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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-15 · 145 added, 189 removed, 306 unchanged (52% 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 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.

We strive to create shareholder value by:

• Delivering highly engineered signal transmission solutions for mission-critical applications in a diverse set of global markets;

• Maintaining a balanced product portfolio across end markets, applications, and geographies that allows for a disciplined approach to growth;

• Capturing additional market share by using our Market Delivery System to improve channel and end-user relationships and to concentrate sales efforts on customers in higher growth geographies and vertical end-markets;

• Managing our product portfolio to provide innovative and complete end-to-end solutions for our customers in applications for which we have operational expertise and can drive customer loyalty;

• Acquiring leading companies with innovative product portfolios and opportunities for synergies which fit within our strategic framework;

• Continuously improving our processes and systems through scalable, flexible, and sustainable business systems for talent management, Lean enterprise, and acquisition cultivation and integration;

• Protecting and enhancing the value of the Belden brands.

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 margin profile present a unique value proposition for our shareholders.

We consider adjusted revenue growth on a constant currency basis, adjusted EBITDA margin, free cash flow, and return on invested capital to be our key operating performance indicators.

Belden is a leading global supplier of network infrastructure solutions that makes the digital journey simpler, smarter and secure.

We’re moving beyond connectivity, from what we make to what we make possible through a performance-driven portfolio, forward-thinking expertise and purpose-built solutions.

We are aligned with attractive secular growth markets, positioned to provide comprehensive solutions that drive customer outcomes, focused on new product innovation and technology leadership, and committed to sustainable ESG practices.

Our current business goals are to:

• Grow adjusted revenues on a constant currency basis by 5-7% per year, from a combination of end market growth, market share capture, and contributions from acquisitions;

• Achieve adjusted EBITDA margins in the range of 20-22%;

• Achieve free cash flow growth in the range of 13-15%;

• Realize return on invested capital of 13-15%.

• Drive organic revenue growth in excess of GDP;

• Deliver incremental Adjusted EBITDA margins of approximately 30%;

• Generate free cash flows of approximately $1 billion cumulatively from 2022 through 2025;

• Execute a disciplined capital allocation strategy while maintaining net leverage of approximately 1.5x;

• Drive Adjusted EPS to $8.00 by 2025.

Significant Trends and Events in 2022

The following trends and events during 2022 had varying effects on our financial condition, results of operations, and cash flows.

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

In 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.

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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.

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

Generally, as the U.S.

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dollars in a foreign location.

D uring periods of inflation, if we are unable to raise prices timely and sufficiently to recover our material costs, our earnings could decline.

Furthermore, inflation may impact labor, energy, and other costs.

We are mindful of ongoing inflationary pressures and as a result, proactively implement selling price increases and cost control measures.

Commodity Prices

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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.

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.

Tripwire Divestiture

During 2022, we sold Tripwire for gross cash consideration of $350 million and recognized a loss on disposal of discontinued operations, net of tax of $9.2 million.

Debt Repurchase

During 2022, we repurchased all of the €200.0 million aggregate principal amount of 4.125% senior subordinated notes previously due 2026.

We recognized a $6.4 million loss on debt extinguishment for the premiums paid to the bond holders to retire the 2026 Notes and for the unamortized debt issuance costs on the 2026 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

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 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 both the Enterprise Solutions and Industrial Solutions segments.

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

During 2022, we completed three acquisitions.

On January 17, 2022, we acquired Macmon for $41.9 million , net of cash acquired.

Macmon, based in Berlin, Germany, is a leading provider of products and services that secure network infrastructure in a variety of mission critical industries.

On March 3, 2022, we acquired NetModule for $23.5 million, net of cash acquired.

NetModule, based in Bern, Switzerland, is a leading provider of reliable, fast and secure wireless network infrastructures through advanced capabilities in 5G and WiFi6 technologies in a variety of mission critical industries with a strong focus on mass transit and intelligent traffic systems within the transportation vertical.

On April 15, 2022, we acquired CAI for $19.0 million , net of cash acquired.

CAI is headquartered in Anniston, Alabama and designs, manufactures, and sells a range of plug-in radio frequency filters used in outside plant hybrid fiber-coax nodes.

The results of operations of each acquisition have been included in our results of operations from their respective acquisition dates.

The three acquisitions were not material to our results of operations.

Macmon and NetModule are included in the Industrial Automation Solutions segment, and CAI is included in the Enterprise Solutions segment.

All three acquisitions were funded with cash on hand.

Share Repurchase Program

During 2022, we repurchased 2.6 million shares of our common stock under the share repurchase program for an aggregate cost of $150.0 million at an average price per share of $57.95.

Gain on Sale of Asset

During 2022, we sold certain real estate in the United States for $42.2 million, net of transaction costs and recognized a $37.9 million pre-tax gain on sale.

This gain on sale was excluded from Segment EBITDA of our Industrial Automation Solutions segment.

Equity Method Investment

During 2022, we invested $20.0 million in Litmus for a noncontrolling ownership interest.

Litmus provides critical data connectivity needed to monitor, visualize, analyze, and integrate industrial data.

We account for this investment using the equity method of accounting.

Results of Operations

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Amortization of intangibles 37,860 30,630 29,041 23.6 % 5.5 %

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

Asset impairments — 9,283 — 100.0 % n/a

Gain on sale of asset 37,891 — — n/a n/a

Operating income 363,334 263,676 150,114 37.8 % 75.7 %

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Non-operating pension benefit (cost) 4,005 4,476 (395) 10.5 % (1,233.2) %

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

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

Gain on sale of note receivable — 27,036 — 100.0 % n/a

Loss on debt extinguishment 6,392 5,715 — (11.8) % n/a

Income from continuing operations before taxes 317,393 226,780 90,816 40.0 % 149.7 %

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Revenues increased $305.2 million from 2021 to 2022 due to the following factors:

• Higher sales volume and favorable pricing from industrial automation, smart buildings, and broadband & 5G products resulted in a $365.0 million increase in revenues.

• Acquisitions, net of disposals contributed an estimated $19.3 million in revenues.

• Currency translation had a $65.3 million unfavorable impact on revenues.

• Copper prices had a $13.8 million unfavorable impact on revenues.

Gross profit increased $144.4 million from 2021 to 2022 due to the increases in revenues discussed above.

Accordingly, gross profit margins expanded nearly 200 basis points year over year.

Selling, general and administrative expenses increased $70.6 million from 2021 to 2022.

The increase in selling, general and administrative expenses is primarily attributable to strategic investments to enhance our solution selling capabilities, expenses from our acquired businesses and costs associated with lease guarantees as discussed in Note 12.

Research and development expenses increased $14.1 million from 2021 to 2022 primarily due to increased investments as we further strengthen our product offering and continue our commitment to growth initiatives.

Amortization of intangibles increased $7.2 million from 2021 to 2022 primarily due to acquisitions.

Asset impairments decreased $9.3 million from 2021 to 2022 as a result of the following impairment charges during 2021:

$3.6 million to write down certain held and used long-lived assets in our Industrial Automation Solutions segment to fair value, $3.4 million for our former oil and gas business in Brazil sold during 2021, and a $2.3 million charge to write down certain real estate in Germany to its fair value and sold as part of a sale and leaseback transaction during 2021.

See Notes 5, 11 and 12.

Gain on sale of asset increased $37.9 million from 2021 to 2022.

During 2022, we sold certain real estate in the United States and recognized a $37.9 million pre-tax gain on sale.

Operating income increased $99.7 million from 2021 to 2022 primarily as a result of the increase in gross profit, the gain on sale of asset in 2022, and lack of asset impairment charges as compared to 2021, partially offset by the increase in selling, general and administrative expenses;

research and development expenses;

and amortization of intangibles expense discussed above.

Net interest expense decreased $19.1 million from 2021 to 2022 primarily due to the repurchase of senior subordinated notes previously due 2026 and currency translation.

Gain on sale of note receivable decreased $27.0 million from 2021 to 2022 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 $0.7 million from 2021 to 2022.

The loss on debt extinguishment in 2022 represents the premium paid to the bond holders to retire the 2026 Notes and for the unamortized debt issuance costs on the 2026 Notes that we were required to write-off.

The loss on debt extinguishment in 2021 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 $90.6 million from 2021 to 2022 primarily due to the increase in operating income discussed above.

2021 Compared to 2020

Revenues increased $549.1 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 $376.8 million increase in revenues.

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• 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.

Gross profit increased $196.2 million from 2020 to 2021 due to the increases in revenues discussed above while gross profit margins expanded 70 basis points.

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 $54.6 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.

Strategic investments to enhance our solution selling capabilities (e.g., customer innovation centers), higher incentive compensation, and acquisitions contributed to the increase in selling, general and administrative expenses.

Research and development expenses increased $17.2 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;

Amortization of intangibles increased $1.6 million from 2020 to 2021 primarily due to currency translation.

Asset impairments increased $9.3 million from 2020 to 2021 as a result of impairment charges of $3.6 million to write down certain held and used long-lived assets in our Industrial Automation 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 5, 11 and 12.

Operating income increase $113.6 million from 2020 to 2021 primarily due to the increase in gross profit discussed above, partially offset by the increase in selling, general and administrative expenses;

research and development expenses;

and asset impairments discussed above.

amortization of intangibles expense;

and asset impairments.

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

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Income from continuing operations before taxes increased $136.0 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 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.

• Acquisitions increased revenues by $34.3 million.

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

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

partially offset by the impact of acquisitions.

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

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

A decrease in severance, restructuring and acquisition integration costs;

decreases in commission costs;

and currency translation contributed an estimated $11.6 million;

$3.5 million;

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

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

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

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

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

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

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

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

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

Percentage Change

Year Ended December 31, Percentage Change

2022 2021 2020 2022 vs.

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We recognized income tax expense of $49.6 million in 2022, representing an effective tax rate of 15.6%.

The effective tax rate was primarily impacted by foreign tax rate differences, and domestic permanent differences and tax credits primarily associated with our foreign income inclusions.

We recognized income tax expense of $27.9 million in 2021, representing an effective tax rate of 12.3%.

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 $20.1 million in 2020, representing an effective tax rate of 22.1%.

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

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

The tax holiday in St.

Kitts is scheduled to expire in 2023.

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.

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

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

During the fourth quarter of 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects related to the Tax Cuts and Jobs Act of 2017 (the “Act”).

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

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

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

Of this amount, approximately $43.0 million relates to deferred tax assets for certain U.S foreign tax credits and U.S.

state net operating losses and tax credits.

The $33.9 million valuation allowance on the foreign tax credits is a direct result of the regulations issued by the United States Treasury in the fourth quarter of 2019, the Act and the impact of classifying a business as discontinued operations.

The remaining $9.1 million valuation allowance primarily relates to state net operating losses and tax credits.

While we have positive evidence in the form of projected sources of income, we determined that these state carryforward assets were not realizable as of December 31, 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.

The effective tax rate was impacted by foreign tax rate differences, and domestic permanent differences and tax credits primarily associated with our foreign income inclusions.

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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Income tax expense 49,645 27,939 20,098

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

Amortization of software development intangible assets 2,900 1,821 525

Depreciation expense 46,669 43,073 39,413

Interest expense, net 43,554 62,693 58,903

Amortization of intangibles 37,860 30,630 29,041

Loss on debt extinguishment 6,392 5,715 —

Severance, restructuring, and acquisition integration costs (1)

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7,833 (5,035) 125

Amortization of software development intangible assets 3,875 1,579 872

Non-operating pension settlement loss 1,189 — 3,153

Asset impairments (3)

Gain on sale of asset (4)

Gain on note receivable (5)

Adjusted EBITDA $ 443,559 $ 371,549 $ 233,878

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Adjusted EBITDA margin 17.0 % 16.1 % 13.3 %

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

(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.

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

(2) In 2022, we incurred $10.1 million for lease guarantees associated with the Grass Valley disposal (see Note 12), $2.2 million related to fair value adjustments of acquired inventory and investments, and gains of $4.5 million on collections from previously written off receivables associated with the sale of Grass Valley.

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 adjustments of acquired inventory to fair value, and recognized a $0.6 million loss on the sale of tangible assets.

In 2020, we recognized $0.1 million of cost of sales related to adjustments of acquired inventory to fair value.

(3) In 2021, we recognized a $3.6 million impairment on assets held and used and a $5.7 million impairment on assets held for sale .

See Note 11, Property, Plant, and Equipment , for details.

(4) In 2022, we sold certain real estate in the United States for $42.2 million, net of transaction costs and recognized a $37.9 million pre-tax gain on sale.

See Note 11, Property, Plant, and Equipment , for details.

(5) In 2021, we sold the seller's note associated with the Grass Valley disposal to a third party for $62.0 million and recognized a gain on sale of $27.0 million.

See Note 5, Disposals .

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 to fair value, and transaction costs;

fair value adjustments and transaction costs related to acquisitions;

severance, restructuring, and acquisition integration costs;

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

Percentage Change

Year Ended December 31, Percentage Change

2022 2021 2020 2022 vs.

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Revenues increased $305.2 million from 2021 to 2022 due to the following factors:

• Higher sales volume and favorable pricing from industrial automation, smart buildings, and broadband & 5G products resulted in a $365.0 million increase in revenues.

• Acquisitions, net of disposals contributed an estimated $19.3 million in revenues.

• Currency translation had a $65.3 million unfavorable impact on revenues.

• Copper prices had a $13.8 million unfavorable impact on revenues.

Adjusted EBITDA increased $72.0 million in 2022 from 2021 primarily due to the leverage on higher sales volume, as discussed above.

Accordingly, adjusted EBITDA margins expanded to 17.0% from 16.1% in the year ago period.

2021 Compared to 2020

Revenues increased $549.1 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 $376.8 million increase in revenues.

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Accordingly, Adjusted EBITDA margins expanded to 16.1% from 13.3% 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.

• Acquisitions increased revenues by $34.3 million.

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

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

Segment Results of Operations

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Enterprise Solutions

Percentage Change

Year Ended December 31, Percentage Change

2022 2021 2020 2022 vs.

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Enterprise revenues increased $124.1 million in 2022 as compared to 2021.

The increase in revenues was primarily due to increases in volume and favorable pricing of $135.0 million and acquisitions of $5.4 million, partially offset by unfavorable currency translation and lower copper pass-through pricing of $13.3 million and $3.0 million, respectively.

Enterprise EBITDA increased $17.0 million in 2022 as compared to 2021 primarily due to the increase in revenues discussed above.

Accordingly, Adjusted EBITDA margins expanded to 13.5% from 13.4% in the year ago period.

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.

1 unchanged sentence

Accordingly, Adjusted EBITDA margins expanded to 13.4% 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 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 Cost Reduction Program.

Industrial Solutions

Percentage Change

Industrial Automation Solutions

Year Ended December 31, Percentage Change

2022 2021 2020 2022 vs.

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2022 Compared to 2021

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

Industrial Automation revenues increased $181.2 million in 2022 as compared to 2021 primarily due to increases in volume and favorable pricing of $230.1 million and acquisitions, net of disposals of $13.9 million, partially offset by unfavorable currency translation and lower copper pass-through pricing of $52.0 million and $10.8 million, respectively.

Industrial Automation EBITDA increased $54.4 million in 2022 as compared to 2021 primarily as a result of the increase in revenues discussed above.

Accordingly, Adjusted EBITDA margins expanded to 19.7% from 18.2% in the year ago period.

2021 Compared to 2020

Industrial Automation revenues increased $347.1 million in 2021 as compared to 2020 primarily due to increases in volume;

higher copper prices;

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and favorable currency translation of $233.2 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.

Industrial Automation EBITDA increased $90.4 million in 2021 as compared to 2020 primarily as a result of the increase in revenues discussed above.

Accordingly, Adjusted EBITDA margins expanded to 18.2% from 15.0% in the year ago period.

2020 Compared to 2019

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.

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 Cost Reduction Program.

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 discontinued operations up to the July 2, 2020 disposal date 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 February 22, 2022 disposal date consistent with the Consolidated Cash Flow Statements:

Years Ended December 31,

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Net cash provided by operating activities totaled $281.3 million for 2022 compared to $272.1 million for 2021.

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.

The increase is primarily due to higher net income and favorable changes in inventory.

Inventory was a source of cash of $5.6 million compared to a use of cash of $93.0 million in the prior year.

The use of cash for inventory in the prior year was due to investments in inventory to satisfy the increasing demand.

Net cash provided by investing activities totaled $168.4 million for 2022 compared to a use of cash of $92.0 million for 2021.

Investing activities for 2022 included proceeds of $334.6 million and $43.5 million from the sale of the Tripwire disposal group and tangible property, respectively, as well as $105.1 million for capital expenditures and $104.6 million for the investment in Litmus and acquisitions of Macmon, NetModule and CAI.

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.

Net cash flows used for financing activities totaled $393.2 million for 2022 compared to $32.9 million for 2021.

Financing activities for 2022 included repayments of debt obligations of $230.6 million, payments under our share repurchase program of $150.0 million, cash dividend payments of $8.9 million, net payments related to share based compensation activities of $7.2 million, financing lease payments of $0.2 million, and proceeds from the issuance of common stock of $3.7 million.

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.

Our cash and cash equivalents balance was $687.7 million as of December 31, 2022.

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Pension and other postemployment obligations of $84.3 million, of which $9.6 million is due in 2023 (see Note 19).

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

Obligations to purchase goods or services that are enforceable and legally binding of $26.7 million.

All of these obligations are due in 2023.

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

Obligations for uncertain tax positions of $6.2 million, none of which is due in 2023 (see Note 18).

Off-Balance Sheet Arrangements

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Generally, we determine standalone selling price using the adjusted market assessment approach.

For software licenses with highly variable standalone selling prices sold with either support or professional services, we generally determine the standalone selling price of the software license using the residual approach.

Revenue allocated to support services under our support contracts is typically recognized ratably over the term of the service.

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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, 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.

On August 16, 2022, the Inflation Reduction Act of 2022 (the Act) was signed into law.

We are evaluating the effect that the Act will have on our consolidated financial statements and related disclosures.

None of the tax provisions of the Act are expected to have a material impact to our consolidated financial statements and related disclosures.

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

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However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics.

We determined that each of our reportable segments (Enterprise Solutions and Industrial Solutions) represents an operating segment.

We determined that each of our reportable segments (Enterprise Solutions and Industrial Automation Solutions) represents an operating segment.

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 three reporting units within Enterprise Solutions and three 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 Automation 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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If it is more likely than not that the fair value is less than the carrying value, then a quantitative assessment is required for the reporting unit, as described in the paragraph below.

In 2021, we did not perform a qualitative assessment over any of our reporting units.

In 2022, we performed a qualitative assessment over five of our reporting units.

When we evaluate goodwill for impairment using a quantitative assessment, we compare the fair value of each reporting unit to 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 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%.

For our annual impairment test in 2022, we performed a quantitative assessment over one of our reporting units.

The excess of the fair value over the carrying value under the income approach was 48%.

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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We also considered assumptions that market participants may use.

In our quantitative assessments, the discount rates ranged from 11.3% to 13.7%, the 2022 to 2031 compounded annual revenue growth rates ranged from 3.8% to 9.7%, and the revenue growth rates beyond 2031 ranged from 2.0% to 3.0%.

In our quantitative assessment, the discount rate was 13.1%, the 2023 to 2032 compounded annual revenue growth rate was 4.9%, and the revenue growth rate beyond 2032 was 2.5%.

By their nature, these assumptions involve risks and uncertainties.

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.

If actual results are significantly different from our estimates or assumptions, we may have to recognize 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.

The accounting guidance allows for the performance of an optional qualitative assessment, similar to that described above for goodwill, but we did not perform a qualitative assessment as part of our indefinite-lived intangible asset impairment testing for 2022.

Rather, we performed a quantitative assessment for our indefinite-lived trademark in 2022.

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.

Under the quantitative assessment, 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 2022.

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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.

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.

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 a decrease in the 2022 net periodic benefit cost of less than $0.1 million and an increase in the projected benefit obligations of approximately $17.8 million as of December 31, 2022.

A 50 basis point decline in the expected return on plan assets would have resulted in an increase in the 2022 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 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.

Conversely, the effect of a 50 basis point increase in the assumed discount rate would have resulted in an increase in the 2022 net periodic benefit cost of approximately $0.6 million and a decrease in the projected benefit obligation of approximately $16.3 million as of December 31, 2022.

A 50 basis point increase in the expected return on plan assets would have resulted in a decrease in the 2022 net periodic benefit cost of approximately $1.8 million.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis