BELDEN INC. 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Belden Inc. (the Company, us, we, or our) is a global supplier of specialty networking solutions built around two global businesses - Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments. We strive for operational excellence through the execution of our Belden Business System, which includes three areas of focus: Lean enterprise initiatives, our Market Delivery System, and our Talent Management System. Through operational excellence we generate free cash flow on an annual basis. We utilize the cash flow generated by our business to fuel our continued transformation and generate shareholder value. We believe our business system, balance across markets and geographies, systematic go-to-market approach, extensive portfolio of innovative solutions, commitment to Lean principles, and improving margins present a unique value proposition for shareholders. We use a set of tools and processes that are designed to continuously improve business performance in the critical areas of quality, delivery, cost, and innovation. We consider revenue growth, Adjusted EBITDA margin, free cash flows, and return on invested capital to be our key operating performance indicators. We also seek to acquire businesses that we believe can help us achieve these objectives. Trends and Events The following trends and events during 2021 have had varying effects on our financial condition, results of operations, and cash flows. Pandemic On March 11, 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus (COVID-19) a pandemic. Since the beginning of the pandemic, our foremost focus has been on the health and safety of our employees and customers. In response to the outbreak, to protect the health and safety of our employees, we 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. In light of variant mutations of the virus, even as vaccinations become more prevalent and more employees return to our offices, many of these safeguards will continue. Our suppliers, distributors, and other partners have similarly had their operations disrupted, and in regions of the world where infection rates have remained high, human suffering and market disruptions have persisted. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by local or foreign governmental authorities, or that we determine are in the best interests of our employees and customers. 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, Mexican peso, Australian dollar, British pound, and Indian rupee. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted. Approximately 45% of our consolidated revenues during the quarter ended October 3, 2021 were to customers outside of the U.S. In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location. -26- Commodity Prices Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. D uring periods of inflation, if we are unable to raise prices timely and sufficiently to recover our material costs, our earnings could decline. We are mindful of ongoing inflationary pressures and as a result, proactively implement selling price increases and cost control measures. Importantly, however, there is no exact measure of the effect of changing commodity prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates. Channel Inventory Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold the products they bought from us in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of products they buy from us and hold in their inventory, it impacts our revenues. Comparisons of our results between periods can be impacted by changes in the levels of channel inventory. We use information provided to us by our channel partners and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory. As such, all references to the effect of channel inventory changes are estimates. Market Growth and Market Share The markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players. We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period. We expect that our unit sales volume will increase or decrease consistently with the market growth rate. Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate. To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share. Amended Revolving Credit Agreement During the second quarter of 2021, we entered into an amended and restated Revolving Credit Agreement that provides a $300.0 million multi-currency asset-based revolving credit facility (the Revolver). The maturity date of the Revolver is June 2, 2026. The borrowing base under the Revolver includes eligible accounts receivable; inventory; and property, plant and equipment of certain of our subsidiaries in the United States, Canada, Germany, the United Kingdom and the Netherlands. 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 paid approximately $2.2 million of fees associated with the amended Revolver, which are being amortized over its term using the effective interest method. As of October 3, 2021, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $293.9 million. See Note 13. Debt Refinancing During the three and nine months ended October 3, 2021, we completed an offering for €300.0 million aggregate principal amount of 3.375% senior subordinated notes due 2031. With the proceeds from this offering and cash on hand, we repurchased all of the €300.0 million aggregate principal amount of 2.875% senior subordinated notes previously due 2025. We recognized a $5.7 million loss on debt extinguishment for the premiums paid to the bond holders to retire the 2025 Notes and for the unamortized debt issuance costs on the 2025 Notes that we were required to write-off. See Note 13. OTN Systems Acquisition We acquired 100% of the shares of OTN Systems on January 29, 2021 for a purchase price, net of cash acquired, of $73.3 million. OTN Systems , based in Olen, Belgium, is a leading provider of easy to use and highly-reliable network solutions tailored for specific applications in harsh, mission-critical environments. The acquisition of OTN Systems supports one of our key strategic priorities related to the growing demand for industrial automation by adding proprietary technology and mission-critical hardware and software products for more complete end-to-end solutions. The results of OTN Systems have been included in our Condensed Consolidated Financial Statements from January 29, 2021, and are reported within the Industrial Solutions segment. See Note 3. -27- Sale-Leaseback During the three and nine months ended October 3, 2021, we entered into an agreement to sell and lease back certain property in Germany. The closing of the sale and the commencement of the lease is expected to occur during the fourth quarter of 2021. During the third quarter of 2021, we performed a recoverability test on the assets and determined that the carrying values of the assets were not recoverable and recognized a $2.3 million impairment charge in Selling, General and Administrative Expenses to write them down to fair value. The impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment. See Note 4. Disposal We completed the sale of our oil and gas cable business in Brazil during the second quarter of 2021 for $10.9 million, net of cash delivered with the business. During the first quarter of 2021, we committed to a plan to sell the business and determined that we met all of the criteria to classify the assets and liabilities of this business as held for sale. At such time, the carrying value of the disposal group exceeded the fair value less costs to sell, which we determined based upon the expected sale price, by $3.4 million. Therefore, we recognized an impairment charge in Selling, General and Administrative Expenses equal to this amount in the first quarter of 2021. The impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment. See Note 4. Long-Lived Asset Impairment During the nine months ended October 3, 2021, we performed a recoverability test on certain held and used long-lived assets in our Industrial Solutions segment. We determined that the carrying values of the assets were not recoverable and recognized a $3.6 million impairment charge in Selling, General and Administrative Expenses to write them down to fair value. This impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment. See Note 11. Opterna Earn-Out Our acquisition of Opterna in 2019 included potential earn-out consideration, which as of the acquisition date, had an estimated fair value of $5.8 million. As the financial targets tied to the earn-out were not achieved within the contractual timeframe, we reduced the earn-out liability to zero and recognized a $5.8 million benefit in Selling, General and Administrative Expenses during the nine months ended October 3, 2021. This benefit was excluded from Segment EBITDA of our Enterprise Solutions segment. See Note 4. Cost Reduction Program We have executed a cost reduction program to streamline the organizational structure and invest in technology to drive productivity. We recognized $0.0 million and $3.5 million of severance and other restructuring costs for this program during the three and nine months ended October 3, 2021, respectively. The cost reduction program is substantially complete and has delivered a reduction in selling, general, and administrative expenses of approximately $60 million on an annual basis. We expect to recognize costs of approximately $5 million for this program during the fourth quarter of 2021. See Note 12. Acquisition Integration Program We are integrating our recent acquisitions such as OTN Systems , SPC, and Opterna with our existing businesses. The restructuring and integration activities are focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $0.8 million and $3.2 million of severance and other restructuring costs for this program during the three and nine months ended October 3, 2021, respectively. We do not expect to incur significant incremental costs for this program in 2021. See Note 12. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors. -28- Critical Accounting Policies During the nine months ended October 3, 2021: • We did not change any of our existing critical accounting policies from those listed in our 2020 Annual Report on Form 10-K; • No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and • There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed. Results of Operations Consolidated Income before Taxes Three Months Ended % Change Nine Months Ended % Change October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020 (In thousands, except percentages) Revenues $ 630,835 $ 475,839 32.6 % $ 1,769,190 $ 1,364,176 29.7 % Gross profit 223,276 167,592 33.2 % 626,155 488,033 28.3 % Selling, general and administrative expenses (109,963) (85,037) 29.3 % (313,966) (275,129) 14.1 % Research and development expenses (32,451) (30,324) 7.0 % (94,873) (81,633) 16.2 % Amortization of intangibles (9,696) (16,104) (39.8) % (28,745) (48,306) (40.5) % Operating income 71,166 36,127 97.0 % 188,571 82,965 127.3 % Interest expense, net (16,251) (15,607) 4.1 % (46,640) (43,188) 8.0 % Loss on debt extinguishment (5,715) — n/a (5,715) — n/a Non-operating pension benefit 992 680 45.9 % 3,121 2,079 50.1 % Income from continuing operations before taxes 50,192 21,200 136.8 % 139,337 41,856 232.9 % Revenues increased $155.0 million and $405.0 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 due to the following factors: • Higher sales volume from industrial automation, smart buildings, and broadband & 5G products resulted in a $115.7 million and $270.1 million increase in revenues, respectively. • Copper prices had a $30.4 million and $91.2 million favorable impact on revenues, respectively. • Currency translation had a $4.6 million and $27.5 million favorable impact on revenues, respectively. • Acquisitions contributed an estimated $8.2 million and $21.2 million in revenues, respectively. • Divestitures had a $3.9 million and $5.0 million unfavorable impact on revenues, respectively. Gross profit increased $55.7 million and $138.1 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 due to the increases in revenues discussed above. Selling, general and administrative expenses increased $24.9 million and $38.8 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020. The increase in selling, general and administrative expenses is primarily attributable to strategic investments to enhance our solution selling capabilities as well as increases from incentive compensation, acquisitions, and the impact of currency translation. Research and development expenses increased $2.1 million and $13.2 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily due to increased investments in R&D projects as we continue our commitment to growth initiatives. Amortization of intangibles decreased $6.4 million and $19.6 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily due to certain intangible assets becoming fully amortized. -29- Operating income increased $35.0 million and $105.6 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily as a result of the increase in gross profit discussed above. Net interest expense increased $0.6 million and $3.5 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily due to currency translation. Loss on debt extinguishment increased $5.7 million in both the three and nine months ended October 3, 2021 from the comparable periods of 2020 due to the debt refinancing that took place during the third quarter of 2021. The $5.7 million loss on debt extinguishment represents the premium paid to the bond holders to retire the 2025 Notes and for the unamortized debt issuance costs on the 2025 Notes that we were required to write-off. See Note 13. Income from continuing operations before taxes increased $29.0 million and $97.5 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily due to the increase in operating income discussed above. Income Taxes Three Months Ended Nine Months Ended October 3, 2021 September 27, 2020 % Change October 3, 2021 September 27, 2020 % Change (In thousands, except percentages) Income before taxes $ 50,192 $ 21,200 136.8 % $ 139,337 $ 41,856 232.9 % Income tax expense 8,875 631 1,306.5 % 25,307 3,223 685.2 % Effective tax rate 17.7 % 3.0 % 18.2 % 7.7 % For the three and nine months ended October 3, 2021, we recognized income tax expense of $8.9 million and $25.3 million, representing an effective tax rate of 17.7% and 18.2%, respectively. The effective tax rates were primarily impacted by the effect of our foreign operations, including statutory tax rates differences and foreign tax credits. For the three and nine months ended September 27, 2020, we recognized income tax expense of $0.6 million and $3.2 million, respectively, representing an effective tax rate of 3.0% and 7.7%, respectively. The effective tax rates were impacted by income tax benefits for certain foreign tax credits of $0.9 million and $2.1 million in the three and nine months ended September 27, 2020, respectively. Consolidated Adjusted Revenues and Adjusted EBITDA Three Months Ended Nine Months Ended October 3, 2021 September 27, 2020 % Change October 3, 2021 September 27, 2020 % Change (In thousands, except percentages) Adjusted Revenues $ 631,338 $ 475,839 32.7 % $ 1,770,542 $ 1,364,176 29.8 % Adjusted EBITDA 100,706 65,252 54.3 % 274,256 175,237 56.5 % as a percent of adjusted revenues 16.0 % 13.7 % 15.5 % 12.8 % Adjusted Revenues increased $155.5 million and $406.4 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 due to the following factors: • Higher sales volume from industrial automation, smart buildings, and broadband & 5G products resulted in a $115.7 million and $270.1 million increase in revenues, respectively. • Copper prices had a $30.4 million and $91.2 million favorable impact on revenues, respectively. • Currency translation had a $4.6 million and $27.5 million favorable impact on revenues, respectively. • Acquisitions contributed an estimated $8.7 million and $22.6 million in revenues, respectively. • Divestitures had a $3.9 million and $5.0 million unfavorable impact on revenues, respectively. Adjusted EBITDA increased $35.5 million and $99.0 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020 primarily due to leverage on higher sales volume, as discussed above. Accordingly, Adjusted EBITDA margins in the three and nine months ended October 3, 2021 expanded to 16.0% and 15.5% from 13.7% and 12.8% in the comparable periods of 2020, respectively. -30- Use of Non-GAAP Financial Information Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability. We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired business' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight. Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures: Three Months Ended Nine Months Ended October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020 (In thousands, except percentages) GAAP revenues $ 630,835 $ 475,839 $ 1,769,190 $ 1,364,176 Adjustments related to acquisitions 503 — 1,352 — Adjusted revenues $ 631,338 $ 475,839 $ 1,770,542 $ 1,364,176 GAAP income from continuing operations $ 41,317 $ 20,569 $ 114,030 $ 38,633 Interest expense, net 16,251 15,607 46,640 43,188 Depreciation expense 11,270 10,455 34,197 31,069 Amortization of intangible assets 9,696 16,104 28,745 48,306 Income tax expense 8,875 631 25,307 3,223 Severance, restructuring, and acquisition integration costs (1) 4,328 1,357 12,539 9,448 Loss on debt extinguishment 5,715 — 5,715 — Adjustments related to acquisitions and divestitures (2) 2,464 — 4,997 125 Amortization of software development intangible assets 790 529 2,086 1,245 Adjusted EBITDA $ 100,706 $ 65,252 $ 274,256 $ 175,237 GAAP income from continuing operations margin 6.5 % 4.3 % 6.4 % 2.8 % Adjusted EBITDA margin 16.0 % 13.7 % 15.5 % 12.8 % (1) See Note 12, Severance, Restructuring, and Acquisition Integration Activities, for details. -31- (2) During the three months ended October 3, 2021, we recognized a $2.3 million impairment on assets held for sale, collected $0.7 million of receivables associated with the sale of Grass Valley and acquisition of SPC that were previously written off, included $0.5 million in Segment EBITDA for the purchase accounting effect of recording deferred revenue at fair value for the OTN Systems acquisition, and recognized cost of sales of $0.4 million related to purchase accounting ad justments of acquired inventory to fair value for the OTN Systems acquisition. During the nine months ended October 3, 2021, we reduced the Opterna earn-out liability by $5.8 million, recognized a $5.7 million impairment on assets held for sale, recognized a $3.6 million impairment on assets held and used, recognized cost of sales of $2.4 million related to purchase accounting adjustments of acquired inventory to fair value for the OTN Systems acquisition, collected $2.2 million of receivables associated with the sale of Grass Valley and acquisition of SPC that were previously written off, and included $1.3 million in Segment EBITDA for the purchase accounting effect of recording deferred revenue at fair value for the OTN Systems acquisition. During the nine months ended September 27, 2020, we recognized cost of sales related to purchase accounting adjustments of acquired inventory to fair value for the SPC acquisition. Segment Results of Operations For additional information regarding our segment measures, see Note 6 to the Condensed Consolidated Financial Statements. Enterprise Solutions Three Months Ended Nine Months Ended October 3, 2021 September 27, 2020 % Change October 3, 2021 September 27, 2020 % Change (In thousands, except percentages) Segment Revenues $ 286,231 $ 229,097 24.9 % $ 780,114 $ 644,684 21.0 % Segment EBITDA 40,156 26,250 53.0 % 103,531 73,193 41.4 % as a percent of segment revenues 14.0 % 11.5 % 13.3 % 11.4 % Enterprise Solutions revenues increased $57.1 million and $135.4 million in the three and nine months ended October 3, 2021, respectively, from the comparable periods of 2020. As compared to the year ago period, for the three months ended October 3, 2021, increases in volume, higher copper prices, and favorable currency translation contributed $41.6 million, $13.9 million, and $1.6 million, respectively. As compared to the year ago period, for the nine months ended October 3, 2021, increases in volume, higher copper prices, and favorable currency translation contributed $90.5 million, $37.4 million, and $7.5 million, respectively. Enterprise Solutions EBITDA increased $13.9 million and $30.3 million in the three and nine months ended October 3, 2021, respectively, compared to the year ago periods primarily as a result of the increase in revenues discussed above. Industrial Solutions Three Months Ended Nine Months Ended October 3, 2021 September 27, 2020 % Change October 3, 2021 September 27, 2020 % Change (In thousands, except percentages) Segment Revenues $ 345,107 $ 246,742 39.9 % $ 990,428 $ 719,492 37.7 % Segment EBITDA 59,582 38,391 55.2 % 167,676 100,367 67.1 % as a percent of segment revenues 17.3 % 15.6 % 16.9 % 13.9 % Industrial Solutions revenues increased $98.4 million and $270.9 million in the three and nine months ended October 3, 2021 from the comparable periods of 2020. The increase in revenues in the three months ended October 3, 2021 was primarily due to increases in volume; higher copper prices; favorable currency translation; and acquisitions, net of disposals of $74.6 million, $16.5 million, $3.0 million, and $4.3 million, respectively. The increase in revenues in the nine months ended October 3, 2021 was primarily due to increases in volume; higher copper prices; favorable currency translation; and acquisitions, net of disposals of $180.0 million, $53.8 million, $20.0 million, and $17.1 million, respectively. Industrial Solutions EBITDA increased $21.2 million and $67.3 million in the three and nine months ended October 3, 2021 from the comparable periods of 2020 primarily as a result of the increase in revenues discussed above, partially offset by an increase in incentive compensation and increased investments in R&D projects as we continue our commitment to growth initiatives. -32- Liquidity and Capital Resources Significant factors affecting our cash liquidity include (1) cash from operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, and (4) our available credit facilities and other borrowing arrangements. We expect our operating activities to generate cash in 2021 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing in the event we complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing. The following table is derived from our Condensed Consolidated Cash Flow Statements, and for the period ended September 27, 2020, includes the results of discontinued operations up to the July 2, 2020 disposal date of Grass Valley: Nine Months Ended October 3, 2021 September 27, 2020 (In thousands) Net cash provided by (used for): Operating activities $ 101,919 $ 38,689 Investing activities (118,921) (3,078) Financing activities (24,038) (72,585) Effects of currency exchange rate changes on cash and cash equivalents (3,201) 2,586 Decrease in cash and cash equivalents (44,241) (34,388) Cash and cash equivalents, beginning of period 501,994 425,885 Cash and cash equivalents, end of period $ 457,753 $ 391,497 Operating cash flows were a source of cash of $101.9 million in the nine months ended October 3, 2021 compared to $38.7 million in the nine months ended September 27, 2020. Operating cash flow improved $63.2 million compared to the prior year primarily due to an increase in earnings. In 2021, changes in operating assets and liabilities included an unfavorable change in receivables partially offset by a favorable change in accounts payable. For the nine months ended October 3, 2021, receivables were a use of cash of $129.0 million compared to a source of cash of $35.6 million in the year ago period. The increase in receivables was primarily due to the increase in revenues discussed above. Accounts payable was a source of cash of $73.7 million in the nine months ended October 3, 2021 compared to a use of cash of $69.6 million in the year ago period. Net cash used for investing activities totaled $118.9 million in the nine months ended October 3, 2021, compared to $3.1 million in the prior year. Investing activities for the nine months ended October 3, 2021 included capital expenditures of $55.6 million compared to $56.8 million in the comparable period of 2020. The nine months ended October 3, 2021 also included payments of $73.7 million primarily for the acquisition of OTN Systems , partially offset by cash receipts of $10.8 million primarily for the sale of our oil and gas cable business in Brazil. The nine months ended September 27, 2020 also included proceeds of $50.1 million, $3.1 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. Net cash from financing activities was a use of cash of $24.0 million for the nine months ended October 3, 2021, compared to $72.6 million in the prior year. Financing activities for the nine months ended October 3, 2021 included repayments of debt obligations of $360.3 million, debt issuance costs of $7.8 million, cash dividend payments of $6.7 million, financing lease payments of $3.1 million, net payments related to share based compensation activities of $2.1 million, and borrowings under credit arrangements of $356.0 million. During the nine months ended October 3, 2021, we completed an offering for €300.0 million aggregate principal amount of 3.375% senior subordinated notes due 2031, repurchased the €300.0 million 2025 Notes, and refinanced the Revolver - see Note 13. Financing activities for the nine months ended September 27, 2020 included borrowings on our revolver of $190.0 million, repayments of our revolver borrowings of $190.0 million, payments under our share repurchase program of $35.0 million, earnout consideration payments of $29.3 million, cash dividend payments of $6.8 million, and net payments related to share based compensation activities of $1.3 million. -33- Our cash and cash equivalents balance was $457.8 million as of October 3, 2021. Of this amount, $188.1 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for any withholding taxes has been recorded. Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to withholding taxes payable to the respective foreign countries. Our outstanding debt obligations as of October 3, 2021 consisted of $1,510.1 million of senior subordinated notes. Additional discussion regarding our various borrowing arrangements is included in Note 13 to the Condensed Consolidated Financial Statements. Forward-Looking Statements Statements in this report other than historical facts are “forward-looking statements.” Forward-looking statements include statements regarding future financial performance (including revenues, expenses, earnings, margins, cash flows, dividends, capital expenditures and financial condition), plans and objectives, and related assumptions. These forward-looking statements reflect management’s current beliefs and expectations and are not guarantees of future performance. Actual results may differ materially from those suggested by any forward-looking statements based on a number of factors. These factors include, among others, those set forth in Part II, Item 1A and in other documents that we file with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.