1,351,110

 
1,434,866

 
$
3,639,419

 
$
3,840,613

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

- 1-


BELDEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018

July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
(In thousands, except per share data)
Revenues
$
668,639

 
$
610,633

 
$
1,274,204

 
$
1,162,014

Cost of sales
(411,043
)
 
(367,529
)
 
(786,014
)
 
(696,536
)
Gross profit
257,596

 
243,104

 
488,190

 
465,478

Selling, general and administrative expenses
(138,842
)
 
(118,071
)
 
(263,714
)
 
(230,657
)
Research and development
(37,209
)
 
(35,144
)
 
(74,310
)
 
(69,666
)
Amortization of intangibles
(25,039
)
 
(27,113
)
 
(49,457
)
 
(50,782
)
Operating income
56,506

 
62,776

 
100,709

 
114,373

Interest expense, net
(15,088
)
 
(23,533
)
 
(32,066
)
 
(47,039
)
Non-operating pension costs
(257
)
 
(295
)
 
(532
)
 
(555
)
Loss on debt extinguishment
(3,030
)
 
(847
)
 
(22,990
)
 
(847
)
Income before taxes
38,131

 
38,101

 
45,121

 
65,932

Income tax expense
(9,339
)
 
(2,210
)
 
(13,759
)
 
(4,460
)
Net income
28,792

 
35,891

 
31,362

 
61,472

Less: Net loss attributable to noncontrolling interest
(77
)
 
(86
)
 
(125
)
 
(192
)
Net income attributable to Belden
28,869

 
35,977

 
31,487

 
61,664

Less: Preferred stock dividends
8,733

 
8,733

 
17,466

 
17,466

Net income attributable to Belden common stockholders
$
20,136

 
$
27,244

 
$
14,021

 
$
44,198

 
 
 
 
 
 
 
 
Weighted average number of common shares and equivalents:
 
 
 
 
 
 
 
Basic
40,735

 
42,283

 
41,184

 
42,249

Diluted
40,974

 
42,832

 
41,492

 
42,753

 
 
 
 
 
 
 
 
Basic income per share attributable to Belden common stockholders
$
0.49

 
$
0.64

 
$
0.34

 
$
1.05

 
 
 
 
 
 
 
 
Diluted income per share attributable to Belden common stockholders
$
0.49

 
$
0.64

 
$
0.34

 
$
1.03

 
 
 
 
 
 
 
 
Comprehensive income attributable to Belden
$
89,897

 
$
19,267

 
$
61,107

 
$
35,543

 
 
 
 
 
 
 
 
Common stock dividends declared per share
$
0.05

 
$
0.05

 
$
0.10

 
$
0.10

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

- 2-


BELDEN INC.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
 
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
31,362

 
$
61,472

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
74,072

 
73,693

Share-based compensation
7,868

 
8,924

Loss on debt extinguishment
22,990

 
847

Changes in operating assets and liabilities, net of the effects of currency exchange rate changes and acquired businesses:
 
 
 
Receivables
(12,370
)
 
(17,982
)
Inventories
(14,486
)
 
(42,052
)
Accounts payable
(84,689
)
 
14,748

Accrued liabilities
(30,351
)
 
(55,094
)
Income taxes
(4,142
)
 
(12,523
)
Other assets
(17,275
)
 
(6,573
)
Other liabilities
(2,341
)
 
9,321

Net cash provided by (used for) operating activities
(29,362
)
 
34,781

Cash flows from investing activities:
 
 
 
Cash used to acquire businesses, net of cash acquired
(84,580
)
 
(166,945
)
Capital expenditures
(39,493
)
 
(22,197
)
Proceeds from disposal of tangible assets
1,517

 
—

Proceeds from disposal of business
40,171

 
—

Net cash used for investing activities
(82,385
)
 
(189,142
)
Cash flows from financing activities:
 
 
 
Payments under borrowing arrangements
(484,757
)
 
(5,221
)
Payments under share repurchase program
(100,000
)
 
—

Cash dividends paid
(22,034
)
 
(21,688
)
Debt issuance costs paid
(7,469
)
 
(2,044
)
Withholding tax payments for share-based payment awards
(1,579
)
 
(4,726
)
Redemption of stockholders' rights agreement
(411
)
 
—

Borrowings under credit arrangements
431,270

 
—

Net cash used for financing activities
(184,980
)
 
(33,679
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(2,932
)
 
10,284

Decrease in cash and cash equivalents
(299,659
)
 
(177,756
)
Cash and cash equivalents, beginning of period
561,108

 
848,116

Cash and cash equivalents, end of period
$
261,449

 
$
670,360

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

- 3-



BELDEN INC.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENT
SIX MONTHS ENDED JULY 1, 2018
(Unaudited)
 
 
 
Belden Inc. Stockholders
 
 
 
 
 
 
 
Mandatory Convertible
 
 
 
 
 
Additional
 
 
 
 
 
Accumulated
Other
 
Non-controlling
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In
 
Retained
 
Treasury Stock
 
Comprehensive
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Shares
 
Amount
 
Income (Loss)
 
Interest
 
Total
 
 
(In thousands)
 
 
Balance at December 31, 2017
52

 
$
1

 
50,335

 
$
503

 
$
1,123,832

 
$
833,610

 
(8,316
)
 
$
(425,685
)
 
$
(98,026
)
 
$
631

 
$
1,434,866

Cumulative effect of change in accounting principles
—

 
—

 
—

 
—

 
—

 
(29,041
)
 
—

 
—

 
—

 
—

 
(29,041
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
31,487

 
—

 
—

 
—

 
(125
)
 
31,362

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
29,620

 
(1
)
 
29,619

Exercise of stock options, net of tax withholding forfeitures
—

 
—

 
—

 
—

 
(416
)
 
—

 
9

 
11

 
—

 
—

 
(405
)
Conversion of restricted stock units into common stock, net of tax withholding forfeitures
—

 
—

 
—

 
—

 
(1,794
)
 
—

 
46

 
620

 
—

 
—

 
(1,174
)
Share repurchase program
—

 
—

 
—

 
—

 
—

 
—

 
(1,438
)
 
(100,000
)
 
—

 
—

 
(100,000
)
Share-based compensation
—

 
—

 
—

 
—

 
7,868

 
—

 
—

 
—

 
—

 
—

 
7,868

Redemption of stockholders' rights agreement
—

 
—

 
—

 
—

 
—

 
(411
)
 
—

 
—

 
—

 
—

 
(411
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(17,466
)
 
—

 
—

 
—

 
—

 
(17,466
)
Common stock dividends ($0.10 per share)
—

 
—

 
—

 
—

 
—

 
(4,108
)
 
—

 
—

 
—

 
—

 
(4,108
)
Balance at July 1, 2018
52

 
$
1

 
50,335

 
$
503

 
$
1,129,490

 
$
814,071

 
(9,699
)
 
$
(525,054
)
 
$
(68,406
)
 
$
505

 
$
1,351,110

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

- 4-


BELDEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1:  Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include Belden Inc. and all of its subsidiaries (the Company, us, we, or our). We eliminate all significant affiliate accounts and transactions in consolidation.
The accompanying Condensed Consolidated Financial Statements presented as of any date other than December 31, 2017:
•
Are prepared from the books and records without audit, and
•
Are prepared in accordance with the instructions for Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States for complete statements, but
•
Include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Supplementary Data contained in our 2017 Annual Report on Form 10-K.
Business Description
We are a signal transmission solutions provider built around two global business platforms – Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.
Reporting Periods
Our fiscal year and fiscal fourth quarter both end on December 31. Our fiscal first quarter ends on the Sunday falling closest to 91 days after December 31, which was April 1, 2018, the 91st day of our fiscal year 2018. Our fiscal second and third quarters each have 91 days. The six months ended July 1, 2018 and July 2, 2017 included 182 and 183 days, respectively.
Operating Segments
Effective January 1, 2018, we changed our organizational structure and, as a result, now are reporting two segments. The segments formerly known as Broadcast Solutions and Enterprise Solutions now are presented as the Enterprise Solutions segment, and the segments formerly known as Industrial Solutions and Network Solutions now are presented as the Industrial Solutions segment. The reorganization allows us to further accelerate progress in key strategic areas, and the segment consolidation properly aligns our external reporting with the way the businesses are now managed. We have recast the prior period segment information to conform to the change in the composition of these reportable segments. 
Reclassifications
We have made certain reclassifications to the 2017 Condensed Consolidated Financial Statements, including those related to the adoption of Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07) and our segment change, with no impact to reported net income in order to conform to the 2018 presentation. See Note 5.

Interim Periods of 2017
During the financial closing process for the fourth quarter of 2017, we determined that certain consolidated financial statement amounts were not recorded correctly in prior interim periods of 2017. We evaluated these errors and concluded that they were not material to any of our previously issued interim financial statements and did not require restatement of the quarters. The errors primarily related to recognizing revenue prior to satisfying all of the delivery criteria in one business within our Enterprise segment. All of the errors were corrected as of December 31, 2017. The impact of the errors in the three months ended July 2, 2017 was an overstatement of revenues and net income of $10.4 million and $1.3 million, respectively. The impact of the errors in the six months ended July 2, 2017 was an overstatement of revenues and net income of $16.5 million and $4.3 million, respectively.

- 5-



Fair Value Measurement
Accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
•
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
•
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
•
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. 
As of and during the three and six months ended July 1, 2018 and July 2, 2017, we utilized Level 1 inputs to determine the fair value of cash equivalents, and we utilized Level 2 and Level 3 inputs to determine the fair value of net assets acquired in business combinations (see Note 3). We did not have any transfers between Level 1 and Level 2 fair value measurements during the six months ended July 1, 2018 and July 2, 2017.
Cash and Cash Equivalents
We classify cash on hand and deposits in banks, including commercial paper, money market accounts, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. We periodically have cash equivalents consisting of short-term money market funds and other investments. As of July 1, 2018, we did not have any such cash equivalents on hand. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations. We do not enter into investments for trading or speculative purposes.
Contingent Liabilities
We have established liabilities for environmental and legal contingencies that are probable of occurrence and reasonably estimable, the amounts of which are currently not material. We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in consultation with our environmental consultants and legal counsel. We are, from time to time, subject to routine litigation incidental to our business. These lawsuits primarily involve claims for damages arising out of the use of our products, allegations of patent or trademark infringement, and litigation and administrative proceedings involving employment matters and commercial disputes. Based on facts currently available, we believe the disposition of the claims that are pending or asserted will not have a materially adverse effect on our financial position, results of operations, or cash flow.

As of July 1, 2018, we were party to standby letters of credit, bank guaranties, and surety bonds totaling $7.2 million, $2.4 million, and $2.3 million, respectively.

Contingent Gain

On July 5, 2011, our wholly-owned subsidiary, PPC Broadband, Inc. (PPC), filed an action for patent infringement against Corning Optical Communications RF LLC (Corning). The complaint alleged that Corning infringed two of PPC’s patents.  In July 2015, a jury found that Corning willfully infringed both patents. In November 2016, following a series of post-trial motions, the trial judge issued rulings for a total judgment in our favor of approximately $61.3 million. In December 2016, Corning appealed the case to the U.S. Court of Appeals for the Federal Circuit. In March 2018, a panel of three judges of the United States Court of Appeals for the Federal Circuit issued a Rule 36 Affirmance, without written opinion, of the District Court's final judgment that Corning, among other things, willfully infringed the PPC universal compression patents at issue in the case, and that PPC should be awarded about $61.8 million, plus accrued interest. In April 2018, Corning filed a petition for re-hearing, which was denied in May 2018. On July 16, 2018, the District Court ruled that Corning shall pay the judgments. We received a pre-tax amount of approximately $62.1 million from Corning on July 19, 2018. We did not record any amounts in our consolidated financial statements related to this matter in the second quarter but will record the cash received as a gain in our third quarter financial statements.


- 6-


Revenue Recognition
We recognize revenue consistent with the principles as outlined in the following five step model: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) each performance obligation is satisfied.

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. Generally, the standalone selling prices are determined based upon the prices charged to customers.
The transaction price for certain contracts are subject to variable consideration for estimated rebates, price allowances, invoicing adjustments, and product returns. We use the most likely amount method for estimating rebates and the expected value method for estimating price allowances, invoicing adjustments, and product returns. We record revisions to these estimates in the period in which the facts that give rise to each revision become known. Taxes collected from customers and remitted to governmental authorities are not included in our revenues.

We record deferred revenues when cash payments are received or due in advance of our performance. Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is generally not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Sales commissions for which the related service or support contract extends beyond one year are capitalized in other current or long-lived assets and recognized as expense over the related service or support period. In the event the related service or support period is twelve months or less, we apply the practical expedient and expense the sales commissions when incurred. These costs are recorded within selling, general and administrative expenses.
Subsequent Events
We have evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure. See Note 17.
Current-Year Adoption of Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which replaced most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. We adopted ASU 2014-09 on January 1, 2018, using the modified retrospective method of adoption. Adoption resulted in a $2.6 million, net of tax increase to retained earnings. This adjustment primarily relates to the deferral of costs to obtain a contract that were previously expensed at the beginning of the contract period.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The new guidance addresses how the following eight specific cash flow items are to be presented: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. We adopted ASU 2016-15 on January 1, 2018. Adoption had no material impact on our statement of cash flows for the six months ended July 1, 2018.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the standard eliminates the exception to the recognition of current and deferred income taxes for an intra-entity asset transfer other than for inventory until the asset has been sold to an outside party.  We adopted ASU 2016-16 on January 1, 2018. Adoption resulted in a $3.0 million and $46.9 million decrease to other current assets and other long-lived assets, respectively, as well as an $18.2 million increase in deferred income tax assets and a $31.7 million decrease to retained earnings on January 1, 2018. Adoption had no material impact on our results of operations.

- 7-



In March 2017, the FASB issued ASU 2017-07, which requires an entity to report the service cost component in the same line item or items as other compensation costs arising from the service rendered by their employees during the period. The other components of net benefit cost are required to be presented in the Statement of Operations separately from the service cost component after Operating Income. Additionally, only the service cost component is eligible for capitalization, when applicable. The standard requires the amendments to be applied retrospectively for the presentation of the service cost component and the other cost components of net periodic pension cost and net periodic OPEB cost in the Statement of Operations and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension and OPEB costs. We adopted ASU 2017-07 on January 1, 2018, and elected to use the practical expedient related to the retrospective presentation requirements. Adoption resulted in a $0.3 million and $0.6 million increase to operating income for the three and six months ended July 2, 2017, respectively, but no changes to net income.
Pending Adoption of Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (ASU 2016-02), a leasing standard for both lessees and lessors that supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases." Under its core principle, a lessee will recognize a right-of-use asset and lease liability on the balance sheet for nearly all leased assets. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard will be effective for us beginning January 1, 2019, and early adoption is permitted. As currently issued, the standard requires the use of a modified retrospective transition method and allows entities to apply the transition provisions either in the period of adoption or in the earliest period presented. There are also additional practical expedients that an entity may elect to apply. We will adopt ASU 2016-02 in the first quarter of 2019 and expect to elect certain available transitional practical expedients. We are in the process of evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures, but our initial assessment indicates that it will have a material impact to total assets and liabilities. We are also implementing changes to our systems and processes in conjunction with our review of lease agreements.

In August 2017, the FASB issued Accounting Standards Update No. ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The new guidance better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The new guidance also makes certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The standard is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements and related disclosures.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. Pending further anticipated clarification and guidance related to the application of the GILTI provisions and their impact to Belden, we intend to further assess the materiality of the anticipated GILTI inclusion before making a policy election as allowed under current law as of the date of this report.
Note 2:  Revenues
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
We recorded a net increase to retained earnings of $2.6 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to sales commissions and software revenues within our Industrial Solutions segment. There was no impact to revenues for the three months ended July 1, 2018, and the impact to revenues for the six months ended July 1, 2018 was a decrease of $0.1 million as a result of applying Topic 606.
Revenues are recognized when control of the promised goods or services is transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Taxes collected from customers and remitted to governmental authorities are not included in our revenues. The following tables present our revenues disaggregated by major product category.

- 8-


 
 
Cable & Connectivity
 
Networking, Software & Security
 
Total Revenues 
 
 
 
 
 
 
 
Three Months Ended July 1, 2018
 
(In thousands)
Enterprise Solutions
 
$
279,567

 
$
117,326

 
$
396,893

Industrial Solutions
 
172,880

 
98,866

 
271,746

Total
 
$
452,447

 
$
216,192

 
$
668,639

 
 
 
 
 
 
 
Three Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
255,066

 
$
93,738

 
$
348,804

Industrial Solutions
 
159,324

 
102,505

 
261,829

Total
 
$
414,390

 
$
196,243

 
$
610,633

 
 
 
 
 
 
 
Six Months Ended July 1, 2018
 
 
 
 
 
 
Enterprise Solutions
 
$
514,042

 
$
231,983

 
$
746,025

Industrial Solutions
 
335,602

 
192,577

 
528,179

Total
 
$
849,644

 
$
424,560

 
$
1,274,204

 
 
 
 
 
 
 
Six Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
489,247

 
$
173,835

 
$
663,082

Industrial Solutions
 
305,635

 
193,297

 
498,932

Total
 
$
794,882

 
$
367,132

 
$
1,162,014

The following tables present our revenues disaggregated by geography, based on the location of the customer purchasing the product.
 
 
Americas
 
EMEA
 
APAC
 
Total Revenues
 
 
 
 
 
 
 
 
 
Three Months Ended July 1, 2018
 
(In thousands)
Enterprise Solutions
 
$
256,191

 
$
82,595

 
$
58,107

 
$
396,893

Industrial Solutions
 
155,529

 
73,979

 
42,238

 
271,746

Total
 
$
411,720

 
$
156,574

 
$
100,345

 
$
668,639

 
 
 
 
 
 
 
 
 
Three Months Ended July 2, 2017
 
 
 
 
 
 
 
 
Enterprise Solutions
 
$
232,215

 
$
59,099

 
$
57,490

 
$
348,804

Industrial Solutions
 
156,253

 
68,047

 
37,529

 
261,829

Total
 
$
388,468

 
$
127,146

 
$
95,019

 
$
610,633

 
 
 
 
 
 
 
 
 
Six Months Ended July 1, 2018
 
 
 
 
 
 
 
 
Enterprise Solutions
 
$
481,474

 
$
155,927

 
$
108,624

 
$
746,025

Industrial Solutions
 
305,333

 
146,571

 
76,275

 
528,179

Total
 
$
786,807

 
$
302,498

 
$
184,899

 
$
1,274,204

 
 
 
 
 
 
 
 
 
Six Months Ended July 2, 2017
 
 
 
 
 
 
 
 
Enterprise Solutions
 
$
447,345

 
$
107,677

 
$
108,060

 
$
663,082

Industrial Solutions
 
298,446

 
132,332

 
68,154

 
498,932

Total
 
$
745,791

 
$
240,009

 
$
176,214

 
$
1,162,014

The following tables present our revenues disaggregated by products, including software products, and support and services.

- 9-


 
 
Products
 
Support & Services
 
Total Revenues 
 
 
 
 
 
 
 
Three Months Ended July 1, 2018
 
(In thousands)
Enterprise Solutions
 
$
379,416

 
$
17,477

 
$
396,893

Industrial Solutions
 
248,022

 
23,724

 
271,746

Total
 
$
627,438

 
$
41,201

 
$
668,639

 
 
 
 
 
 
 
Three Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
330,670

 
$
18,134

 
$
348,804

Industrial Solutions
 
236,060

 
25,769

 
261,829

Total
 
$
566,730

 
$
43,903

 
$
610,633

 
 
 
 
 
 
 
Six Months Ended July 1, 2018
 
 
 
 
 
 
Enterprise Solutions
 
$
712,160

 
$
33,865

 
$
746,025

Industrial Solutions
 
480,075

 
48,104

 
528,179

Total
 
$
1,192,235

 
$
81,969

 
$
1,274,204

 
 
 
 
 
 
 
Six Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
626,639

 
$
36,443

 
$
663,082

Industrial Solutions
 
447,743

 
51,189

 
498,932

Total
 
$
1,074,382

 
$
87,632

 
$
1,162,014

We generate revenues primarily by selling products that provide secure and reliable transmission of data, sound, and video for mission critical applications. We also generate revenues from providing support and professional services. We sell our products to distributors, end-users, installers, and directly to original equipment manufacturers. At times, we enter into arrangements that involve the delivery of multiple performance obligations. For these arrangements, revenue is allocated to each performance obligation based on its relative selling price and recognized when or as each performance obligation is satisfied. Most of our performance obligations related to the sale of products are satisfied at a point in time when control of the product is transferred based on the shipping terms of the arrangement. Generally, we determine relative selling price using the prices charged to customers on a standalone basis.
The amount of consideration we receive and revenue we recognize varies due to rebates, returns, and price adjustments. We estimate the expected rebates, returns, and price adjustments based on an analysis of historical experience, anticipated sales demand, and trends in product pricing. We adjust our estimate of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed. Adjustments to revenue for performance obligations satisfied in prior periods was not significant during the three and six months ended July 1, 2018. Accrued rebates and accrued returns as of July 1, 2018 totaled $23.6 million and $8.7 million, respectively. Estimated price adjustments recognized against our gross accounts receivable balance as of July 1, 2018 totaled $26.6 million.
Depending on the terms of an arrangement, we may defer the recognition of a portion of the consideration received because we have to satisfy a future obligation. Consideration allocated to support services under a support and maintenance contract is typically paid in advance and recognized ratably over the term of the service. Consideration allocated to professional services is recognized when or as the services are performed depending on the terms of the arrangement. As of January 1, 2018, total deferred revenue was $104.4 million, and $46.6 million and $98.6 million of this amount was recognized as revenue during the three and six months ended July 1, 2018, respectively. As of July 1, 2018, total deferred revenue was $96.4 million, and of this amount, $84.7 million will be recognized within the next twelve months, and the remaining $11.7 million is long-term and will be recognized over a period greater than twelve months.
We expense sales commissions as incurred when the duration of the related revenue arrangement is one year or less. We capitalize sales commissions in other current or long-lived assets on our balance sheet when the duration of the related revenue arrangement is longer than one year, and we amortize it over the related revenue arrangement period. Total capitalized sales commissions was $2.3 million as of July 1, 2018. Total sales commissions costs were $6.3 million and $12.5 million during the three and six months ended July 1, 2018, respectively. Sales commissions are recorded within selling, general and administrative expenses.
Note 3:  Acquisitions
Net-Tech Technology, Inc.

- 10-


We acquired 100% of the shares of Net-Tech Technology, Inc. (NT2) on April 25, 2018 for a preliminary purchase price of $8.5 million. NT2 is an integrator of optical passive components and network optimization products used within broadband network applications where optical backhaul is used. NT2 is located in the United States. The results of NT2 have been included in our Consolidated Financial Statements from April 25, 2018, and are reported within the Enterprise Solutions segment. The NT2 acquisition was not material to our financial position or results of operations.
Snell Advanced Media
We acquired 100% of the outstanding ownership interest in Snell Advanced Media (SAM) on February 8, 2018 for a purchase price, net of cash acquired, of $104.5 million. The acquisition includes a potential earnout, which is based upon future combined earnings of SAM and Grass Valley through December 31, 2019. The maximum earnout consideration is $31.4 million, but based upon a third party valuation specialist using certain assumptions in a discounted cash flow model, the preliminary estimated fair value of the earnout included in the purchase price is $29.3 million. We assumed debt of $19.3 million and paid it off during the first quarter of 2018. SAM designs, manufactures, and sells innovative content production and distribution systems for the broadcast and media markets. SAM is located in the United Kingdom. The results of SAM have been included in our Consolidated Financial Statements from February 8, 2018, and are reported within the Enterprise Solutions segment. The following table summarizes the estimated, preliminary fair value of the assets acquired and the liabilities assumed as of February 8, 2018 (in thousands):

Receivables
 
$
19,900

Inventory
 
15,141

Prepaid and other current assets
 
3,375

Property, plant, and equipment
 
9,212

Intangible assets
 
44,750

Goodwill
 
90,389

Deferred taxes
 
5,476

Other long-lived assets
 
2,156

   Total assets acquired
 
$
190,399

 
 
 
Accounts payable
 
$
11,927

Accrued liabilities
 
18,693

Deferred revenue
 
4,000

Long-term debt
 
19,315

Postretirement benefits
 
31,343

Other long-term liabilities
 
591

   Total liabilities assumed
 
$
85,869

 
 
 
Net assets
 
$
104,530


The above purchase price allocation is preliminary, and is subject to revision as additional information about the fair value of individual assets and liabilities becomes available. The preliminary measurement of receivables; inventories; property, plant and equipment; intangible assets; goodwill; deferred income taxes; deferred revenue; and other assets and liabilities are subject to change. A change in the estimated fair value of the net assets acquired will change the amount of the purchase price allocable to goodwill.

A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the preliminary fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.

The preliminary fair value of acquired receivables is $19.9 million, which is equivalent to its gross contractual amount.

For purposes of the above allocation, we based our estimate of the preliminary fair value for the acquired inventory; property, plant, and equipment; intangible assets; and deferred revenue on a preliminary valuation study performed by a third party valuation firm. We have estimated a preliminary fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. To determine the value of the acquired property,

- 11-


plant, and equipment, we used various valuation methods, including both the market approach, which considers sales prices of similar assets in similar conditions (Level 2 valuation), and the cost approach, which considers the cost to replace the asset adjusted for depreciation (Level 3 valuation). We used various valuation methods including discounted cash flows, lost income, excess earnings, and relief from royalty to estimate the preliminary fair value of the identifiable intangible assets and deferred revenue (Level 3 valuation).

Goodwill and other intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the SAM acquisition may be gained from helping broadcast and media content creators, aggregators and distributors significantly improve their effectiveness and efficiency during a period of rapid change in technology, viewer and advertiser behavior and busines models. Our tax basis in the acquired goodwill is zero. The intangible assets related to the acquisition consisted of the following:

 
 
Preliminary Fair Value
 
Amortization Period
 
 
(In thousands)
 
(In years)
Intangible assets subject to amortization:
 
 
 
 
Developed technologies
 
$
32,500

 
5.0
Customer relationships
 
9,000

 
12.0
Sales backlog
 
1,750

 
0.3
Trademarks
 
1,500

 
2.0
Total intangible assets subject to amortization
 
$
44,750

 
 
 
 
 
 
 
Intangible assets not subject to amortization:
 
 
 
 
Goodwill
 
$
90,389

 
n/a
Total intangible assets not subject to amortization
 
$
90,389

 
 
 
 
 
 
 
Total intangible assets
 
$
135,139

 
 
Weighted average amortization period
 
 
 
6.1 years

The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period and pattern of consumption of the intangible asset. The useful life for the customer relationship intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks.

Our consolidated revenues and consolidated income before taxes for the three months ended July 1, 2018 included $31.1 million and $(6.6) million, respectively, from SAM. The loss before taxes from SAM included $20.3 million of severance and other restructuring costs, $2.8 million of amortization of intangible assets, and $0.7 million of cost of sales related to the adjustment of acquired inventory to fair value. Our consolidated revenues and consolidated income before taxes for the six months ended July 1, 2018 included $51.9 million and $(9.4) million, respectively, from SAM. The loss before taxes from SAM included $29.5 million of of severance and other restructuring costs, $5.0 million of amortization of intangible assets, and $1.2 million of cost of sales related to the adjustment of acquired inventory to fair value.

The following table illustrates the unaudited pro forma effect on operating results as if the SAM acquisition had been completed as of January 1, 2017.

- 12-


 
 
Three Months Ended
 
Six Months Ended
 
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share data)
 
 
(Unaudited)
Revenues
 
$
671,441

 
$
634,496

 
$
1,285,625

 
$
1,213,867

Net income attributable to Belden common stockholders
 
35,241

 
11,427

 
34,169

 
12,406

Diluted income per share attributable to Belden common stockholders
 
$
0.86

 
$
0.27

 
$
0.82

 
$
0.29

For purposes of the pro forma disclosures, the three months ended July 2, 2017 includes nonrecurring expenses related to the acquisition, including severance, restructuring, and acquisition integration costs; amortization of the sales backlog intangible asset; and cost of sales arising from the adjustment of inventory to fair value of $20.3 million, $0.5 million, and $0.7 million, respectively. For purposes of the pro forma disclosures, the six months ended July 2, 2017 includes nonrecurring expenses related to the acquisition, including severance, restructuring, and acquisition integration costs; amortization of the sales backlog intangible asset; and cost of sales arising from the adjustment of inventory to fair value of $29.5 million, $1.8 million, and $1.5 million, respectively.

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
Thinklogical Holdings, LLC
We acquired 100% of the outstanding ownership interest in Thinklogical Holdings, LLC (Thinklogical) on May 31, 2017 for a purchase price, net of cash acquired, of $165.8 million. Thinklogical designs, manufactures, and markets high-bandwidth fiber matrix switches, video, and keyboard/video/mouse extender solutions, camera extenders, and console management solutions. Thinklogical is headquartered in Connecticut. The results of Thinklogical have been included in our Consolidated Financial Statements from May 31, 2017, and are reported within the Enterprise Solutions segment. The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed as of May 31, 2017 (in thousands):
Receivables
 
$
4,355

Inventory
 
16,424

Prepaid and other current assets
 
320

Property, plant, and equipment
 
4,289

Intangible assets
 
73,400

Goodwill
 
70,654

Deferred income taxes
 
598

   Total assets acquired
 
$
170,040

 
 
 
Accounts payable
 
$
1,231

Accrued liabilities
 
1,353

Deferred revenue
 
1,702

   Total liabilities assumed
 
$
4,286

 
 
 
Net assets
 
$
165,754


A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.

The fair value of acquired receivables is $4.4 million, which is equivalent to its gross contractual amount.

For purposes of the above allocation, we based our estimate of the fair value for the acquired inventory, intangible assets, and deferred revenue on a valuation study performed by a third party valuation firm. We used various valuation methods including

- 13-


discounted cash flows, lost income, excess earnings, and relief from royalty to estimate the preliminary fair value of the identifiable intangible assets and deferred revenue (Level 3 valuation). The determination of the fair value of the assets acquired and liabilities assumed and the allocation of the purchase price is complete.

Goodwill and other intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the Thinklogical acquisition primarily consist of utilizing Belden's fiber and connectivity portfolio with Thinklogical's connections between matrix switch, control systems, transmitters and source to expand our product portfolio across our segments to both existing and new customers. Our tax basis in the acquired goodwill is approximately $43.3 million and is deductible for tax purposes over a period of 15 years up to the amount of the tax basis. The intangible assets related to the acquisition consisted of the following:

 
 
Preliminary Fair Value
 
Amortization Period
 
 
(In thousands)
 
(In years)
Intangible assets subject to amortization:
 
 
 
 
Developed technologies
 
$
62,600

 
10.0
Customer relationships
 
6,500

 
8.0
Trademarks
 
2,900

 
10.0
Sales backlog
 
1,400

 
0.3
Total intangible assets subject to amortization
 
$
73,400

 
 
 
 
 
 
 
Intangible assets not subject to amortization:
 
 
 
 
Goodwill
 
$
70,654

 
n/a
Total intangible assets not subject to amortization
 
$
70,654

 
 
 
 
 
 
 
Total intangible assets
 
$
144,054

 
 
Weighted average amortization period
 
 
 
9.6

The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the customer relationship intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period and pattern of consumption of the intangible asset. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship.

Our consolidated revenues and consolidated income before taxes for the three months ended July 1, 2018 included $9.6 million and $(0.8) million, respectively, from Thinklogical. The loss before taxes from Thinklogical included $3.2 million of amortization of intangible assets. Our consolidated revenues and consolidated income before taxes for the six months ended July 1, 2018 included $17.4 million and $(3.0) million, respectively, from Thinklogical. The loss before taxes from Thinklogical included $6.4 million of amortization of intangible assets.

The following table illustrates the unaudited pro forma effect on operating results as if the Thinklogical acquisition had been completed as of January 1, 2016.
 
 
Three Months Ended
 
Six Months Ended
 
 
July 2, 2017
 
July 2, 2017
 
 
 
 
 
 
 
(In thousands, except per share data)
 
 
(Unaudited)
Revenues
 
$
615,109

 
$
1,170,745

Net income attributable to Belden common stockholders
 
28,250

 
41,130

Diluted income per share attributable to Belden common stockholders
 
$
0.66

 
$
0.96



- 14-


The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
Note 4:  Disposals

During the fourth quarter of 2016, we committed to a plan to sell our MCS business and Hirschmann JV. The MCS business operated in Germany and the United States and was part of the Industrial Solutions segment, and the Hirschmann JV was an equity method investment located in China. Effective December 31, 2017, we sold the MCS business and Hirschmann JV for a total purchase price of $40.2 million, which was collected in the six months ended July 1, 2018.

During the second quarter of 2018, we sold a previously closed operating facility for net proceeds of $1.5 million and recognized a $0.6 million gain on the sale.

Note 5:  Operating Segments
We are organized around two global business platforms: Enterprise Solutions and Industrial Solutions. Each of the global business platforms represents a reportable segment.

Effective January 1, 2018, we changed our organizational structure and, as a result, now are reporting two segments. The segments formerly known as Broadcast Solutions and Enterprise Solutions now are presented as the Enterprise Solutions segment, and the segments formerly known as Industrial Solutions and Network Solutions now are presented as the Industrial Solutions segment. The reorganization allows us to further accelerate progress in key strategic areas and the segment consolidation properly aligns our external reporting with the way the businesses are now managed. We have recast the prior period segment information to conform to the change in the composition of these reportable segments. This change had no impact to our reporting units for purposes of goodwill impairment testing.
The key measures of segment profit or loss reviewed by our chief operating decision maker are Segment Revenues and Segment EBITDA. Segment Revenues represent non-affiliate revenues and include revenues that would have otherwise been recorded by acquired businesses as independent entities but were not recognized in our Consolidated Statements of Operations due to the effects of purchase accounting and the associated write-down of acquired deferred revenue to fair value. Segment EBITDA excludes certain items, including depreciation expense; amortization of intangibles; asset impairment; severance, restructuring, and acquisition integration costs; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value; and other costs. We allocate corporate expenses to the segments for purposes of measuring Segment EBITDA. Corporate expenses are allocated on the basis of each segment’s relative EBITDA prior to the allocation.
Our measure of segment assets does not include cash, goodwill, intangible assets, deferred tax assets, or corporate assets. All goodwill is allocated to reporting units of our segments for purposes of impairment testing.
 

- 15-


 
 
Enterprise
Solutions    
 
Industrial
Solutions     
 
Total
Segments     
 
 
 
 
 
 
 
 
 
(In thousands)
As of and for the three months ended July 1, 2018
 
 
 
 
 
 
Segment revenues
 
$
399,695

 
$
271,746

 
$
671,441

Affiliate revenues
 
1,496

 
17

 
1,513

Segment EBITDA
 
70,281

 
53,225

 
123,506

Depreciation expense
 
7,153

 
4,873

 
12,026

Amortization of intangibles
 
11,809

 
13,230

 
25,039

Amortization of software development intangible assets
 
488

 
—

 
488

Severance, restructuring, and acquisition integration costs
 
22,887

 
2,041

 
24,928

Purchase accounting effects of acquisitions
 
1,036

 
—

 
1,036

Deferred revenue adjustments
 
2,802

 
—

 
2,802

Segment assets
 
759,334

 
436,885

 
1,196,219

As of and for the three months ended July 2, 2017
 
 
 
 
 
 
Segment revenues
 
$
348,804

 
$
261,829

 
$
610,633

Affiliate revenues
 
1,080

 
23

 
1,103

Segment EBITDA
 
56,441

 
54,081

 
110,522

Depreciation expense
 
6,753

 
4,775

 
11,528

Amortization of intangibles
 
13,882

 
13,231

 
27,113

Severance, restructuring, and acquisition integration costs
 
9,111

 
449

 
9,560

Purchase accounting effects of acquisitions
 
1,167

 
—

 
1,167

Segment assets
 
634,930

 
387,138

 
1,022,068

As of and for the six months ended July 1, 2018
 
 
 
 
 
 
Segment revenues
 
$
750,685

 
$
528,179

 
$
1,278,864

Affiliate revenues
 
2,542

 
46

 
2,588

Segment EBITDA
 
127,733

 
99,651

 
227,384

Depreciation expense
 
14,373

 
9,518

 
23,891

Amortization of intangibles
 
22,979

 
26,478

 
49,457

Amortization of software development intangible assets
 
724

 
—

 
724

Severance, restructuring, and acquisition integration costs
 
37,421

 
7,901

 
45,322

Purchase accounting effects of acquisitions
 
1,538

 
—

 
1,538

Deferred revenue adjustments
 
4,660

 
—

 
4,660

Segment assets
 
759,334

 
436,885

 
1,196,219

As of and for the six months ended July 2, 2017
 
 
 
 
 
 
Segment revenues
 
$
663,082

 
$
498,932

 
$
1,162,014

Affiliate revenues
 
3,113

 
49

 
3,162

Segment EBITDA
 
105,964

 
97,928

 
203,892

Depreciation expense
 
13,301

 
9,610

 
22,911

Amortization of intangibles
 
24,321

 
26,461

 
50,782

Severance, restructuring, and acquisition integration costs
 
14,392

 
1,768

 
16,160

Purchase accounting effects of acquisitions
 
1,167

 
—

 
1,167

Segment assets
 
634,930

 
387,138

 
1,022,068


The following table is a reconciliation of the total of the reportable segments’ Revenues and EBITDA to consolidated revenues and consolidated income before taxes, respectively.
 

- 16-


 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
(In thousands)
Total Segment Revenues
$
671,441

 
$
610,633

 
$
1,278,864

 
$
1,162,014

Deferred revenue adjustments (1)
(2,802
)
 
—

 
(4,660
)
 
—

Consolidated Revenues
$
668,639

 
$
610,633

 
$
1,274,204

 
$
1,162,014

 
 
 
 
 
 
 
 
Total Segment EBITDA
$
123,506

 
$
110,522

 
$
227,384

 
$
203,892

Amortization of intangibles
(25,039
)
 
(27,113
)
 
(49,457
)
 
(50,782
)
Severance, restructuring, and acquisition integration costs (2)
(24,928
)
 
(9,560
)
 
(45,322
)
 
(16,160
)
Depreciation expense
(12,026
)
 
(11,528
)
 
(23,891
)
 
(22,911
)
Deferred revenue adjustments (1)
(2,802
)
 
—

 
(4,660
)
 
—

Purchase accounting effects related to acquisitions (3)
(1,036
)
 
(1,167
)
 
(1,538
)
 
(1,167
)
Amortization of software development intangible assets
(488
)
 
—

 
(724
)
 
—

Loss on sale of assets
—

 
—

 
(94
)
 
—

Income from equity method investment
—

 
2,277

 
—

 
3,284

Eliminations
(681
)
 
(655
)
 
(989
)
 
(1,783
)
Consolidated operating income
56,506

 
62,776

 
100,709

 
114,373

Interest expense, net
(15,088
)
 
(23,533
)
 
(32,066
)
 
(47,039
)
Non-operating pension costs
(257
)
 
(295
)
 
(532
)
 
(555
)
Loss on debt extinguishment
(3,030
)
 
(847
)
 
(22,990
)
 
(847
)
Consolidated income before taxes
$
38,131

 
$
38,101

 
$
45,121

 
$
65,932

(1) For the three and six months ended July 1, 2018, our segment results include revenues that would have been recorded by acquired businesses had they remained as independent entities. Our consolidated results do not include these revenues due to the purchase accounting effect of recording deferred revenue at fair value.
(2)  See Note 9, Severance, Restructuring, and Acquisition Integration Activities, for details.
(3)  For the three and six months ended ended July 1, 2018, we recognized cost of sales for the adjustment of acquired inventory to fair value related to the SAM and NT2 acquisitions.
Note 6: Income per Share
The following table presents the basis for the income per share computations:
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
(In thousands)
Numerator:
 
 
 
 
 
 
 
Net income
$
28,792

 
$
35,891

 
$
31,362

 
$
61,472

Less: Net loss attributable to noncontrolling interest
(77
)
 
(86
)
 
(125
)
 
(192
)
Less: Preferred stock dividends
8,733

 
8,733

 
17,466

 
17,466

Net income attributable to Belden common stockholders
$
20,136

 
$
27,244

 
$
14,021

 
$
44,198

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding, basic
40,735

 
42,283

 
41,184

 
42,249

Effect of dilutive common stock equivalents
239

 
549

 
308

 
504

Weighted average shares outstanding, diluted
40,974

 
42,832

 
41,492

 
42,753


For the three and six months ended July 1, 2018, diluted weighted average shares outstanding do not include outstanding equity awards of 0.9 million and 0.7 million, respectively, because to do so would have been anti-dilutive. In addition, for the three and

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six months ended July 1, 2018, diluted weighted average shares outstanding do not include outstanding equity awards of 0.3 million and 0.2 million, respectively, because the related performance conditions have not been satisfied. Furthermore, for both the three and six months ended July 1, 2018, diluted weighted average shares outstanding do not include the impact of preferred shares that are convertible into 6.9 million common shares, because deducting the preferred stock dividends from net income was more dilutive.

For both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include outstanding equity awards of 0.4 million because to do so would have been anti-dilutive. In addition, for both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include outstanding equity awards of 0.2 million because the related performance conditions have not been satisfied. Furthermore, for both the three and six months ended July 2, 2017, diluted weighted average shares outstanding do not include the impact of preferred shares that are convertible into 6.9 million common shares because deducting the preferred stock dividends from net income was more dilutive.
For purposes of calculating basic earnings per share, unvested restricted stock units are not included in the calculation of basic weighted average shares outstanding until all necessary conditions have been satisfied and issuance of the shares underlying the restricted stock units is no longer contingent. Necessary conditions are not satisfied until the vesting date, at which time holders of our restricted stock units receive shares of our common stock.
For purposes of calculating diluted earnings per share, unvested restricted stock units are included to the extent that they are dilutive. In determining whether unvested restricted stock units are dilutive, each issuance of restricted stock units is considered separately.
Once a restricted stock unit has vested, it is included in the calculation of both basic and diluted weighted average shares outstanding.
Note 7:  Inventories
The major classes of inventories were as follows:
 
 
July 1, 2018
 
December 31, 2017
 
 
 
 
 
(In thousands)
Raw materials
$
158,352

 
$
133,311

Work-in-process
46,064

 
35,807

Finished goods
147,956

 
153,377

Gross inventories
352,372

 
322,495

Excess and obsolete reserves
(33,239
)
 
(25,269
)
Net inventories
$
319,133

 
$
297,226

Note 8:  Long-Lived Assets

Depreciation and Amortization Expense

We recognized depreciation expense of $12.0 million and $23.9 million in the three and six months ended July 1, 2018, respectively. We recognized depreciation expense of $11.5 million and $22.9 million in the three and six months ended July 2, 2017, respectively.

We recognized amortization expense related to our intangible assets of $25.5 million and $50.2 million in the three and six months ended July 1, 2018, respectively. We recognized amortization expense related to our intangible assets of $27.1 million and $50.8 million in the three and six months ended July 2, 2017, respectively.
Note 9:  Severance, Restructuring, and Acquisition Integration Activities
Grass Valley and SAM Integration Program: 2018
During the first quarter of 2018, we began a restructuring program to integrate SAM with Grass Valley. The restructuring and integration activities are focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $20.3 million and $29.5 million of severance and other restructuring costs for this program during the three and six months ended July 1, 2018, respectively. The costs were incurred by the Enterprise Solutions segment. We expect to incur approximately $22 million of additional severance and restructuring costs for this program, most of which will

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be incurred by the end of 2018. We also expect the program to generate approximately $44 million of savings on an annualized basis, which we will start realizing in the second half of 2018.
Industrial Manufacturing Footprint Program: 2016 - 2018
In 2016, we began a program to consolidate our manufacturing footprint. This program is expected to be completed by the end of 2018. We recognized $3.9 million and $11.4 million of severance and other restructuring costs for this program during the three and six months ended July 1, 2018, respectively. We recognized $8.2 million and $13.9 million of severance and other restructuring costs for this program during the three and six months ended July 2, 2017, respectively. The costs were incurred by the Enterprise Solutions and Industrial Solutions segments, as the manufacturing locations involved in the program serve both platforms. To date, we have incurred a total of $59.8 million in severance and other restructuring costs, including manufacturing inefficiencies for this program. We expect the program to generate approximately $13 million of savings on an annualized basis, which we began to realize in the third quarter of 2017.
The following table summarizes the costs by segment of the various programs described above as well as other immaterial programs and acquisition integration activities:
 
 
Severance     
 
Other
Restructuring and
Integration Costs
 
Total Costs     
 
 
 
 
 
 
 
Three Months Ended July 1, 2018
 
(In thousands)
Enterprise Solutions
 
$
10,872

 
$
12,015

 
$
22,887

Industrial Solutions
 
190

 
1,851

 
2,041

Total
 
$
11,062

 
$
13,866

 
$
24,928

 
 
 
 
 
 
 
Three Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
1,275

 
$
7,836

 
$
9,111

Industrial Solutions
 
153

 
296

 
449

Total
 
$
1,428

 
$
8,132

 
$
9,560

 
 
 
 
 
 
 
Six Months Ended July 1, 2018
 
 
 
 
 
 
Enterprise Solutions
 
$
11,380

 
$
26,041

 
$
37,421

Industrial Solutions
 
242

 
7,659

 
7,901

Total
 
$
11,622

 
$
33,700

 
$
45,322

 
 
 
 
 
 
 
Six Months Ended July 2, 2017
 
 
 
 
 
 
Enterprise Solutions
 
$
2,176

 
$
12,216

 
$
14,392

Industrial Solutions
 
153

 
1,615

 
1,768

Total
 
$
2,329

 
$
13,831

 
$
16,160

Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended July 1, 2018, $7.2 million, $14.5 million, and $3.2 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended July 2, 2017, $8.2 million and $1.4 million were included in cost of sales and selling, general and administrative expenses, respectively.
Of the total severance, restructuring, and acquisition integration costs recognized in the six months ended July 1, 2018, $16.6 million, $23.9 million, and $4.8 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the six months ended July 2, 2017, $14.1 million and $2.1 million were included in cost of sales and selling, general and administrative expenses, respectively.
The other restructuring and integration costs primarily consisted of equipment transfer, costs to consolidate operating and support facilities, retention bonuses, relocation, travel, legal, and other costs. The majority of the other restructuring and integration costs related to these actions were paid as incurred or are payable within the next 60 days.   


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Accrued Severance
The table below summarizes the significant severance activity that occurred during the year for the Grass Valley and SAM Integration Program described above. The balances are included in accrued liabilities.
 
 
Grass Valley and SAM Integration Program
 
 
 
 
 
(In thousands)
Balance at December 31, 2017
 
$
—

New charges
 
456

Cash payments
 
(50
)
Balance at April 1, 2018
 
$
406

New charges
 
10,714

Cash payments
 
(7,556
)
Foreign currency translation
 
(4
)
Balance at July 1, 2018
 
$
3,560

Note 10:  Long-Term Debt and Other Borrowing Arrangements
The carrying values of our long-term debt were as follows:
 
 
July 1, 2018
 
December 31, 2017
 
 
 
 
 
(In thousands)
Revolving credit agreement due 2022
$
—

 
$
—

Senior subordinated notes:
 
 
 
3.875% Senior subordinated notes due 2028
405,720

 
—

3.375% Senior subordinated notes due 2027
521,640

 
540,810

4.125% Senior subordinated notes due 2026
231,840

 
240,360

2.875% Senior subordinated notes due 2025
347,760

 
360,540

5.25% Senior subordinated notes due 2024
—

 
200,000

5.50% Senior subordinated notes due 2023
—

 
242,522

Total senior subordinated notes
1,506,960

 
1,584,232

Less unamortized debt issuance costs
(24,032
)
 
(23,484
)
Long-term debt
$
1,482,928

 
$
1,560,748

Revolving Credit Agreement due 2022

Our Revolving Credit Agreement provides a $400.0 million multi-currency asset-based revolving credit facility (The Revolver). The borrowing base under the Revolver includes eligible accounts receivable; inventory; and property, plant and equipment of certain of our subsidiaries in the U.S., Canada, Germany, and the Netherlands. The maturity date of the Revolver is May 16, 2022. Interest on outstanding borrowings is variable, based upon LIBOR or other similar indices in foreign jurisdictions, plus a spread that ranges from 1.25%-1.75%, depending upon our leverage position. We pay a commitment fee on our available borrowing capacity of 0.25%. In the event we borrow more than 90% of our borrowing base, we are subject to a fixed charge coverage ratio covenant. As of July 1, 2018, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $348.0 million.
Senior Subordinated Notes
In March 2018, we completed an offering for €350.0 million ($431.3 million at issuance) aggregate principal amount of 3.875% senior subordinated notes due 2028 (the 2028 Notes). The carrying value of the 2028 Notes as of July 1, 2018 is $405.7 million. The 2028 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2028 Notes

- 20-


rank equal in right of payment with our senior subordinated notes due 2027, 2026, and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on March 15 and September 15 of each year, beginning on September 15, 2018. We paid approximately $7.5 million of fees associated with the issuance of the 2028 Notes, which will be amortized over the life of the 2028 Notes using the effective interest method. We used the net proceeds from this offering and cash on hand to repurchase the 2023 and 2024 Notes - see further discussion below.
We have outstanding €450.0 million aggregate principal amount of 3.375% senior subordinated notes due 2027 (the 2027 Notes). The carrying value of the 2027 Notes as of July 1, 2018 is $521.6 million. The 2027 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2027 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2026, and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on January 15 and July 15 of each year.
We have outstanding €200.0 million aggregate principal amount of 4.125% senior subordinated notes due 2026 (the 2026 Notes). The carrying value of the 2026 Notes as of July 1, 2018 is $231.8 million. The 2026 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2026 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2027,and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
We have outstanding €300.0 million aggregate principal amount of 2.875% senior subordinated notes due 2025 (the 2025 Notes). The carrying value of the 2025 Notes as of July 1, 2018 is $347.8 million. The 2025 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2025 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2027, and 2026 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on March 15 and September 15 of each year.
We had outstanding $200.0 million aggregate principal amount of 5.25% senior subordinated notes due 2024 (the 2024 Notes). In March 2018, we repurchased $188.7 million of the $200.0 million 2024 Notes outstanding for cash consideration of $199.8 million, including a prepayment penalty and recognized a $13.8 million loss on debt extinguishment including the write-off of unamortized debt issuance costs. In April 2018, we repurchased the remaining 2024 Notes outstanding for cash consideration of $11.9 million, including a prepayment penalty, and recognized a $0.8 million loss on debt extinguishment including the write-off of unamortized debt issuance costs.
We had outstanding €200.0 million aggregate principal amount of 5.5% senior subordinated notes due 2023 (the 2023 Notes). In March 2018, we repurchased €143.1 million of the €200.0 million 2023 Notes outstanding for cash consideration of €147.8 million ($182.1 million), including a prepayment penalty and recognized a $6.2 million loss on debt extinguishment including the write-off of unamortized debt issuance costs. In April 2018, we repurchased the remaining 2023 Notes outstanding for cash consideration of €58.5 million ($71.6 million), including a prepayment penalty, and recognized a $2.2 million loss on debt extinguishment including the write-off of unamortized debt issuance costs.
Fair Value of Long-Term Debt
The fair value of our senior subordinated notes as of July 1, 2018 was approximately $1,485.7 million based on quoted prices of the debt instruments in inactive markets (Level 2 valuation). This amount represents the fair values of our senior subordinated notes with a carrying value of $1,507.0 million as of July 1, 2018.
Note 11:  Net Investment Hedge
All of our euro denominated notes were issued by Belden Inc., a USD functional currency entity. As of July 1, 2018, all of our outstanding foreign denominated debt is designated as a net investment hedge on the foreign currency risk of our net investment in our euro foreign operations. The objective of the hedge is to protect the net investment in the foreign operation against adverse changes in exchange rates. The transaction gain or loss is reported in the cumulative translation adjustment section of other comprehensive income. The amount of the cumulative translation adjustment associated with these notes at July 1, 2018 was $66.5 million. As of July 2, 2017, only our 2026 Notes were designated as a net investment hedge on the foreign currency risk of our net investment in our euro foreign operations, and the cumulative translation adjustment associated with the 2026 Notes at July 2, 2017 was $5.1 million.

- 21-


Note 12:  Income Taxes

For the three and six months ended July 1, 2018, we recognized income tax expense of $9.3 million and $13.8 million, respectively, representing an effective tax rate of 24.5% and 30.5%, respectively. The effective tax rate was impacted by the following significant factors:

•
We recognized an income tax benefit of $1.2 million in the three and six months ended July 1, 2018 due to a decrease in reserves for uncertain tax positions of prior years.
•
We recognized income tax expense of $1.8 million in the six months ended July 1, 2018 as a result of a change in our valuation allowance on foreign tax credits associated with our euro debt refinancing.
•
We also recognized income tax expense of $0.5 million in the six months ended July 1, 2018 as a result of changes in our valuation allowance for the “Tax Cuts and Jobs Act” (the Act). The amount of this adjustment remains provisional under Staff Accounting Bulletin No. 118 (SAB 118) as of the date of this report.
 
On December 22, 2017, 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 system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, 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. During 2018, we obtained additional information affecting the provisional amount initially recorded for the valuation allowance on certain foreign tax credits in 2017. As a result, we recorded an adjustment to the valuation allowance on certain foreign tax credits. Additional work is still necessary for a more detailed analysis of all provisional amounts associated with the Act including the remeasurement of certain deferred tax assets and liabilities, the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the valuation allowance on certain foreign tax credits. We continue to evaluate the need for a provisional amount regarding the non-deductibility of certain covered employee compensation associated with the amendments to IRC section 162(m). As of the date of this report, we reasonably believe no such provision should be recorded. Any subsequent adjustment to these amounts will be recorded to tax expense in 2018 when the analysis is complete. All adjustments related to the Act remain provisional as of the date of this report.
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.

We recognized income tax expense of $2.2 million and $4.5 million for the three and six months ended July 2, 2017, respectively, representing effective tax rates of 5.8% and 6.8%, respectively. The effective tax rates were impacted by the following significant factors:

•
We recognized an income tax benefit of $4.1 million and $7.5 million in the three and six months ended July 2, 2017, respectively, as a result of generating tax credits, primarily from the implementation of a foreign tax credit planning strategy.
•
Foreign tax rate differences reduced our income tax expense by approximately $4.1 million and $7.0 million in the three and six months ended July 2, 2017, respectively. The statutory tax rates associated with our foreign earnings generally were lower than the 2017 statutory U.S. tax rate of 35%. This had the greatest impact on our income before taxes that is generated in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively.
•
We also recognized an income tax benefit of $4.5 million and $5.3 million in the three and six months ended July 2, 2017, respectively, related to non-taxable currency translation gains.
Note 13:  Pension and Other Postretirement Obligations
The following table provides the components of net periodic benefit costs for our pension and other postretirement benefit plans:
 

- 22-


 
 
Pension Obligations
 
Other Postretirement Obligations
Three Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Service cost
 
$
942

 
$
1,251

 
$
13

 
$
13

Interest cost
 
1,905

 
1,874

 
260

 
329

Expected return on plan assets
 
(2,508
)
 
(2,567
)
 
—

 
—

Amortization of prior service credit
 
(12
)
 
(9
)
 
—

 
—

Actuarial losses
 
612

 
645

 
—

 
23

Net periodic benefit cost
 
$
939

 
$
1,194

 
$
273

 
$
365

 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
 
 
 
 
 
 
Service cost
 
$
2,075

 
$
2,343

 
$
26

 
$
27

Interest cost
 
3,781

 
3,569

 
524

 
656

Expected return on plan assets
 
(5,028
)
 
(4,928
)
 
—

 
—

Amortization of prior service credit
 
(22
)
 
(20
)
 
—

 
—

Actuarial losses
 
1,277

 
1,233

 
—

 
45

Net periodic benefit cost
 
$
2,083

 
$
2,197

 
$
550

 
$
728

Note 14:  Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
The following table summarizes total comprehensive income:
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
 
 
 
 
 
 
 
 
 
(In thousands)
Net income
$
28,792

 
$
35,891

 
$
31,362

 
$
61,472

Foreign currency translation gain (loss), net of $0.6 million, $0.5 million, $1.1 million, and $0.4 million tax, respectively
60,642

 
(17,107
)