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Item 7. Management’s Discussion and Analysis

2022-02-15 compared with 2021-02-16 · 172 added, 223 removed, 323 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are a global supplier of specialty networking solutions built around two global business platforms – Enterprise Solutions and Industrial Solutions.

We are a global supplier of specialty networking solutions built around two global businesses – Enterprise Solutions and Industrial Solutions.

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

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 2021 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.

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.

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.

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, Indian rupee, and Brazilian real.

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.

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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.

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.

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.

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;

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 $2.3 million of fees associated with the amended Revolver, which are being amortized over its term using the effective interest method.

As of December 31, 2021, we had no borrowings outstanding on the Revolver, and our available borrowing capacity was $$274.2 million.

Debt Refinancing

During the third quarter of 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.

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.

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 2021.

This benefit was excluded from Segment EBITDA of our Enterprise Solutions segment.

Sale of Note Receivable

During 2021, we sold the seller's note associated with the 2020 Grass Valley disposal for $62.0 million and recognized a gain on sale of approximately $27.0 million.

Sale-Leaseback

During the fourth quarter of 2021, we sold certain real estate in Germany as part of a sale and leaseback transaction for €24.5 million (approximately $27.8 million) and recognized a $0.6 million loss on the sale.

The lease is for a term of 10 years and as of December 31, 2021, had a total right-of-use asset balance of $25.3 million.

When the assets met the held for sale criteria during the third quarter of 2021, we performed a recoverability test and determined that the carrying values of the assets were not recoverable and as a result, recognized a $2.3 million impairment charge to write them down to fair value.

The impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment.

Definitive Agreement to Divest Tripwire

On February 7, 2022, we signed a definitive agreement to divest Tripwire for $350 million in cash.

The transaction is expected to close in the first quarter of 2022.

During the fourth quarter of 2021, we recognized a goodwill impairment charge for the Tripwire reporting unit of $131.2 million, representing the reporting unit's excess carrying value over its present value of estimated future cash flows, which was based in part on the assumed proceeds from the divestiture.

Divestiture of Oil and Gas Cable Business in Brazil

During the second quarter of 2021, we completed the sale of our oil and gas cable business in Brazil 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 equal to this amount in the first quarter of 2021.

The impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment.

Long-Lived Asset Impairment

During 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 to write them down to fair value.

This impairment charge was excluded from Segment EBITDA of our Industrial Solutions segment.

Cost Reduction Program

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 have executed a cost reduction program to streamline the organizational structure and invest in technology to drive productivity.

We recognized $5.8 million of severance and other restructuring costs for this program during 2021.

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.

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 $3 million for this program in 2022.

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 $12.6 million of severance and other restructuring costs for this program during 2021.

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.

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

We do not expect to incur significant incremental costs for this program in 2022.

Results of Operations

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Amortization of intangibles 38,346 64,395 74,609 (40.5) % (13.7) %

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

Goodwill and other asset impairment 140,461 — — n/a n/a

Operating income 124,560 125,410 207,207 (0.7) % (39.5) %

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Non-operating pension benefit (cost) 4,476 (395) 1,017 1,233.2 % (138.8) %

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

Gain on sale of note receivable 27,036 — — n/a n/a

Loss on debt extinguishment 5,715 — — n/a n/a

Income from continuing operations before taxes 87,662 66,127 152,410 32.6 % (56.6) %

2021 Compared to 2020

Revenues increased $545.4 million from 2020 to 2021 due to the following factors:

• Higher sales volume from industrial automation, smart buildings, and broadband & 5G products resulted in a $373.1 million increase in revenues.

• Copper prices had a $117.2 million favorable impact on revenues.

• Currency translation had a $26.7 million favorable impact on revenues.

• Acquisitions contributed an estimated $37.7 million in revenues.

• Divestitures had a $9.3 million unfavorable impact on revenues.

Gross profit increased $191.1 million from 2020 to 2021 due to the increases in revenues discussed above while gross profit margins remained relatively flat.

Excluding the impact of higher copper pass through pricing and changes in foreign currency rates, gross profit margins increased more than 200 basis points.

Selling, general and administrative expenses increased $60.1 million from 2020 to 2021.

Strategic investments to enhance our solution selling capabilities, including customer innovation centers;

higher incentive compensation;

acquisitions;

and increases in restructuring and integration costs contributed $27.1 million, $22.5 million, $10.8 million, and $1.0 million to the increase in selling, general and administrative expenses, respectively.

These increases were partially offset by the impact of divestitures which contributed a $1.3 million decline in selling, general and administrative expenses year over year.

Research and development expenses increased $17.4 million from 2020 to 2021 primarily due to increased investments in R&D projects as we continue our commitment to growth initiatives.

Amortization of intangibles decreased $26.0 million from 2020 to 2021 primarily due to a significant technology intangible asset becoming fully amortized.

Asset impairments increased $140.5 million from 2020 to 2021 as a result of the Tripwire carrying value exceeding its fair value by $131.2 million in our annual impairment test, impairment charges of $3.6 million to write down certain held and used long-lived assets in our Industrial Solutions segment to fair value, impairment charges of $3.4 million for our former oil and gas business in Brazil sold during 2021, and impairment charges of $2.3 million to write down certain real estate in Neckartenzlingen, Germany sold as part of a sale and leaseback transaction during 2021 to its fair value.

See Notes 13, 11 and 5, respectively.

Operating income remained relatively flat year over year primarily as a result of the increase in gross profit and decrease in amortization expense, partially offset by the increase in selling, general and administrative expenses;

research and development expenses;

and asset impairments discussed above.

Net interest expense increased $3.8 million from 2020 to 2021 primarily due to currency translation.

Gain on sale of note receivable increased $27.0 million from 2020 to 2021 as a result of the sale of the Seller’s Note in 2021 related to the 2020 divestiture of Grass Valley.

Loss on debt extinguishment increased $5.7 million from 2020 to 2021 due to the debt refinancing that took place during 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.

Income from continuing operations before taxes increased $116.0 million from 2020 to 2021 primarily due to the increase in operating income discussed above.

2020 Compared to 2019

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

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

• Lower sales volume, including the impact of COVID-19 and changes in channel inventory, contributed $302.7 million to the decrease in revenues.

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

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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.

The decrease in gross profit is primarily attributable to the decrease in revenues discussed above as well as unfavorable product mix and the impact of lower production volumes.

Gross profit for 2019 included $3.4 million of severance, restructuring, and acquisition integration costs;

$0.6 million of cost of sales arising from the adjustment of inventory to fair value related to acquisitions;

and $0.5 million for the amortization of software development intangible assets.

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 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.

Research and development expenses increased $2.8 million from 2018 to 2019 primarily due to investments in research and development as well as acquisitions, which contributed $3.9 million and $0.3 million, respectively.

These increases were partially offset by currency translation of $1.4 million.

Amortization of intangibles decreased $0.5 million from 2018 to 2019 primarily due to certain intangible assets becoming fully amortized, partially offset by the amortization expense for intangible assets from the acquisitions of SPC and Opterna.

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 decreased $106.8 million from 2018 to 2019 primarily due to the gain from the patent litigation in 2018, decrease in gross profit discussed above, and changes in operating expenses discussed above.

Net interest expense decreased $5.0 million from 2018 to 2019 as a result of our debt refinancing during 2018.

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.

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.

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.

Percentage Change

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We recognized income tax expense of $25.2 million in 2021, representing an effective tax rate of 28.8%.

The effective tax rate was primarily impacted by a change in the deferred tax asset valuation allowance due to the release of a valuation allowance against the foreign tax credits in the U.S.

and a pension deferred tax asset in a foreign jurisdiction.

In addition, we recognized a total income tax expense from domestic permanent differences and tax credits of $39.8 million in 2021 primarily associated with a goodwill impairment in the U.S.

and our foreign income inclusions.

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.

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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%.

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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.

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, 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.

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GAAP and adjusted revenues $ 2,408,100 $ 1,862,716 $ 2,131,278

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 — —

GAAP income from continuing operations $ 62,457 $ 54,403 $ 109,891

Income tax expense 25,205 11,724 42,519

Loss on debt extinguishment 5,715 — —

Gain on note receivable (27,036) — —

Non-operating pension settlement loss — 3,153 —

Interest expense, net 62,695 58,888 55,814

Goodwill and other asset impairment 140,461 — —

Amortization of intangible assets 38,346 64,395 74,609

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Depreciation expense 45,940 42,470 40,409

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

Severance, restructuring, and acquisition integration costs (1)

23,892 12,258 26,544

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)

Adjustments related to acquisitions and divestitures (2)

(5,036) 125 592

Loss on debt extinguishment — — 22,990

Costs related to patent litigation — — 2,634

Loss on sale of assets (3)

Gain from patent litigation — — (62,141)

Adjusted EBITDA $ 375,539 $ 249,237 $ 350,903

GAAP net income (loss) margin (3.0) % (17.7) % 7.4 %

GAAP income from continuing operations margin 2.6 % 2.9 % 5.2 %

Adjusted EBITDA margin 15.6 % 13.4 % 16.5 %

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

(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.

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

(2) In 2021, we collected $2.2 million of receivables associated with the sale of Grass Valley and acquisition of SPC that were previously written off, reduced the Opterna earn-out liability by $5.8 million, recognized cost of sales of $2.3 million related to purchase accounting adjustments of acquired inventory to fair value for the OTN Systems acquisition, and recognized a $0.6 million loss on the sale of tangible assets.

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

Use of Non-GAAP Financial Information

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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;

purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory to fair value, and transaction costs;

severance, restructuring, and acquisition integration costs;

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We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis.

As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities.

We believe this presentation is useful in evaluating the underlying performance of acquired companies.

Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired businesses' core business performance.

As an example, we adjust for acquisition-related expenses, such as amortization of intangibles and impacts of fair value adjustments because they generally are not related to the acquired businesses' core business performance.

As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses.

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

We believe the adjusted

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

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.

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(In thousands, except percentages)

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

GAAP and adjusted revenues $ 2,408,100 $ 1,862,716 $ 2,131,278 29.3 % (12.6) %

Adjusted EBITDA 375,539 249,237 350,903 50.7 % (29.0) %

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2021 Compared to 2020

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

• 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.

Revenues increased $545.4 million from 2020 to 2021 due to the following factors:

• Higher sales volume from industrial automation, smart buildings, and broadband & 5G products resulted in a $373.1 million increase in revenues.

• Copper prices had a $117.2 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.

• Currency translation had a $26.7 million favorable impact on revenues.

• Acquisitions contributed an estimated $37.7 million in revenues.

• Divestitures had a $9.3 million unfavorable impact on revenues.

Adjusted EBITDA increased $126.3 million in 2021 from 2020 primarily due to the leverage on higher sales volume, as discussed above.

Accordingly, Adjusted EBITDA margins expanded to 15.6% from 13.4% in the year ago period.

2020 Compared to 2019

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

• Lower sales volume, including the impact of COVID-19 and changes in channel inventory, contributed $302.7 million to the decrease in revenues.

• Currency translation had a $1.9 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 $34.3 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.

• 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 Cost Reduction Program.

Segment Results of Operations

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2021 Compared to 2020

Enterprise revenues increased $202.0 million in 2021 as compared to 2020.

Increases in volume, higher copper prices, and favorable currency translation contributed $143.6 million, $50.4 million, and $8.0 million, respectively, to the increase in revenues year over year.

Enterprise EBITDA increased $43.9 million in 2021 as compared to 2020 primarily due to the leverage on higher sales volume, as discussed above.

Accordingly, Adjusted EBITDA margins expanded to 13.3% from 11.4% in the year ago period.

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;

Decreases in volume, including the impact of COVID-19 and 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;

lower copper prices;

and unfavorable currency translation, which contributed $28.5 million, $8.4 million, and $7.0 million, respectively, to the decrease in revenues over the year ago period;

partially offset by the impact of acquisitions which grew revenues $32.4 million.

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.

Industrial Solutions

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2021 Compared to 2020

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.

Industrial revenues increased $343.4 million in 2021 as compared to 2020 primarily due to increases in volume;

higher copper prices;

acquisitions, net of disposals;

and favorable currency translation of $229.5 million, $66.8 million, $28.4 million, and $18.7 million, respectively.

Industrial EBITDA increased $80.3 million in 2021 as compared to 2020 primarily as a result of the increase in revenues discussed above, partially offset by an increase in incentive compensation and investments in R&D projects as we continue our commitment to growth initiatives.

Accordingly, Adjusted EBITDA margins expanded to 17.1% from 14.9% in the year ago period.

2020 Compared to 2019

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;

partially offset by increases in volume, which grew revenues $6.9 million year-over-year.

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.

Industrial revenues decreased $194.9 million in 2020 as compared to 2019 primarily due to decreases in volum e, including the impact of COVID-19 and 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.

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 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:

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

Years Ended December 31,

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Net cash provided by operating activities totaled $272.1 million for 2021 compared to $173.4 million for 2020.

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.

The increase is primarily due to the increase in earnings.

In 2021, changes in operating assets and liabilities included unfavorable changes in receivables and inventories partially offset by favorable changes in accounts payable and accrued liabilities.

Receivables were a use of cash of $119.0 million compared to a source of cash of $70.7 million in the prior year.

Inventories were a use of cash of $93.0 million compared to $8.5 million in the prior year.

Receivables and inventories increased in 2021 due to the increase in revenues.

Operating working capital turns improved to 11.2x at the end of 2021 compared to 10.3x at the end of 2020.

Net cash used for investing activities totaled $92.0 million for 2021 compared to $31.6 million for 2020.

Investing activities for 2021 included capital expenditures of $91.0 million, payments primarily for the acquisition of OTN Systems of $73.3 million, purchases of intangible assets of $3.6 million, cash receipts for the carrying value of the seller's note and sale of the oil and gas cable business in Brazil of $45.7 million, and cash receipts for the sale of real estate in Germany of $30.2 million.

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.

Net cash flows used for financing activities totaled $32.9 million for 2021 compared to $74.9 million for 2020.

Financing activities for 2021 included repayments of debt obligations of $360.3 million, cash dividend payments of $9.0 million, debt issuance costs of $8.2 million, net payments related to share based compensation activities of $5.6 million, financing lease payments of $3.1 million, payments to noncontrolling interests of $2.7 million, and borrowings under credit arrangements of $356.0 million.

During 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 16.

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;

cash dividend payments of $34.4 million, net payments related to share based compensation activities of $2.1 million;

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

Our cash and cash equivalents balance was $643.8 million as of December 31, 2021.

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dollars or other foreign currencies.

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.

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.

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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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.

(2) Amounts do not include accrued and unpaid interest.

Accrued and unpaid interest related to long-term debt obligations is reflected on the line entitled, "Interest payments on long-term debt obligations" in the table.

(3) As described in Note 12 to the Consolidated Financial Statements.

(4) Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum, or variable price provisions;

and the approximate timing of the transaction.

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

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

Our commercial commitments expire or mature as follows:

Total Less than

Years More than

(In thousands)

Standby financial letters of credit $ 8,486 $ 7,853 $ 633 $ — $ —

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.

At December 31, 2021, the following contractual obligations and commercial commitments were outstanding:

Principal payments on long-term debt of $1.5 billion, none of which is due in 2022 (see Note 16).

Depending on the conditions in the credit markets, we may refinance this debt, or we may use cash from operations, including temporarily accessing our Revolving Credit Agreement, to repay this debt.

Interest payments on long-term debt of $353.7 million, of which $53.5 million is due in 2022.

Operating lease obligations of $99.9 million, of which $22.8 million is due in 2022 (see Note 12).

Pension and other postemployment obligations of $87.7 million, of which $13.6 million is due in 2022 (see Note 19).

Obligations of $5.8 million to purchase goods or services that are enforceable and legally binding on us.

All of these obligations are due in 2022.

Standby financial letters of credit, bank guarantees, and surety bonds totaling $28.1 million, of which $25.1 million are scheduled to expire or mature in 2022.

These commitments are generally issued to secure obligations we have for a variety of commercial reasons such as workers compensation self-insurance programs in several states and the importation and exportation of product.

We expect to replace most of these when they expire or mature.

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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.

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.

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, intra-period allocations and interim tax calculations, and adds guidance to reduce the complexity in accounting for income taxes.

The Company adopted ASU 2019-12 in the first quarter of 2021 and the adoption had no material impact to the Company’s consolidated financial statements.

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, three reporting units within Enterprise Solutions and seven reporting units within Industrial Solutions for purposes of goodwill impairment testing.

As a result of this evaluation, we have identified three reporting units within Enterprise Solutions and three 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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Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.

For our annual impairment test in 2020, we performed a quantitative assessment for all ten of our reporting units included in continuing operations, none of which proved to be impaired during 2020.

Based on our annual goodwill impairment test, the excess of the fair values over the carrying values of our ten reporting units tested under a quantitative income approach ranged from 4% - 345%.

For our annual impairment test in 2021, we performed a quantitative assessment for all six of our reporting units.

We recorded an impairment for one reporting unit included in the Industrial Solutions segment.

The excess of the fair values over the carrying values for the other five reporting units tested under a quantitative income approach ranged from 51% - 436%.

The assumptions used to estimate fair values were based on the past performance of the reporting unit as well as the projections incorporated in our strategic plan.

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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.

There is inherent risk associated with using an income approach to estimate fair values.

If actual results are significantly different from our estimates or assumptions, we may have to recognize additional impairment charges that could be material.

We also test our indefinite-lived intangible asset, a trademark, for impairment on an annual basis during the fourth quarter.

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

We did not perform any qualitative assessments as part of our indefinite-lived intangible asset impairment testing for 2021.

Rather, we performed a quantitative assessment for each of our indefinite-lived trademarks in 2020.

Under the quantitative assessments, we determined the fair value of each trademark using a relief from royalty methodology and compared the fair value to the carrying value.

We determined that none of our trademarks were impaired during 2020.

Rather, we performed a quantitative assessment for our indefinite-lived trademark in 2021.

Under the quantitative assessments, we determined the fair value of the trademark using a relief from royalty methodology and compared the fair value to the carrying value.

We determined that our trademark was not impaired during 2021.

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

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.

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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Our key assumptions are described in further detail in Note 18 to the Consolidated Financial Statements.

Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over the estimated future working life of the plan participants.

Actual results that differ from our assumptions are accumulated and, if in excess of

the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over the estimated future working life of the plan participants.

As a sensitivity measure, the effect of a 50 basis point decline in the assumed discount rate would have resulted in an increase in the 2021 net periodic benefit cost and projected benefit obligations as of December 31, 2021 of approximately $2.0 million and $38.0 million, respectively.

A 50 basis point decline in the expected return on plan assets would have resulted in an increase in the 2021 net periodic benefit cost of approximately $1.8 million.

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.

Conversely, the effect of a 50 basis point increase in the assumed discount rate would have resulted in a decrease i n the 2021 net periodic benefit cost of approximately $1.6 million and a decrease in the projected benefit obligation of approximately $34.2 million as of December 31, 2021.

A 50 basis point increase in the expected return on plan assets would have resulted in a decrease in the 2021 net periodic benefit cost of approximately $1.8 million.

Business Combination Accounting

Acquisition Accounting

We allocate the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values.

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We typically engage third party valuation specialists to assist in the fair value determination of inventories, tangible long-lived assets, and intangible assets other than goodwill.

The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date.

The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the acquisition date.

As necessary, we may engage third party specialists to assist in the estimation of fair value for certain liabilities.

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

See Note 4 to the Consolidated Financial Statements for the acquisition-related information associated with significant acquisitions completed in the last three fiscal years.

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