What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-16 compared with 2020-02-11 · 208 added, 146 removed, 338 unchanged (51% of the section changed)

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Our comprehensive portfolio of signal transmission solutions provides industry leading secure and reliable transmission of data, sound, and video for mission critical applications.

Effective January 1, 2020, we transferred our West Penn Wire business and multi-conductor product lines from the Enterprise Solutions segment to the Industrial Solutions segment as a result of a shift in responsibilities among the segments.

We have recast the prior period segment information to conform to the change in the composition of reportable segments.

We strive to create shareholder value by:

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The following trends and events during 2020 had varying effects on our financial condition, results of operations, and cash flows.

Global Pandemic

On March 11, 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus (COVID-19) a pandemic.

We expect the outbreak of COVID-19 will continue to result in significant economic disruption and will continue to adversely affect our business in the future.

As compared to the year ago period, we expect to continue to experience reductions in customer demand in several of our end-markets.

We expect that the social distancing measures, the reduced operational status of some of our suppliers and reductions in production at certain facilities will continue to have an adverse impact on our operations, and general business uncertainty will continue to negatively impact demand in several of our end-markets in the near future.

Our foremost focus has been on the health and safety of our employees and customers.

In response to the outbreak, we have modified practices at our manufacturing locations and offices to adhere to guidance from the WHO, the U.S.

Centers for Disease Control and Prevention and other local health and governmental authorities with respect to social distancing, physical separation, personal protective equipment and sanitization.

We are approaching our response to this outbreak with a recognition that we provide essential and important products and services upon which our customers rely upon daily to support critical functions.

Therefore, most, but not all, of our U.S.

and global facilities have remained substantially operational during the outbreak while implementing enhanced safety protocols designed to protect the well-being of our employees.

The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers.

Data Security Incident

In November 2020, our information technology network was impacted by a data incident.

We took immediate steps to contain the incident as well as notified law enforcement and cybersecurity experts.

This matter did not impact production at our manufacturing plants nor shipping and quality control.

The personal information of current and former employees, as well as limited company information of some of our business partners was accessed.

We timely notified the impacted individuals and companies in addition to the appropriate governmental data privacy authorities.

Impacted individuals were offered credit monitoring and/or identity protection services, where available, at no charge.

We do not believe that the incident will have a material impact on our business or financial condition.

Security, in all forms, remains a critical priority, and we will continue to take all appropriate measures to further safeguard the integrity of our information technology infrastructure.

Foreign currency

Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S.

dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, Indian rupee, and Brazilian real.

dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Mexican peso, Australian dollar, British pound, Indian rupee, and Brazilian real.

Generally, as the U.S.

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dollar weakens against foreign currencies, our revenues and earnings are positively impacted.

Because all of our senior subordinated notes are denominated in euros, interest expense on the notes is affected by exchange rate movements between the U.S.

dollar and the euro.

In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results.

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To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.

Discontinued Operations Treatment of the Grass Valley Disposal Group

Grass Valley Disposal

During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the assets and liabilities of this business as held for sale.

Furthermore, we determined a divestiture of Grass Valley represents a strategic shift that is expected to have a major impact on our operations and financial results.

As a result, the Grass Valley disposal group, which was included in our Enterprise Solutions segment, is now reported within discontinued operations.

As such, comparable prior period information has been recast to exclude the Grass Valley disposal group from continuing operations, with the exception of the Consolidated Cash Flow Statements.

The Grass Valley disposal group excludes certain Grass Valley pension plans that we will retain.

In 2019, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $521.4 million.

We completed the acquisitions of SPC, Opterna, and FutureLink on December 6, 2019, April 15, 2019, and April 5, 2019, respectively.

The results of SPC, Opterna, and FutureLink have been included in our Consolidated Financial Statements as of their acquisition dates and are reported within the Enterprise Solutions segment.

As a result, the Grass Valley disposal group, which was included in our Enterprise Solutions segment, has been reported within discontinued operations as of such time, and the comparable prior period information has been recast accordingly to exclude the Grass Valley disposal group from continuing operations, with the exception of the Consolidated Cash Flow Statements.

The Grass Valley disposal group excludes certain Grass Valley pension plans retained by Belden.

Prior to the divestiture, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $113.0 million during 2020.

We completed the sale of Grass Valley to Black Dragon Capital on July 2, 2020 and recognized a loss of $9.9 million, net of $7.5 million income tax expense.

The terms of the sale included gross cash consideration of $120.0 million, approximately $56.2 million net of cash delivered with the business.

The sale also included deferred consideration consisting of a $175.0 million seller’s note that is set to mature in 2025, up to $88 million in PIK (payment-in-kind) interest on the seller’s note, and $178.0 million in potential earnout payments.

The seller’s note accrues PIK interest at an annual rate of 8.5%.

During the year ended December 31, 2020, the seller’s note accrued interest of $7.8 million, which we reserved for based on our expected loss allowance methodology.

Based upon a third party valuation specialist using certain assumptions in a Monte Carlo analysis, the estimated fair value of the seller’s note is $34.9 million, which we recorded in Other Long-Lived Assets.

As part of the transaction, we also invested $3.0 million for a 9% equity interest in Grass Valley with the right to put the equity back to Black Dragon Capital.

We exercised our right during the fourth quarter of 2020 and sold our 9% equity interest in Grass Valley to Black Dragon Capital for $2.7 million.

We deconsolidated Grass Valley as of July 2, 2020 and accounted for our equity interest under the cost method for the period that we owned a 9% interest in Grass Valley.

We are performing certain services for Grass Valley under a transition services agreement.

During 2020, the amount of transition services totaled $2.0 million, which we expect to collect in 2021.

As of December 31, 2020, we do not own any interest in Grass Valley.

Grass Valley's operating results for periods after July 2, 2020 are not included in our Consolidated Financial Statements.

Earnout Consideration Payment

During the year ended December 31, 2020 and prior to the Grass Valley disposal, we paid the sellers of Snell Advanced Media (SAM) the full earnout consideration of $31.4 million in cash in accordance with the purchase agreement.

SAM was acquired on February 8, 2018 and was included in the Grass Valley disposal group.

See Notes 1 and 5.

Segment Transfer

We have recast the prior period segment information to conform to the change in the composition of reportable segments.

Cost Reduction Program

During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining the organizational structure and investing in technology to drive productivity.

We recognized approximately $19.6 million of severance costs for this program during 2019 .

The costs were incurred by both of our segments, as well as our corporate office.

The cost reduction program is expected to deliver an estimated $40.0 million reduction in selling, general, and administrative expenses on an annual basis, with some benefit in 2020, and the full benefit realized in 2021.

We expect to incur approximately $10.0 million for this program in 2020.

Opterna, FutureLink, and SPC Integration Program:

In 2019, we began a restructuring program to integrate the recent acquisitions of Opterna, FutureLink, and SPC with our existing businesses.

During 2019, we began a cost reduction program to improve performance and enhance margins by streamlining the organizational structure and investing in technology to drive productivity.

We recognized $ 4.0 million of severance and other restructuring costs for this program during 2020.

These costs were incurred by both the Enterprise Solutions and Industrial Solutions segments.

The cost reduction program is expected to deliver an estimated $ 60 million reduction in selling, general, and administrative expenses on an annual basis;

approximately $ 40 million of which was realized in 2020, and the full benefit is expected to be materialized in 2021.

We also expect to incur incremental costs of approximately $ 8 million for this program in 2021.

FutureLink, Opterna, and SPC Integration Program

In 2019, we began a restructuring program to integrate FutureLink, Opterna, and SPC with our existing businesses.

The restructuring and integration activities were focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions.

We recognized $ 4.9 million of severance and other restructuring costs for this program during 2020.

The costs were incurred by the Enterprise Solutions segment.

We expect to incur an additional $5.0 million for this program in 2020.

Preferred Stock Conversion

On July 15, 2019, all outstanding Preferred Stock was automatically converted into shares of Belden common stock at the conversion rate of 132.50, resulting in the issuance of approximately 6.9 million shares of Belden common stock.

Upon conversion, the Preferred Stock was automatically extinguished and discharged, is no longer deemed outstanding for all purposes, and delisted from trading on the New York Stock Exchange.

For the year ended December 31, 2019, dividends on the Preferred Stock were $18.4 million.

These costs were incurred by the Enterprise Solutions segment.

We expect to incur incremental costs of approximately $ 1 million for this program in 2021.

Revolving Credit Agreement

Due to the initial uncertainties arising from the COVID-19 pandemic and out of an abundance of caution, in April 2020 we borrowed $ 190.0 million on our Revolver, which we fully repaid by December 31, 2020 as a result of improved and sufficient liquidity and cash flow.

Our Revolving Credit Agreement provides a $400.0 million multi-currency asset-based revolving credit facility and matures on 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.

As of December 31, 2020, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $ 230.2 million.

Share Repurchase Program

In 2018, our Board of Directors authorized a share repurchase program, which allows us to purchase up to $300.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions.

This program is funded with cash on hand and cash flows from operating activities.

During the year ended December 31, 2020, we repurchased 1.0 million shares of our common stock under the share repurchase program for an aggregate cost of $35.0 million at an average price per share of $35.83.

Results of Operations

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Percentage Change

2020 2019 2018 2020 vs.

2019 2019 vs.

(In thousands, except percentages)

Revenues $ 1,862,716 $ 2,131,278 $ 2,165,702 (12.6) % (1.6) %

Gross profit 663,289 793,505 829,911 (16.4) % (4.4) %

Selling, general and administrative expenses 366,188 417,329 411,352 (12.3) % 1.5 %

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Amortization of intangibles 64,395 74,609 75,140 (13.7) % (0.7) %

Gain from patent litigation

Gain from patent litigation — — 62,141 n/a (100.0) %

Operating income 125,410 207,207 314,008 (39.5) % (34.0) %

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Non-operating pension benefit (cost) (395) 1,017 (99) (138.8) % 1,127.3 %

Loss on debt extinguishment

Loss on debt extinguishment — — 22,990 n/a (100.0) %

Income from continuing operations before taxes 66,127 152,410 230,080 (56.6) % (33.8) %

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Revenues decreased $268.6 million from 2019 to 2020 due to the following factors:

Acquisitions contributed $32.4 million to the increase in revenues.

• Lower sales volume, including the impact of changes in channel inventory, contributed $302.7 million to the decrease in revenues.

• Currency translation had a $1.9 million unfavorable impact on revenues.

• Acquisitions increased revenues by $34.3 million.

• Copper prices had a $1.7 million favorable impact on revenues.

Gross profit decreased $130.2 million from 2019 to 2020 due to the decreases in revenues discussed above as well as unfavorable mix;

partially offset by the impact of acquisitions.

Selling, general and administrative expenses decreased $51.1 million from 2019 to 2020.

Benefits realized from our Cost Reduction Program coupled with productivity improvement initiatives contributed an estimated $43.1 million decline in selling, general and administrative expenses.

A decrease in severance, restructuring and acquisition integration costs;

decreases in commission costs;

and currency translation contributed an estimated $11.6 million;

$3.5 million;

and $0.5 million decline in selling, general and administrative expenses, respectively.

These decreases were partially offset by a $7.6 million increase from acquisitions.

Research and development expenses increased $12.9 million from 2019 to 2020 primarily due to increased investments in R&D projects as we continue our commitment to growth initiatives.

Amortization of intangibles decreased $10.2 million from 2019 to 2020 primarily due to certain intangible assets becoming fully amortized.

Operating income decreased $81.8 million from 2019 to 2020 primarily as a result of the decline in gross profit discussed above.

Net interest expense increased $3.1 million from 2019 to 2020.

The increase is primarily the result of interest accrued on the Revolver borrowings during 2020 coupled with currency translation.

During 2020, we borrowed $190.0 million on our Revolver, which we fully repaid by December 31, 2020.

Income from continuing operations before taxes decreased $86.3 million from 2019 to 2020 primarily due to the decline in operating income discussed above.

2019 Compared to 2018

Revenues decreased $34.4 million from 2018 to 2019 due to the following factors:

• Currency translation had a $28.0 million unfavorable impact on revenues.

• Lower sales volume, including the impact of changes in channel inventory and weaker industrial markets, resulted in a $21.6 million decrease in revenues.

• Lower copper costs resulted in a $17.2 million decrease in revenues.

• Acquisitions increased revenues by $32.4 million.

Gross profit decreased $36.4 million from 2018 to 2019.

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Gross profit for 2018 included $18.0 million of severance, restructuring, and acquisition integration costs and $0.1 million for the amortization of software development intangible assets.

Selling, general and administrative expenses increased $6.0 million from 2018 to 2019 primarily due to an $18.5 million increase in severance, restructuring, and acquisition integration costs and acquisitions and a $5.4 million increase from acquisitions.

These increases were partially offset by the impact of productivity improvement initiatives, currency translation, decrease in costs related to patent litigation, and purchase accounting effects of acquisitions, which attributed to a decline in selling, general and administrative expenses of $9.5 million, $4.1 million, $2.6 million, and $1.7 million, respectively.

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The loss on debt extinguishment recognized in 2018 represents the premium paid to the bond holders to retire the 2023 and 2024 notes as well as the unamortized debt issuance costs that were written-off.

The loss on debt extinguishment recognized in 2017 represents the premium paid to the bond holders to retire the 2022 and a portion of the 2023 notes as well as the unamortized debt issuance costs that were written-off and the unamortized debt issuance costs related to creditors no longer participating in the Amended and Restated Credit Agreement (the Revolver), which we amended in May 2017.

Income from continuing operations before taxes decreased $77.7 million from 2018 to 2019 primarily due to the decrease in operating income, partially offset by the decrease in interest expense and loss on debt extinguishment discussed above.

2018 Compared to 2017

Revenues increased $78.5 million from 2017 to 2018 due to the following factors:

Higher sales volume, including changes in channel inventory, resulted in a $53.8 million increase in revenues.

Acquisitions contributed $29.7 million to the increase in revenues.

Currency translation had a $12.0 million favorable impact on revenues.

Higher copper costs contributed $10.7 million to the increase in revenues.

The divestiture of our MCS business resulted in a $27.7 million decrease in revenues.

Gross profit increased $27.6 million from 2017 to 2018 while gross profit margin remained relatively flat year-over-year.

The increase in gross profit is primarily attributable to the increase in revenues discussed above, and the impact on margins is due to copper prices, which result in higher revenues as discussed above, but as they have minimal impact to gross profit dollars, result in lower gross profit margins.

Gross profit for 2018 included $18.0 million of severance, restructuring, and acquisition integration costs and $0.1 million for the amortization of software development intangible assets.

Gross profit for 2017 included $32.5 million of severance, restructuring, and acquisition integration costs;

$6.1 million of cost of sales arising from the adjustment of inventory to fair value related to an acquisition;

and $0.8 million of accelerated depreciation in our Enterprise Solutions segment.

Selling, general and administrative expenses increased $21.6 million from 2017 to 2018 primarily due to increases in manufacturing constraints, acquisitions, an increase in costs related to patent litigation, and currency translation of $14.5 million, $5.7 million, $2.6 million, and $2.5 million, respectively;

partially offset by the MCS divestiture in 2017, which contributed to a decline of approximately $3.7 million over the year ago period.

Research and development expenses increased $2.8 million from 2017 to 2018 primarily due to investments in research and development, acquisitions, and currency translation of $2.8 million, $0.9 million, and $0.8 million, respectively.

These increases were partially offset by the MCS divestiture in 2017, which contributed to a $1.7 million decline in research and development expenses over the year ago period.

Amortization of intangibles decreased $15.0 million from 2017 to 2018 primarily due to certain intangible assets becoming fully amortized, partially offset by an increase in amortization expense for intangible assets from the acquisition of NT2.

The $62.1 million gain from patent litigation in 2018 is for judgments received in 2018 from the patent infringement case filed in 2011 by our wholly-owned subsidiary, PPC, against Corning alleging they willfully infringed upon two patents.

After years of post-trial motions and appeals, the District Court ruled in favor of PPC and required Corning to pay judgments of $62.1 million in 2018 to PPC.

Operating income increased $80.4 million from 2017 to 2018 primarily due to the gain from patent litigation and increases in gross profit discussed above, partially offset by the changes in operating expenses discussed above.

Net interest expense decreased $21.8 million from 2017 to 2018 as a result of our debt transactions during 2017 and 2018.

In July 2017, we issued €450.0 million aggregate principal amount of new senior subordinated notes due 2027 at an interest rate of 3.375%, and used the net proceeds of this offering and cash on hand to repurchase all of our outstanding $700.0 million 5.5% senior

subordinated notes due 2022.

In September 2017, we issued €300.0 million aggregate principal amount of new senior subordinated notes due 2025 at an interest rate of 2.875%, and used the net proceeds of this offering to repurchase €300.0 million of our outstanding €500.0 million 5.5% senior subordinated notes due 2023.

In March 2018, we issued €350.0 million aggregate principal amount of new senior subordinated notes due 2028 at an interest rate of 3.875%, and used the net proceeds of this offering and cash on hand to repurchase all of our outstanding €200.0 million 5.5% senior subordinated notes due 2023 as well as all of our outstanding $200.0 million 5.25% senior subordinated notes due 2024.

Income from continuing operations before taxes increased by $132.1 million from 2017 to 2018 primarily due to the increase in operating income, decrease in interest expense, and decrease in the loss on debt extinguishment discussed above.

Percentage Change

2020 2019 2018 2020 vs.

2019 2019 vs.

(In thousands, except percentages)

Income from continuing operations before taxes $ 66,127 $ 152,410 $ 230,080 (56.6) % (33.8) %

Income tax benefit (expense)

Income tax expense (11,724) (42,519) (62,936) (72.4) % (32.4) %

Effective tax rate 17.7 % 27.9 % 27.4 %

2019 Compared to 2018

We recognized income tax expense of $11.7 million in 2020, representing an effective tax rate of 17.7%.

The effective tax rate was impacted by foreign tax rate differences, which resulted in an income tax benefit of $25.3 million in 2020.

Additionally, in 2020, our income tax expense was reduced by $4.0 million due to a tax holiday for our operations in St.

The tax holiday in St.

Kitts is scheduled to expire in 2022.

Partially offsetting these benefits, we recognized income tax expense of $22.4 million in 2020 from domestic permanent differences and tax credits primarily associated with our foreign income inclusions.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in the United States.

The Company generated a loss in the U.S.

which will be carried back to prior years, as permitted by the CARES Act.

The net impact to the tax provision as a result of the net operating loss carry back was a benefit of $1.2 million, primarily associated with the re-rate of the net operating loss carry back period.

If we were to repatriate foreign cash to the U.S., we may be required to accrue and pay U.S.

taxes in accordance with applicable U.S.

tax rules and regulations as a result of the repatriation.

However, it is our intent to permanently reinvest the earnings of our non-U.S.

subsidiaries in those operations and for continued non-U.S.

growth opportunities.

As a result, as of December 31, 2020, we have not made a provision for U.S.

or additional foreign withholding taxes.

We recognized income tax expense of $42.5 million in 2019, representing an effective tax rate of 27.9%.

The effective tax rate was primarily impacted by a change in valuation allowance on certain deferred tax assets and foreign tax rate differences.

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Additional guidance provided in these regulations resulted in a tax adjustment in the fourth quarter of 2019.

Our income tax expense was also impacted by foreign tax rate differences.

Foreign tax rate differences reduced our income tax expense by approximately $13.1 million and $2.4 million in 2019 and 2018, respectively.

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

Our income tax expense was also impacted by foreign tax rate differences, which reduced our income tax expense by approximately $13.1 million in 2019.

As of December 31, 2019, we maintained a valuation allowance on our deferred tax assets of $50.4 million.

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While we have positive evidence in the form of projected sources of income, we determined that these state carryforward assets were not realizable as of December 31, 2019 due to a history of net operating losses and tax credits expiring without being utilized in certain states and because the current forecast of income is not sufficient to utilize all of these state net operating losses and tax credits prior to expiration.

2018 Compared to 2017

We recognized income tax expense of $62.9 million in 2018, representing an effective tax rate of 27.4%.

The effective tax rate was impacted by the Act and foreign tax rate differences.

On December 22, 2017, the Act was signed into law, making significant changes to the U.S.

Internal Revenue Code.

In accordance with the Act, we recorded $24.5 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted.

The total income tax expense included a $41.6 million tax benefit for the remeasurement of deferred tax

assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $30.8 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law.

Additionally, Staff Accounting Bulletin No.

118 (“SAB 118”) was issued to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.

December 22, 2018 marked the end of the measurement period for purposes of SAB 118.

As such, we have completed our analysis based on legislative updates relating to the Act currently available, which resulted in additional SAB 118 tax expense of $10.0 million for the year ended December 31, 2018.

The total tax expense included an $8.0 million tax expense associated with an increase to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law, a $1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, a $1.1 million tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of covered employees, and a $0.4 million income tax benefit associated with an adjustment to the remeasurement of certain deferred tax assets and liabilities.

Our income tax expense was also impacted by foreign tax rate differences.

Foreign tax rate differences impacted our income tax expense by approximately $(2.4) million and $14.7 million in 2018 and 2017, respectively.

The effective tax rate was impacted by the Act, Staff Accounting Bulletin No.

118 (“SAB 118”), and foreign tax rate differences.

On December 22, 2018, the measurement period ended for SAB 118, which was issued to address the application of U.S.

GAAP in situations where 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 resulting in additional SAB 118 tax expense of $10.0 million for the year ended December 31, 2018.

The total tax expense for the year ended December 31, 2018 included $8.0 million of tax expense associated with an increase in the valuation allowance against foreign tax credit carryovers that we no longer expected to be able to realize based upon the new tax law, a $2.4 million benefit from foreign tax rate differences, a $1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, $1.1 million of tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of covered employees, and a $0.4 million income tax benefit associated with a remeasurement adjustment of certain deferred tax assets and liabilities.

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

As of December 31, 2018, we maintained a valuation allowance on our deferred tax assets of $39.4 million.

Of this amount, approximately $33.1 million relates to deferred tax assets for certain U.S foreign tax credits and U.S.

state net operating losses and tax credits.

The $23.9 million valuation allowance on the foreign tax credits is a direct result of the Act, as described above.

The remaining $9.2 million valuation allowance primarily relates to state net operating losses and tax credits.

While we have positive evidence in the form of projected sources of income, we determined that these state carryforward assets were not realizable as of December 31, 2018 due to a history of net operating losses and tax credits expiring without being utilized in certain states and because the current forecast of income is not sufficient to utilize all of these state net operating losses and tax credits prior to expiration.

Consolidated Adjusted EBITDA

Years Ended December 31,

2020 2019 2018

(In thousands, except percentages)

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GAAP net income (loss) $ (55,058) $ (376,776) $ 160,711

Loss from discontinued operations, net of tax 99,513 486,667 6,433

Loss on disposal of discontinued operations, net of tax 9,948 — —

Amortization of intangible assets 64,395 74,609 75,140

Severance, restructuring, and acquisition integration costs (1)

Interest expense, net

Income tax expense (benefit)

Amortization of software development intangible assets 1,821 525 79

Depreciation expense 42,470 40,409 38,309

Loss on debt extinguishment

Interest expense, net 58,888 55,814 60,839

Severance, restructuring, and acquisition integration costs (1)

12,258 26,544 22,625

Income tax expense 11,724 42,519 62,936

Non-operating pension settlement loss 3,153 — 1,342

Purchase accounting effects related to acquisitions (2)

125 592 1,690

Loss on debt extinguishment — — 22,990

Costs related to patent litigation — — 2,634

Amortization of software development intangible assets

Non-operating pension settlement loss

Loss on sale of assets (3)

Gain from patent litigation — — (62,141)

Loss from discontinued operations

Adjusted EBITDA $ 249,237 $ 350,903 $ 393,681

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(1) See Note 15, Severance, Restructuring, and Acquisition Integration Activities, for details .

In 2019, we collectively recognized $0.6 million of cost of sales related to purchase accounting adjustments of acquired inventory to fair value for both our SPC and Opterna acquisitions.

(2) In 2020 and 2019, we collectively recognized $0.1 million and $0.6 million, respectively, of cost of sales related to purchase accounting adjustments of acquired inventory to fair value for both our SPC and Opterna acquisitions.

In 2018, we made a $1.7 million adjustment to increase the earn-out liability associated with an acquisition.

In 2017, we recognized $6.1 million of cost of sales related to the adjustment of acquired inventory to fair value for our Thinklogical acquisition.

In 2018 and 2017, we recognized a $0.1 million and $1.0 million loss on sale of assets, respectively, for the sale of our MCS business and Hirschmann JV.

(3) In 2018, we recognized a $0.1 million loss on sale of assets for the sale of our MCS business and Hirschmann JV.

Use of Non-GAAP Financial Information

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We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure.

We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.

We believe the adjusted

measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.

Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States.

Percentage Change

2020 2019 2018 2020 vs.

2019 2019 vs.

(In thousands, except percentages)

4 unchanged sentences

Revenues decreased $268.6 million from 2019 to 2020 due to the following factors:

Acquisitions contributed $32.4 million to the increase in revenues.

• Lower sales volume, including the impact of changes in channel inventory, contributed $302.7 million to the decrease in revenues.

• Currency translation had a $1.9 million unfavorable impact on revenues.

• Acquisitions increased revenues by $34.3 million.

• Copper prices had a $1.7 million favorable impact on revenues.

Adjusted EBITDA decreased $101.7 million in 2020 from 2019 primarily due to the decrease in revenues discussed above, partially offset by the benefits realized from our SG&A Cost Reduction Program.

2019 Compared to 2018

Revenues decreased $34.4 million from 2018 to 2019 due to the following factors:

• Currency translation had a $28.0 million unfavorable impact on revenues.

• Lower sales volume, including the impact of changes in channel inventory and weaker industrial markets, resulted in a $21.6 million decrease in revenues.

• Lower copper costs resulted in a $17.2 million decrease in revenues.

• Acquisitions increased revenues by $32.4 million.

Adjusted EBITDA decreased $42.8 million in 2019 from 2018 primarily due to the decrease in revenues discussed above as well as unfavorable product mix and the impact of lower production volumes.

2018 Compared to 2017

Revenues increased $78.5 million from 2017 to 2018 due to the following factors:

Higher sales volume, including changes in channel inventory, resulted in a $53.8 million increase in revenues.

Acquisitions contributed $29.7 million to the increase in revenues.

Currency translation had a $12.0 million favorable impact on revenues.

Higher copper costs contributed $10.7 million to the increase in revenues.

The divestiture of our MCS business resulted in a $27.7 million decrease in revenues.

Adjusted EBITDA decreased $17.3 million in 2018 from 2017 primarily due to unfavorable product mix and investments in organic growth initiatives, partially offset by the increase in revenues.

Segment Results of Operations

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Percentage Change

2020 2019 2018 2020 vs.

2019 2019 vs.

(In thousands, except percentages)

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2020 Compared to 2019

Enterprise revenues decreased $73.6 million in 2020 as compared to 2019.

Decreases in volume, including changes in channel inventory, and unfavorable currency translation contributed $108.1 million and $0.3 million, respectively, to the decline in revenues;

partially offset by acquisitions and higher copper prices which grew revenues by $34.3 million and $0.5 million, respectively.

Enterprise EBITDA decreased $27.6 million in 2020 as compared to 2019 primarily due to the decreases in revenues discussed above, partially offset by the benefits realized from our SG&A Cost Reduction Program.

2019 Compared to 2018

Enterprise revenues decreased $11.5 million in 2019 as compared to 2018 primarily due to decreases in volume, including changes in channel inventory;

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Enterprise EBITDA decreased $29.9 million in 2019 as compared to 2018 primarily due to the decreases in revenues discussed above as well as the impact of lower production volumes.

2018 Compared to 2017

Enterprise revenues increased $41.1 million in 2018 as compared to 2017 primarily due to acquisitions, higher copper prices, increases in volume, and favorable currency translation, which contributed $29.7 million, $4.3 million, $4.1 million, and $3.0 million, respectively, to the increase in revenues over the year ago period.

Enterprise EBITDA decreased $5.6 million in 2018 as compared to 2017 primarily due to manufacturing constraints.

Industrial Solutions

Percentage Change

2020 2019 2018 2020 vs.

2019 2019 vs.

(In thousands, except percentages)

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2020 Compared to 2019

Industrial Solutions revenues decreased $194.9 million in 2020 as compared to 2019 primarily due to decreases in volum e, including changes in channel inventory, and unfavorable currency translation, which contributed $194.5 million and $1.6 million, respectively, to the decrease in revenues;

partially offset by increases in copper prices, which grew revenues $1.2 million.

Industrial EBITDA decreased $78.5 million in 2020 as compared to 2019 primarily as a result of the decline in revenues discussed above and increased investments in R&D projects as we co ntinue our commitment to growth initiatives, partially offset by the benefits realized from our SG&A Cost Reduction Program.

2019 Compared to 2018

Industrial Solutions revenues decreased $22.9 million in 2019 as compared to 2018 primarily due to unfavorable currency translation and lower copper prices, which contributed $21.0 million and $8.8 million, respectively, to the decrease in revenues over the year ago period;

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Industrial EBITDA decreased $11.8 million in 2019 as compared to 2018 primarily due to the decline in revenues discussed above and the impact of lower production volumes.

2018 Compared to 2017

Industrial Solutions revenues increased $37.5 million in 2018 as compared to 2017 primarily due to volume growth, including changes in channel inventory;

favorable currency translation;

and higher copper costs, which contributed $50.5 million, $9.0 million, and $5.7 million, respectively, to the increase in revenues year over year;

partially offset by $27.7 million from the MCS divestiture in 2017.

Industrial EBITDA decreased $5.1 million in 2018 as compared to 2017.

The revenue growth discussed above was offset by unfavorable product mix and temporary inefficiencies related to extended lead times throughout the supply chain experienced in 2018.

Liquidity and Capital Resources

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economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product offerings, and commodities pricing.

The following table is derived from our Consolidated Cash Flow Statements and summarizes cash flows from operations, including discontinued operations:

The following table is derived from our Consolidated Cash Flow Statements and includes the results and cash flow activity of Grass Valley through the disposal date of July 2, 2020 consistent with the Consolidated Cash Flow Statements:

Years Ended December 31,

(In thousands)

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Effects of currency exchange rate changes on cash and cash equivalents 9,299 (301)

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents 76,109 5,275

Cash and cash equivalents, beginning of year 425,885 420,610

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Net cash provided by operating activities totaled $173.4 million for 2020 compared to $276.9 million for 2019.

Operating cash flows declined $12.3 million, or 4.3%, compared to the prior year primarily due to the $62 million pre-tax cash proceeds from the Corning patent litigation received in 2018.

Excluding the patent litigation proceeds, operating cash flows increased year-over-year due in part to favorable changes in receivables and inventory.

Receivables were a source of cash of $22.9 million compared to a use of cash of $21.7 million in the prior year.

Inventory was a source of cash of $44.5 million compared to a use of cash of $14.8 million in the prior year.

The improvements in receivables and inventory are attributable to effective working capital management.

Operating cash flows declined $103.5 million compared to the prior year primarily due to the decreases in revenues and income discussed above.

Changes in receivables generated $70.7 million of cash in 2020 compared to $22.9 million in 2019 as days sales outstanding improved from 51.8 days in the fourth quarter of 2019 to 49.6 days in the fourth quarter of 2020.

The improvement in receivables was offset by changes in inventory, which was a use of cash of $8.5 million in 2020 compared to a source of cash of $44.5 million in 2019.

Net cash used for investing activities totaled $31.6 million for 2020 compared to $184.4 million for 2019.

Investing activities for 2020 included capital expenditures of $90.2 million and proceeds of $54.8 million, $3.2 million, and $0.6 million from the sale of the Grass Valley disposal group, the sale of tangible property, and a working capital adjustment related to the SPC acquisition, respectively.

Investing activities for 2019 included capital expenditures of $110.0 million and payments, net of cash acquired, for acquisitions of $74.4 million.

Investing activities for 2018 included capital expenditures of $97.8 million;

payments, net of cash acquired, for acquisitions of $84.6 million;

net proceeds from the sale of an operating facility of $1.5 million;

and net cash received for the sale of the MCS business and Hirschmann JV which closed on December 31, 2017 of $40.2 million.

Capital expenditures increased $12.2 million year-over-year due in part to investments in fiber capacity and software development.

Net cash flows from financing activities was a $86.9 million use of cash for 2019 compared to $281.8 million for 2018 .

Net cash flows used for financing activities totaled $74.9 million for 2020 compared to $86.9 million for 2019.

Financing activities for 2020 included payments under our share repurchase program of $35.0 million, acquisition earnout consideration payments of $29.3 million, cash dividend payments of $9.0 million, and net payments related to share based compensation activities of $1.4 million.

Financing activities for 2019 included payments under our share repurchase program of $50.0 million;

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and interest payments on our financing leases of $0.4 million.

Financing activities for 2018 included payments under borrowing arrangements of $484.8 million, payments under our share repurchase program of $175.0 million, cash dividend payments of $43.2 million, debt issuance costs of $7.6 million, net payments related to share based compensation activities of $2.1 million, payments for the redemption of our stockholders' rights agreement of $0.4 million, and cash proceeds from the issuance of the €350.0 million 3.875% Notes due 2028 of $431.3 million.

Our cash and cash equivalents balance, including discontinued operations, was $425.9 million as of December 31, 2019 .

Our cash and cash equivalents balance was $502.0 million as of December 31, 2020.

Of this amount, $214.1 million was held outside of the U.S.

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dollars or other foreign currencies.

Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest the foreign cash and cash equivalents outside of the U.S.

Our strateg ic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest the foreign cash and cash equivalents outside of the U.S.

If we were to repatriate the foreign cash to the U.S., we may be required to accrue and pay U.S.

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Our outstanding debt obligations as of December 31, 2020 consisted of $1.6 billion of senior subordinated notes.

As of December 31, 2019 , we had no borrowings outstanding on the Revolver, and our available borrowing capacity, including the assets of the Grass Valley disposal group, was $310.6 million .

As of December 31, 2020, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $230.2 million.

Additional discussion regarding our various borrowing arrangements is included in Note 16 to the Consolidated Financial Statements.

Contractual obligations outstanding at December 31, 2020, have the following scheduled maturities:

Total Less than

Years More than

(In thousands)

Long-term debt payment obligations (1)(2)

$ 1,590,810 $ — $ — $ 367,110 $ 1,223,700

Interest payments on long-term debt obligations 349,309 55,831 111,663 109,024 72,791

Operating lease obligations (3)

75,958 19,557 29,204 18,296 8,901

Purchase obligations (4)

16,007 16,007 — — —

Other commitments (5)

8,574 1,675 5,594 1,305 —

Pension and other postemployment obligations 79,965 12,902 22,479 17,839 26,745

Total $ 2,120,623 $ 105,972 $ 168,940 $ 513,574 $ 1,332,137

(1) As described in Note 16 to the Consolidated Financial Statements.

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(5) Does not include accounts payable reflected in the financial statements.

Includes obligations for uncertain tax positions and legal settlement obligations (see Notes 17 and 28 to the Consolidated Financial Statements).

Includes obligations for uncertain tax positions (see Notes 18 to the Consolidated Financial Statements).

Our commercial commitments expire or mature as follows:

Total Less than

Years More than

(In thousands)

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Bank guarantees 4,071 2,738 1,333 — —

Surety bonds 3,311 3,311 — — —

Total $ 15,868 $ 13,902 $ 1,966 $ — $ —

Standby financial letters of credit, bank guarantees, and surety bonds are generally issued to secure obligations we have for a variety of commercial reasons such as workers compensation self-insurance programs in several states and the importation and exportation of product.

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However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 10% change in our sales reserve for such Changes as of December 31, 2019 would have affected net income by less than $1 million in 2019.

A 10% change in our sales reserve for such Changes as of December 31, 2020 would have affected net income by approximately $2 million in 2020.

At times, we enter into arrangements that involve the delivery of multiple promised goods or services.

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In the future, if we prevail in matters for which accruals have been established previously or pay amounts in excess of reserves, there could be a material effect on our income tax provisions in the period in which such determination is made.

We have significant tax credit carryforwards in the U.S.

for which we have recorded a partial valuation allowance as a result of the Tax Cuts and Jobs Act of 2017 (the "Act"), regulations issued by the United States Treasury in the fourth quarter of 2019, and the classification of a business as discontinued operations.

The utilization of these credits is dependent upon the recognition of both U.S.

taxable income as well as income characterized as foreign source under the U.S.

We do not expect to generate enough foreign source income in the future to utilize all of these tax credits due to law changes introduced by the Act.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which removes certain exceptions for investments, intraperiod allocations and interim tax calculations, and adds guidance to reduce the complexity in accounting for income taxes.

ASU 2019-12 is effective for annual periods beginning after December 15, 2020, with early adoption permitted.

The various amendments in ASU 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending upon the amendment.

The Company did not early adopt this pronouncement and is in the process of evaluating the impact of this amendment on our consolidated financial statements;

however, it is not anticipated to be material.

See Note 18, Income Taxes, to the consolidated financial statements for further information regarding income taxes.

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Within those operating segments, we have identified reporting units based on whether there is discrete financial information prepared that is regularly reviewed by segment management.

As a result of this evaluation, we have identified from our continuing operations, four reporting units within Enterprise Solutions and six reporting units within Industrial Solutions for purposes of goodwill impairment testing.

As a result of this evaluation, we have identified from our continuing operations, three reporting units within Enterprise Solutions and seven reporting units within Industrial Solutions for purposes of goodwill impairment testing.

The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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We also considered assumptions that market participants may use.

In our quantitative assessments, the discount rates ranged from 9.0% to 17.0%, the 2020 to 2029 compounded annual revenue growth rates ranged from 1.9% to 7.6%, and the long-term revenue growth rates ranged from 2.0% to 3.0%.

By their nature, these assumptions involve risks and uncertainties, with the primary factor that could have an adverse effect being our assumptions relating to growing revenues consistent with our strategic plan.

We test our indefinite-lived intangible assets, which consist primarily of trademarks, for impairment on an annual basis during the fourth quarter.

In our quantitative assessments, the discount rates ranged from 10.0% to 12.2%, the 2021 to 2030 compounded annual revenue growth rates ranged from 2.5% to 5.8%, and the revenue growth rates beyond 2030 ranged from 2.0% to 3.0%.

By their nature, these assumptions involve risks and uncertainties.

Furthermore, uncertainties associated with current market conditions increase the inherent risk associated with using an income approach to estimate fair values.

While we have adjusted our key assumptions to reflect the current economic conditions, we have also assumed that economic conditions will improve.

If current conditions persist and actual results are different from our estimates or assumptions, we may have to recognize an impairment charge that could be material.

We test our indefinite-lived intangible assets, which consist pri marily of trademarks, for impairment on an annual basis during the fourth quarter.

The accounting guidance related to impairment testing for such intangible assets allows for the performance of an optional qualitative assessment, similar to that described above for goodwill.

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Significant assumptions to determine fair value included sales growth, royalty rates, and discount rates.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill and other intangible assets.

However, if actual results are significantly different from our estimates or assumptions, we may have to recognize an impairment charge that could be material.

As noted above, we also test our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment when indicators of impairment exist.

During 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the assets and liabilities of this business as held for sale.

Furthermore, we determined a divestiture of Grass Valley represents a strategic shift that is expected to have a major impact on our operations and financial results.

We wrote down the carrying value of Grass Valley and recognized impairment charges to goodwill, customer relationships, trademarks, etc.

Due to its overall financial performance and discontinued operations classification, we performed impairment tests on the Grass Valley disposal group which resulted in total asset impairments of $113.0 million in 2020.

We completed the sale of Grass Valley to Black Dragon Capital on July 2, 2020.

The operating results of Grass Valley are not included in our Consolidated Financial Statements after the July 2, 2020 disposal date.

As of December 31, 2020, we do not own any interest in Grass Valley.

Pension and Other Postretirement Benefits

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A 50 basis point decline in the expected return on plan assets would have resulted in an increase in the 2020 net periodic benefit cost of approximately $1.7 million.

Conversely, the effect of a 50 basis point increase in the assumed discount rate would have resulted in a decrease in the 2019 net periodic benefit cost and projected benefit obligations as of December 31, 2019 of approximately $0.4 million and $32.9 million, respectively.

Conversely, the effect of a 50 basis point increase in the assumed discount rate would have resulted in an increase i n the 2020 net periodic benefit cost of approximately $0.1 million and a decrease in the projected benefit obligation of approximately $36.6 million as of December 31, 2020.

A 50 basis point increase in the expected return on plan assets would have resulted in a decrease in the 2020 net periodic benefit cost of approximately $1.7 million.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis