BELDEN INC. - Quarter Report: 2011 October (Form 10-Q)

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 October 2, 2011

Commission File No. 001-12561

BELDEN INC.

(Exact name of registrant as specified in its charter)

7733 Forsyth Boulevard, Suite 800

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 shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

As of November 7, 2011, the Registrant had 46,588,037 outstanding shares of common stock.

BELDEN INC.

CONSOLIDATED BALANCE SHEETS

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

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BELDEN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

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BELDEN INC.

CONSOLIDATED CASH FLOW STATEMENTS

(Unaudited)

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

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BELDEN INC.

CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENT

NINE MONTHS ENDED OCTOBER 2, 2011

(Unaudited)

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

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BELDEN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying 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 Consolidated Financial Statements presented as of any date other than December 31, 2010:

These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Supplementary Data contained in our 2010 Annual Report on Form 10-K.

Business Description

We design, manufacture, and market a portfolio of cable, connectivity, and networking products in markets including industrial, enterprise, broadcast, and consumer electronics. Our products provide for the transmission of signals for data, sound, and video 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. Our fiscal second and third quarters each have 91 days.

The nine months ended October 2, 2011 and October 3, 2010 included 275 and 276 calendar days, respectively.

Reclassifications

We have made certain reclassifications to the 2010 Consolidated Financial Statements with no impact to reported net income in order to conform to the 2011 presentation, including reclassifications associated with a discontinued operation.

Fair Value Measurement

Accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

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As of and for the three and nine months ended October 2, 2011 and October 3, 2010, we utilized Level 1 inputs to determine the fair value of cash equivalents, and we utilized Level 2 inputs to determine the fair value of derivatives and hedging instruments (see Note 8).

Cash and Cash Equivalents

We classify cash on hand and deposits in banks, including commercial paper, money market accounts, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. We periodically have cash equivalents consisting of short-term money market funds and other investments. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations. We do not enter into investments for trading or speculative purposes. The fair value and carrying value of these cash equivalents as of October 2, 2011 was $45.5 million and is based on quoted market prices in active markets (i.e., Level 1 valuation).

Contingent Liabilities

We have established liabilities for environmental and legal contingencies that are probable of occurrence and reasonably estimable. We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in consultation with our environmental consultants and legal counsel. We are, from time to time, subject to routine litigation incidental to our business. These lawsuits primarily involve claims for damages arising out of the use of our products, allegations of patent or trademark infringement, and litigation and administrative proceedings involving employment matters and commercial disputes. Based on facts currently available, we believe the disposition of the claims that are pending or asserted will not have a materially adverse effect on our financial position, results of operations or cash flow.

As of October 2, 2011, we were party to standby letters of credit, bank guaranties, and surety bonds totaling $10.4 million, $6.0 million, and $1.7 million, respectively.

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) collectibility is reasonably assured, and (4) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. We record revenue net of estimated rebates, price allowances, invoicing adjustments, and product returns. We record revisions to these estimates in the period in which the facts that give rise to each revision become known.

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Discontinued Operations

On December 16, 2010, we completed the sale of Trapeze Networks, Inc. (Trapeze). The Trapeze operations comprised the entirety of the former Wireless segment. For the three and nine months ended October 3, 2010, we recognized a loss of $3.1 million ($1.9 million net of tax) and $8.9 million ($6.1 million net of tax), respectively, related to the Trapeze operations, which is included in discontinued operations.

During 2005, we completed the sale of our discontinued communications cable operation in Phoenix, Arizona. In connection with this sale and related tax deductions, we established a reserve for uncertain tax positions. For the three and nine months ended October 2, 2011, we recognized $0.2 million and $0.7 million of interest expense, respectively ($0.2 million and $0.4 million net of tax, respectively) related to the uncertain tax positions, which is included in discontinued operations. For the three and nine months ended October 3, 2010, we recognized $0.2 million and $0.7 million of interest expense, respectively ($0.1 million and $0.4 million net of tax, respectively) related to the uncertain tax positions, which is included in discontinued operations.

Other Income

For the nine months ended October 3, 2010, we recorded $1.5 million of other income related to an escrow settlement. The escrow settlement related to indemnification for certain tax matters arising from a previous acquisition.

Subsequent Events

We have evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure.

Note 2: Acquisitions

We acquired ICM Corp. (ICM) for cash of $21.9 million on January 7, 2011. ICM is a broadcast connectivity product manufacturer located in Denver, Colorado. ICM’s strong brands and technology enhance our portfolio of broadcast products. The results of ICM have been included in our Consolidated Financial Statements from January 7, 2011, and are reported within the Americas segment. The ICM acquisition was not material to our financial position or results of operations reported as of and for the three and nine months ended October 2, 2011.

We acquired Poliron Cabos Electricos Especiais Ltda (Poliron) for cash of $29.2 million on April 1, 2011. Poliron is an industrial cable manufacturer located in Sao Paulo, Brazil. The acquisition of Poliron expands our presence in emerging markets. The results of Poliron have been included in our Consolidated Financial Statements from April 1, 2011, and are reported within the Americas segment. The Poliron acquisition was not material to our financial position or results of operations reported as of and for the three and nine months ended October 2, 2011.

We acquired Byres Security, Inc. (Byres) for cash of $7.2 million on August 31, 2011. Byres is an industrial network security company located in Vancouver, Canada. The acquisition of Byres expands our industrial networking product capabilities. The results of Byres have been included in our Consolidated Financial Statements from August 31, 2011, and are reported within the EMEA segment.

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The Byres acquisition was not material to our financial position or results of operations reported as of and for the three and nine months ended October 2, 2011.

As of October 2, 2011, we recorded $28.3 million and $21.5 million of goodwill and intangible assets, respectively, due to the ICM, Poliron, and Byres acquisitions.

Note 3: Operating Segments

We have organized the enterprise around geographic areas. We conduct our operations through three reported operating segments—Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific.

Beginning on January 1, 2011, we allocate corporate expenses to the segments for purposes of measuring segment operating income. Corporate expenses are allocated on the basis of each segment’s relative operating income prior to the allocation. The prior period presentation has been modified accordingly.

The following table is a reconciliation of the total of the reportable segments’ operating income to consolidated income from continuing operations before taxes.

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Revenues by major product group were as follows:

The main categories of cable products are (1) copper cables, including shielded and unshielded twisted pair cables, coaxial cables, and stranded cables, (2) fiber optic cables, which transmit light signals through glass or plastic fibers, and (3) composite cables, which are combinations of multiconductor, coaxial, and fiber optic cables jacketed together or otherwise joined together to serve complex applications and provide ease of installation. Networking products include wireless and wired Industrial Ethernet switches and related equipment and security features, fiber optic interfaces and media converters used to bridge fieldbus networks over long distances, and load-moment indicators for mobile cranes and other load-bearing equipment. Connectivity products include both fiber and copper connectors for the enterprise, broadcast, and industrial markets. Connectors are also sold as part of end-to-end structured cabling solutions.

Note 4: Income per Share

The following table presents the basis for the income per share computations:

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For the three and nine months ended October 2, 2011, diluted weighted average shares outstanding do not include outstanding equity awards of 1.0 million and 0.7 million, respectively, because to do so would have been anti-dilutive. For the three and nine months ended October 3, 2010, diluted weighted average shares outstanding do not include outstanding equity awards of 1.7 million and 1.5 million, respectively, because to do so would have been anti-dilutive.

Note 5: Inventories

The major classes of inventories were as follows:

Note 6: Long-Lived Assets

Disposals

During the nine months ended October 2, 2011, we sold certain real estate of the Americas segment for $1.1 million. There was no gain or loss recognized on the sale.

During the nine months ended October 3, 2010, we sold certain real estate of the EMEA segment for $1.8 million. There was no gain or loss recognized on the sale.

Depreciation and Amortization Expense

We recognized depreciation expense in income from continuing operations of $9.2 million and $27.2 million in the three and nine months ended October 2, 2011, respectively. We recognized depreciation expense in income from continuing operations of $8.6 million and $28.7 million in the three and nine months ended October 3, 2010, respectively.

We recognized amortization expense related to our intangible assets in income from continuing operations of $3.4 million and $10.4 million in the three and nine months ended October 2, 2011, respectively. We recognized amortization expense related to our intangible assets in income from continuing operations of $2.6 million and $7.9 million in the three and nine months ended October 3, 2010, respectively.

Note 7: Long-Term Debt and Other Borrowing Arrangements

Senior Secured Credit Facility

On April 25, 2011, we entered into a new senior secured credit facility (Senior Secured Facility). The borrowing capacity under the Senior Secured Facility is $400.0 million, and it matures on April 25, 2016.

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Under the Senior Secured Facility, we are permitted to borrow and re-pay funds in various currencies. Interest on outstanding borrowings is variable, based on either the three month LIBOR rate or the prime rate. It is secured by certain of our assets in the United States as well as the capital stock of certain of our subsidiaries. We paid $3.3 million of fees associated with the Senior Secured Facility, which will be amortized over the life of the Senior Secured Facility using the effective interest method.

The Senior Secured Facility contains a leverage ratio covenant and a fixed charge coverage ratio covenant. As of October 2, 2011, we were in compliance with all of the covenants of the Senior Secured Facility.

The Senior Secured Facility replaces our $230.0 million senior secured credit facility that was scheduled to mature in January 2013. There were no outstanding borrowings under the prior facility at the time of its termination.

As of October 2, 2011, there were no outstanding borrowings under the Senior Secured Facility, and we had $381.8 million in available borrowing capacity.

Senior Subordinated Notes

We have outstanding $200.0 million in senior subordinated notes due 2019 with a coupon interest rate of 9.25% and an effective interest rate of 9.75%. The notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The notes rank equal in right of payment with our senior subordinated notes due 2017 and with any future senior subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Senior Secured Facility. Interest is payable semiannually on June 15 and December 15. As of October 2, 2011, the carrying value of the notes was $201.0 million.

We also have outstanding $350.0 million aggregate principal amount of 7.0% senior subordinated notes due 2017. The notes are guaranteed on a senior subordinated basis by certain of our subsidiaries. The notes rank equal in right of payment with our senior subordinated notes due 2019 and with any future senior subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Senior Secured Facility. Interest is payable semiannually on March 15 and September 15. As of October 2, 2011, the carrying value of the notes was $350.0 million.

The indentures governing our senior subordinated notes require that we reinvest the proceeds from qualifying dispositions of assets in the business. To the extent that such proceeds are not reinvested (excess proceeds), we are required to offer to repurchase our notes at par. We expect to make such an offer during the three months ended December 31, 2011, as a result of estimated excess proceeds of approximately $40.0 million—$50.0 million from our disposition of Trapeze in 2010. As of October 2, 2011, the senior subordinated notes were trading above par.

Fair Value of Long-Term Debt

The fair value of our debt instruments at October 2, 2011 was approximately $563.9 million based on sales prices of the debt instruments from recent trading activity. This amount represents the fair value of our senior subordinated notes with a face value of $550.0 million.

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Note 8: Derivatives and Hedging Activities

There were no derivatives or hedging instruments in place as of or for the three and nine months ended October 2, 2011. For each of the three and nine months ended October 3, 2010, we recorded a net loss of $0.2 million and $2.9 million, respectively, on our derivative and hedging instruments, which was classified within interest expense.

Note 9: Income Taxes

Income tax expense was $9.0 million and $28.2 million for the three and nine months ended October 2, 2011, respectively. The effective rate reflected in the provision for income taxes on income from continuing operations before taxes is 22.3% and 24.2% for the three and nine months ended October 2, 2011, respectively. The most significant factor in the difference between the effective rate and the amount determined by applying the applicable statutory United States tax rate of 35% is the tax rate differential associated with our foreign earnings. In addition, income tax expense for the nine months ended October 2, 2011 reflects a net $4.7 million benefit due to the reduction of deferred tax asset valuation allowances primarily in foreign jurisdictions and a $1.9 million benefit due to the reduction of our reserve for uncertain tax positions. Income tax expense for the nine months ended October 3, 2010 included a $1.9 million benefit due to the settlement of a foreign tax audit.

Note 10: Pension and Other Postretirement Obligations

The following table provides the components of net periodic benefit costs for our pension plans:

Note 11: Comprehensive Income

The following table summarizes total comprehensive income:

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Note 12: Share Repurchase Program

In July 2011, our Board of Directors authorized a share repurchase program, which allows us to purchase up to $150.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. As of October 2, 2011, we have repurchased 866,930 shares of our common stock under the program through a prepaid variable share repurchase agreement for an aggregate cost of $25.0 million, an average price per share of $28.84.

On October 31, 2011, we entered into a prepaid variable share repurchase agreement to repurchase an additional $25.0 million of our common stock. The variable share repurchase agreement was funded with available cash, and it is scheduled to be completed no later than December 30, 2011.

Note 13: Supplemental Guarantor Information

As of October 2, 2011, Belden Inc. (the Issuer) has outstanding $550.0 million aggregate principal amount of senior subordinated notes. The notes rank equal in right of payment with any of our future senior subordinated debt. The notes are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Senior Secured Facility. Belden Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the notes on a joint and several basis. In addition, effective April 25, 2011, in connection with the refinancing of our Senior Secured Facility, the guarantor subsidiaries of the notes have been revised. The financial position, results of operations, and cash flows of the guarantor subsidiaries are not material and are combined with the Issuer in the following consolidating financial information. The following consolidating financial information presents information about the Issuer and non-guarantor subsidiaries. Investments in subsidiaries are accounted for on the equity basis. Intercompany transactions are eliminated.

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Supplemental Condensed Consolidating Balance Sheets