<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File Number 1-12280
BELDEN INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 76-0412617
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7701 FORSYTH BOULEVARD, SUITE 800
ST. LOUIS, MISSOURI 63105
(Address of Principal Executive Offices and Zip Code)
(314) 854-8000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes______X________ No________________
Number of shares outstanding of the issuer's Common Stock, par
value $.01 per share, as of July 22, 1999: 24,357,861 shares
===============================================================================
Exhibit Index on Page 20 Page 1 of 21
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
----------- ------------
(Unaudited)
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,678 $ 3,291
Receivables 119,285 95,643
Inventories 111,936 89,633
Deferred income taxes 16,899 6,422
Net assets of discontinued operations 507 24,029
Other 3,392 3,211
--------- ---------
Total current assets 253,697 222,229
Property, plant and equipment, less
accumulated depreciation 338,435 183,745
Intangibles, less accumulated amortization 86,818 87,698
Other assets 4,766 629
--------- ---------
$ 683,716 $ 494,301
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 98,450 $ 64,452
Income taxes payable 1,783 3,177
--------- ---------
Total current liabilities 100,233 67,629
Long-term debt 294,615 162,850
Postretirement benefits other than pensions 14,073 14,747
Deferred income taxes 33,107 14,159
Other long-term liabilities 15,786 15,249
Stockholders' equity:
Preferred stock -- --
Common stock 262 262
Additional paid-in capital 48,137 48,482
Retained earnings 226,573 218,605
Treasury stock, at cost (37,911) (38,823)
Accumulated other comprehensive income (loss) (11,159) (8,859)
--------- ---------
Total stockholders' equity 225,902 219,667
--------- ---------
$ 683,716 $ 494,301
========= =========
</TABLE>
See accompanying notes
-2-
<PAGE> 3
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- --------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $166,220 $ 180,797 $ 325,849 $354,412
Cost of sales 126,418 131,298 251,243 257,798
-------- --------- --------- --------
Gross profit 39,802 49,499 74,606 96,614
Selling, general and administrative expenses 22,560 22,343 44,942 42,752
Amortization of goodwill 496 462 990 885
-------- --------- --------- --------
Operating earnings 16,746 26,694 28,674 52,977
Interest expense 1,913 1,857 3,832 3,482
-------- --------- --------- --------
Income from continuing operations before tax 14,833 24,837 24,842 49,495
Income taxes 5,599 9,624 9,377 19,179
-------- --------- --------- --------
Income from continuing operations 9,234 15,213 15,465 30,316
Income (loss) from discontinued business net of
tax of $54 and $195 for the six month periods
ended June 30, 1999 and 1998, respectively and tax
benefit of $36 for the three month period ended
June 30, 1998 -- (58) 89 306
Estimated loss on disposal of discontinued business
net of tax benefit of $3,123 -- -- (5,150) 0
-------- --------- --------- --------
Net income $ 9,234 $ 15,155 $ 10,404 $ 30,622
======== ========= ========= ========
Basic earnings per share from continuing operations $ .38 $ .58 $ .64 $ 1.16
Basic earnings per share $ .38 $ .58 $ .43 $ 1.17
======== ========= ========= ========
Diluted earnings per share from continuing operations $ .38 $ .58 $ .63 $ 1.15
Diluted earnings per share $ .38 $ .58 $ .43 $ 1.16
======== ========= ========= ========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
--------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 15,465 $ 30,316
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation 10,204 8,133
Amortization 2,586 2,069
Deferred income taxes (2,266) 4,441
Changes in operating assets and liabilities(*):
Receivables (3,031) (1,946)
Inventories 7,176 1,489
Accounts payable and accrued liabilities 2,691 (14,126)
Income taxes payable (433) (754)
Other assets and liabilities, net (870) 3,342
--------- --------
Net cash provided by operating activities 31,522 32,964
Cash flows from investing activities:
Capital expenditures (9,685) (15,815)
Cash paid for acquired businesses (180,956) (16,179)
Proceeds from sale of Cord Products Division 25,000 --
Proceeds from disposal of property 922 --
--------- --------
Net cash used for investing activities (164,719) (31,994)
Cash flows from financing activities:
Net borrowings under long-term credit facility and
credit agreements 9,781 12,303
Proceeds from bridge loan to be refinanced 125,000 --
Purchase of treasury stock -- (11,337)
Exercise of stock options 567 1,398
Cash dividends paid (2,436) (2,616)
--------- --------
Net cash provided by (used for) financing activities 132,912 (252)
Cash flows from discontinued operations:
Income (loss) from discontinued operations (5,061) 306
Adjustments to reconcile income(loss) from discontinued
operations to net cash provided by (used for)
discontinued operations:
Depreciation and amortization 695 1,376
Loss on disposal and other non cash charges 8,273 --
Changes in operating assets and liabilities of discontinued
operations (4,823) (2,159)
Capital expenditures (416) (602)
--------- --------
Net cash used for discontinued operations (1,332) (1,079)
Effect of exchange rate changes on cash and cash equivalents 4 (16)
--------- --------
Decrease in cash and cash equivalents (1,613) (377)
Cash and cash equivalents, beginning of period 3,291 916
--------- --------
Cash and cash equivalents, end of period $ 1,678 $ 539
========= ========
</TABLE>
See accompanying notes
(*)Net of the effects of exchange rate changes, acquired businesses, and
discontinued operations.
-4-
<PAGE> 5
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Treasury Stock Other
------------------ Paid-In Retained ---------------------- Comprehensive
(in thousands) Shares Amount Capital Earnings Shares Amount Income (Loss) Total
-------- ---------- ----------- ----------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 26,180 $262 $49,370 $189,163 (38) ($1,241) ($8,600) $228,954
Net Income 30,622 30,622
Foreign currency translation
adjustments (1,876) (1,876)
----------
Comprehensive income 28,746
Issuance of common stock for:
Stock Options 24 (617) 60 2,015 1,398
Purchase of treasury stock (360) (11,337) (11,337)
Cash dividends ($.05 per share) (2,616) (2,616)
------- --------- ---------- ---------- -------- ----------- ------------- ----------
Balance at June 30, 1998 26,204 $262 $48,753 $217,169 (338) ($10,563) ($10,476) $245,145
======= ========= ========== ========== ======== =========== ============= ==========
Balance at December 31, 1998 26,204 $262 $48,482 $218,605 (1,875) ($38,823) ($8,859) $219,667
Net Income 10,404 10,404
Foreign currency translation
adjustments (2,300) (2,300)
----------
Comprehensive income 8,104
Issuance of common stock for:
Stock Options (345) 29 912 567
Cash dividends ($.05 per share) (2,436) (2,436)
------- --------- ---------- ---------- -------- ----------- ------------- ----------
Balance at June 30, 1999 26,204 $262 $48,137 $226,573 (1,846) ($37,911) ($11,159) $225,902
======= ========= ========== ========== ======== =========== ============= ==========
</TABLE>
See accompanying notes
-5-
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements include Belden and all of its
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The financial information presented as of any date
other than December 31, 1998 has been prepared from the books and records
without audit. The accompanying Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and the footnotes required by generally accepted accounting
principles for complete statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such financial statements have been included. These
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes during the first six months of 1999 and 1998
amounted to $7,796,000 and $17,375,000 respectively. Included in these amounts
were $6,200,000 and $6,000,000 paid to Cooper Industries, Inc. in the first six
months of 1999 and 1998, respectively, in accordance with a Tax Sharing and
Separation Agreement between Cooper and the Company, entered into in 1993 in
connection with the Company's initial public offering.
Total interest paid, net of amounts capitalized, during the first six months of
1999 and 1998 amounted to $4,122,000 and $3,482,000, respectively.
NOTE 3: ACQUISITIONS
On June 28, 1999, the Company acquired all of the outstanding shares of Cable
Systems Holding Company ("Holdings") and its subsidiary Cable Systems
International Inc. (CSI). CSI manufacturers copper cable products primarily for
telecommunications applications in the United States. The consideration paid in
connection with the transaction totaled $183,456,000 including $2,500,000 yet to
be paid into an escrow account. This amount includes payment of the outstanding
amounts owed by Holding Company and CSI under a credit agreement and amounts
owed to holders of preferred stock of Holding Company.
The acquisition was funded with a $125 million short-term bridge loan, as well
as funds available under current credit arrangements. The bridge loan is for a
term of three months at currently prevailing interest rates. The Company intends
to refinance these borrowings under long-term arrangements.
The CSI acquisition was accounted for under the purchase method of accounting,
and their results are included in the Company's consolidated results since June
28, 1999. The purchase price allocation, when final, may differ from that
included in the Company's June 30, 1999 consolidated balance sheet. The
Company's proforma information assuming the acquisition had been made at the
beginning of each of the periods presented is as follows:
-6-
<PAGE> 7
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------------
(in thousands, except per share amounts) 1999 1998
--------------- ------------------
<S> <C> <C>
Revenues $456,154 $535,480
Cost of sales 372,834 413,138
--------------- ------------------
Gross margin 83,320 122,342
Selling, general and administrative 60,191 61,729
--------------- ------------------
Operating earnings 23,129 60,613
Interest expense 11,540 10,228
--------------- ------------------
Income before income taxes 11,589 50,385
Income taxes 4,513 19,535
--------------- ------------------
Net income 7,076 30,850
=============== ==================
Basic earnings per share $ .29 $ 1.18
=============== ==================
Diluted earnings per share $ .29 $ 1.17
=============== ==================
</TABLE>
Proforma adjustments include primarily the impact of increased debt, adjusted
values of assets, differing depreciation lives, redundant costs and certain
reclassifications. In addition, certain portions of CSI's business were not
acquired, including investments in affiliates, accounted for under the equity
method, and two consolidated subsidiaries. Consolidated revenues attributable to
the excluded consolidated entities were approximately $58.3 million for the year
ended December 31, 1998 and $24.8 million and $31.5 million for the six month
periods ended June 30, 1999 and 1998, respectively.
The balance sheet of the acquired business is included in the Company's June 30,
1999 balance sheet.
The unaudited pro forma results are provided for informational purposes only and
should not be construed to be indicative of the Company's results of operations
had the events described above been consummated on the date assumed and are they
not intended to project the Company's results of operations for any future
periods.
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
----------- -------------
(in thousands)
<S> <C> <C>
Raw materials $ 25,446 $ 20,062
Work-in-process 19,510 12,714
Finished goods 73,560 63,353
Perishable tooling and supplies 5,429 4,226
----------- -------------
Total 123,945 100,355
Allowances (primarily LIFO reserve) (12,009) (10,722)
----------- -------------
Net inventories $111,936 $ 89,633
=========== =============
</TABLE>
-7-
<PAGE> 8
NOTE 5: PER SHARE INFORMATION
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
Numerator: (in thousands, except per share data)
<S> <C> <C> <C> <C>
Income from continuing operations $ 9,234 $15,213 $15,465 $30,316
Net Income $ 9,234 $15,155 $10,404 $30,622
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share - weighted
average shares 24,356 26,101 24,349 26,128
Effect of dilutive employee stock options 121 186 85 204
------- ------- ------- -------
Denominator for dilutive earnings per share - adjusted
weighted average shares 24,477 26,287 24,434 26,332
======= ======= ======= =======
Basic earnings per share from continuing operations $ .38 $ .58 $ .64 $ 1.16
Basic earnings per share $ .38 $ .58 $ .43 $ 1.17
======= ======= ======= =======
Diluted earnings per share from continuing operations $ .38 $ .58 $ .63 $ 1.15
Diluted earnings per share $ .38 $ .58 $ .43 $ 1.16
======= ======= ======= =======
</TABLE>
On May 6, 1999 the Company declared a quarterly cash dividend of $.05 per share
payable on July 2, 1999.
NOTE 6: DISCONTINUED OPERATIONS
On May 7, 1999, the Company completed the sale of its Cord Products Division.
The operating results of the Cord Products segment, including a first quarter
provision for estimated losses on the sale of $5.2 million, have been segregated
from continuing operations and reported separately in the consolidated income
statement and the remaining net assets have been classified within the current
assets section of the balance sheet as "Net assets of discontinued operations".
Revenues for the three-month period ended June 30, 1998 and the period from
April 1, 1999 until May 7, 1999 were $15,494,000 and $7,265,000 respectively.
Summarized financial information for the discontinued operations is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Revenues $ 22,525 $32,312
Income before tax $ 143 $ 501
Income, net of income taxes $ 89 $ 306
Loss on disposal of discontinued operations, net of
income taxes $ (5,150) --
</TABLE>
-8-
<PAGE> 9
Included in income before tax is an allocation of interest expense based on the
level of identifiable assets of the segment to total identifiable assets. These
allocated costs were $181,000 in the six months ended June 30, 1999 and $276,000
for the same period of 1998.
Included in net assets of discontinued operations at June 30, 1999 is a
receivable from the buyer and certain accrued liabilities.
NOTE 7: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The Company's continuing operations during the second quarter were conducted
within one business segment which designs, manufactures and markets wire and
cable for the electronics and electrical markets.
The Electronics and Electrical segment includes products used for the
transmission of data, audio, video and electrical signals. These products are
sold primarily through distributors.
Effective with the beginning of the third quarter of 1999, the Company will
begin operating two segments, the Electronic segment and the Communications
segment consisting principally of the newly acquired CSI business.
All segment information presented below for the second quarter of 1999 and the
six-month period ended June 30, 1999 pertains to the Electronic segment only as
no revenues were generated during this period under the Communications segment.
Geographic information
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------ ------------------------------------------------
1999 1998 1999 1998
--------------------- ---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
COUNTRY & REGION REVENUES REVENUES REVENUES REVENUES REVENUES REVENUES REVENUES REVENUES
- ---------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US & Canada $113,462 68% $133,519 74% $220,977 68% $260,642 74%
Europe 32,660 20% 28,569 16% 67,174 21% 60,030 17%
Asia/Pacific 13,230 8% 11,922 6% 24,921 7% 20,133 5%
Latin America 4,869 3% 5,352 3% 9,363 3% 10,662 3%
Other 1,999 1% 1,435 1% 3,414 1% 2,945 1%
-------- --- -------- --- -------- --- -------- ---
Total $166,220 100% $180,797 100% $325,849 100% $354,412 100%
-------- --- -------- --- -------- --- -------- ---
</TABLE>
NOTE 8: SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company obtained commitments with several
lenders for long-term borrowings of $125 million. The proceeds of these
borrowings will be used to retire the bridge loan obtained pursuant to the
acquisition of Holding Company. The term of the loans is expected to be between
five to ten years, at prevailing rates.
-9-
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF CONTINUING
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
All amounts below have been presented excluding the discontinued operations
described in footnote 6 to the financial statements.
Revenues
Revenues from continuing operations for the six months ended June 30, 1999 were
$325.8 million compared with $354.4 million in the same period last year, a
decrease of 8%. Price declines due to the pass-through of cheaper copper reduced
revenues in the six months ended June 30, 1999 compared with 1998 by
approximately $6.0 million. Included in the first six months of 1999 compared to
1998 is approximately $25.1 million of revenues related to the acquisitions of
Olex Communication Cable (Olex), completed February 28, 1998, and ABB
Electro-Isolierwerke GmbH (EIW), completed November 30, 1998. The following
table shows the components of the 8% decrease in the Company's revenues for the
first six months of 1999 in each of the Company's four served markets.
<TABLE>
<CAPTION>
% Increase (Decrease)
% of Total in 1999 Revenues
Revenues Compared with 1998
---------- ---------------------
<S> <C> <C>
Computer 42% (19)%
Audio/video 21 (7)
Industrial 27 21
Electrical 10 (18)
</TABLE>
Computer market revenues declined 19% in the first six months of 1999 from the
same period in 1998. Within the computer market, networking and
telecommunications revenues were down 22%. This reduction is due to several
factors. First, certain major distributors reduced inventory levels, dampening
the Company's sales. Second, pricing levels for most networking products in the
first half of 1999 were lower than prior year primarily due to increased
competition. This deterioration in pricing began in mid-1998. Third, copper
costs are down approximately 16% in the first half of 1999 from the first half
of 1998 and contribute further to the negative pricing environment for the
Company's products. Sales of the Company's computer interconnect products, which
includes cable to link personal computers to discrete peripheral devices and
mainframes to terminals, were down 11% compared to the first half of 1998.
Without the addition of EIW in the fourth quarter of 1998, computer interconnect
market revenues would be down 19%. This decline is due to: (1) declining prices,
principally due to the pass-through of cheaper copper costs; (2) inventory
reductions at distributors; (3) lost share as assembly and wire harness
manufacturers (who purchase interconnect products) move off shore; and (4)
displacement of certain network products as companies convert from mainframe to
distributive process systems.
The revenue decline in the audio/video market was due to soft demand for cable
television (CATV) in Europe as well as TV monitor deflection coils. This soft
demand not only affected volume growth, but also negatively impacted selling
prices. The Company's demand for CATV drop cable in the United States has
improved in the first half of 1999, up 1%, from the first half of 1998 and
pricing appears to
-10-
<PAGE> 11
have stabilized. Broadcast revenues were down 9% in the first half of 1999 from
the first half of 1998 due primarily to the impact of lower demand and lower
copper costs on TV monitor deflection coils manufactured in Europe. We expect
this softness for these products in Europe to continue at least through the
remainder of this year. However, revenues to professional broadcasters in the
United States have increased nearly 20% in the second quarter of 1999 from the
first quarter of 1999. The Company believes its product offering of audio/video
products is well positioned to take advantage of the continuing effort by
broadcasters to switch to digital formats.
Industrial market revenues were up 21% in the first six months of 1999 over
1998. Without the addition of revenues from EIW, revenues would be down 4% in
the first half of 1999 compared to the first half of 1998. Lower copper costs
have continued to keep pricing pressure on this market. Increasing volumes and
improved product mix have led to higher industrial revenues in Canada,
reflecting a shift from lower margin electrical products to higher margin
industrial instrumentation cable. Canadian industrial revenues are up 13% in the
first half of 1999 compared to 1998. The industrial market remains under
pressure from lower commodity prices and weak capital spending, especially in
the export markets.
Electrical market revenues declined 18% in the first six months of 1999 compared
with 1998. The decline is primarily due to lower prices and economic slowdowns
in certain of our served markets, primarily Europe, and a product mix shift from
Canadian electrical products into more profitable industrial instrumentation
cable.
U.S. revenues, which represented approximately 61% of total revenues in the
first six months of 1999, decreased 17% from 1998 due primarily to lower pricing
and reduction of distributor inventories from the above normal levels in the
prior year. European revenues increased 12% in the first six months of 1999
compared with 1998 due to the addition of EIW. Without the addition of EIW,
sales in Europe would be down 25%. This decrease is due to weakening demand for
TV monitor deflection coils, the impact of lower copper prices, and overall
weakness across all markets in the European region. Canadian revenues increased
1% in the first six months of 1999 compared with 1998. European and Canadian
revenues represented 21% and 7% of total revenues, respectively, for the first
six months of 1999. Sales to the Asia/Pacific region, which represented 7% of
revenues for the first six months of 1999 total revenues, increased 24% in the
first six months of 1999 compared with 1998, due to the additional revenues
contributed from the February 28, 1998, acquisition of Olex. Sales into export
markets, primarily Latin America, were down 6% due to economic weakness in those
regions.
-11-
<PAGE> 12
Costs, Expenses and Earnings
The following table sets forth information regarding the components of earnings
for the first six months of 1999 compared with the same period in 1998.
<TABLE>
<CAPTION>
Six Months Ended
June 30, % Increase(Decrease)
-------------------------- 1999 Compared
1999 1998 With 1998
------- ------- --------------------
(in thousands, except % data)
<S> <C> <C> <C>
Gross profit $74,606 $96,614
As a % of revenue 22.9% 27.3% (22.8)%
Operating earnings $28,674 $52,977
As a % of revenue 8.8% 14.9% (45.9)%
Income from continuing operations before
income taxes $24,842 $49,495
As a % of revenue 7.6% 14.0% (49.8)%
Income from continuing operations $15,465 $30,316
As a % of revenue 4.7% 8.6% (49.0)%
</TABLE>
The decrease in the gross profit amount was due to lower revenues and the impact
of lower average prices in excess of the pass-through of lower copper costs. In
addition, the Company incurred additional overhead costs in the first six months
of 1999 versus 1998 as we transferred production from two higher cost facilities
into a new lower-cost facility in Lancaster County, SC. The decrease in gross
profit as a percent of revenues in 1999 was primarily attributable to the
duplication of overhead and the inclusion of the currently less profitable
businesses acquired in 1998, Olex in February 1998 and EIW in November 1998.
These decreases are partially offset by cost-saving programs put into effect in
the fourth quarter of 1998 including certain headcount reductions, material cost
reduction programs and the consolidation of manufacturing into the new
lower-cost facility. The impact of these items, which was beginning to be
realized during the first six months of 1999 are expected to favorably impact
gross profit as the savings are fully realized throughout the remainder of this
year.
Operating earnings and operating earnings as a percent of revenue decreased
during the first six months of 1999 compared to the first six months of 1998 due
to lower gross profit. In addition, the acquisitions of Olex and EIW in 1998, as
well as additional depreciation related to computer system conversions completed
earlier in 1998, led to an increase in selling, general and administrative
costs.
-12-
<PAGE> 13
Income before income taxes decreased due to lower operating earnings and the
increase in interest costs, which was related to higher average debt levels,
partially offset by lower effective interest rates. Average debt levels are
higher primarily due to the 1998 stock buyback program under which 1.9 million
shares were repurchased, as well as the acquisition of EIW in the fourth quarter
of 1998. They were offset by strong cash flows in the first half of 1999, as
well as the cash generated from the disposition of the Cord Products division.
Average debt during the first six months of 1999 and 1998 was $160 million and
$138 million, respectively. The Company's average daily interest rate for the
first six months of 1999 was 5.4% compared to 6.2% for the same period in 1998.
The Company's effective tax rate was 37.8% and 38.8%, for the six months ended
June 30, 1999 and 1998 respectively.
-13-
<PAGE> 14
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
All amounts below have been presented excluding the discontinued operations
described in footnote 6 to the financial statements.
Revenues
Revenues from continuing operations for the three months ended June 30, 1999
were $166.2 million compared with $180.8 million in the same period last year.
Price declines due to the pass-through of cheaper copper, reduced revenues in
the three months ended June 30, 1999 compared with 1998 by approximately $2.7
million. Included in the second quarter of 1999 is approximately $10.6 million
of additional revenues compared to the second quarter of 1998 related to the
acquisition of ABB Elektro-Isolierwerke GmbH (EIW), completed November 30, 1998.
The following table shows the components of the change in the Company's revenues
for the three months ended June 30, 1999 compared with 1998 in each of the
Company's four served markets.
<TABLE>
<CAPTION>
% Increase (Decrease)
% of Total In 1999 Revenues
Revenues Compared with 1998
---------- ---------------------
<S> <C> <C>
Computer 42% (20)%
Audio/video 21 (2)
Industrial 27 20
Electrical 10 (17)
</TABLE>
Computer market revenues declined 20% in the second quarter of 1999 from the
second quarter of 1998. Within the computer market, networking and
telecommunication revenues were down 25%. This reduction is due to several
factors. First, certain major distributors reduced inventory levels, dampening
the Company's sales, however these reductions, the Company believes, have
concluded during the second quarter. Second, pricing levels for most networking
products, in the second quarter of 1999 were lower than the prior year primarily
due to increased competition. This deterioration in pricing, which began in
mid-1998, however, appears to have stabilized during the second quarter of 1999.
Third, copper costs are down approximately 14% in the second quarter of 1999
from the second quarter of 1998 and contribute further to the negative pricing
environment for the Company's products. Sales of the Company's computer
interconnect products, which includes cables to link personal computers to
discrete peripheral devices and mainframes to terminals, were down 9% compared
to the second quarter of 1998. Without the addition of EIW, computer market
revenues would be down 26%.
The revenue decline in the audio/video market was primarily due to the impact of
lower copper prices on the TV monitor deflection coil business in Europe,
largely offset by increases in broadcast revenues in the United States and
Canada. The Company's demand for CATV drop cable in the second quarter of 1999,
up slightly from the second quarter of 1998, appears to have stabilized, along
with pricing for these products. Broadcast revenues were up 4% in the second
quarter of 1999 from the second quarter of 1998 due primarily to strong stadium
and project business.
-14-
<PAGE> 15
Industrial market revenues were up 20% in the second quarter of 1999 over 1998
due to the addition of EIW. Without the addition of EIW, revenues for the second
quarter of 1999 compared to 1998 would be down 5%. This decrease is due to the
14% decrease in average copper costs in the second quarter of 1999 versus 1998,
lower commodity prices and weak capital spending, especially in the export
markets. Increasing volumes and improved product mix have led to higher
industrial revenues in Canada, reflecting a shift from lower margin electrical
products to higher margin industrial instrumentation cable. Canadian industrial
revenues are up 16% in the second quarter 1999 compared to 1998.
Electrical market revenues declined 17% in the second quarter of 1999 compared
with 1998. The decline is primarily due to lower prices and economic slowdowns
in certain of our served markets, primarily Europe, and a product mix shift from
Canadian electrical products into more profitable industrial instrumentation
cable.
U.S. revenues, which represented approximately 62% of total revenues in the
second quarter of 1999, decreased 16% from 1998 due primarily to lower pricing
and reduction of distributor inventories from the above normal levels in the
prior year. European revenues increased 14% in the second quarter of 1999
compared with 1998 due to the addition of EIW. Without the addition of EIW,
sales in Europe would be down 23%. This decrease is due to weakening demand for
TV monitor deflection coils, the impact of lower copper prices, the unfavorable
impact of changes in exchange rates and overall weakness across all markets in
the European region. Canadian revenues decreased 3% in the second quarter of
1999 compared with 1998 due primarily to the impact of lower average copper
prices and the unfavorable impact on revenues of changes in exchange rates.
European and Canadian revenues represented 20% and 6% of total revenues,
respectively, for the second quarter of 1999. Sales to the Asia/Pacific region,
which represented 8% of total revenues for the second quarter of 1999, increased
11% in the second quarter of 1999 compared with 1998. Sales into export markets,
primarily Latin America, were up 2%.
-15-
<PAGE> 16
Costs, Expenses and Earnings
The following table sets forth information regarding the components of earnings
from continuing operations for the three months ended June 30, 1999 compared
with the same period in 1998.
<TABLE>
<CAPTION>
Three Months Ended
June 30, % Increase(Decrease)
--------------------------- 1999 Compared
1999 1998 With 1998
-------- -------- --------------------
(in thousands, except % data)
<S> <C> <C> <C>
Gross profit $39,802 $49,499 (19.6)%
As a % of revenue 23.9% 27.4%
Operating earnings $16,746 $26,694 (37.3)%
As a % of revenue 10.1% 14.8%
Income before income taxes $14,833 $24,837 (40.3)%
As a % of revenue 8.9% 13.7%
Income from continuing operations $9,234 $15,213 (39.3)%
As a % of revenue 5.6% 8.4%
</TABLE>
The decrease in the gross profit amount was due to lower revenues and the impact
of lower average prices in excess of the pass-through of lower copper costs. In
addition, the Company incurred additional overhead costs in the second quarter
of 1999 versus 1998 as it transferred production from two higher-cost facilities
into a new lower-cost facility in Lancaster County, SC. The decrease in gross
profit as a percent of revenues in 1999 was primarily attributable to the
duplication of overhead and the inclusion of the currently less profitable
business acquired in 1998, EIW, in November 1998. These decreases are partially
offset by cost saving programs put into effect in the fourth quarter of 1998,
including certain headcount reductions, material cost reduction programs and the
consolidation of manufacturing into the new lower-cost facility. The impact of
these items, which was beginning to be realized during the first six months of
1999, and are expected to favorably impact gross profit as the savings are fully
realized throughout the remainder of this year.
Operating earnings and operating earnings as a percent of revenue decreased
during the second quarter of 1999 compared to the second quarter of 1998 due to
lower gross profit. In addition, the acquisition of EIW in November 1998 led to
an increase in selling, general and administrative costs which were mostly
offset by the impact of certain of the cost reduction programs enacted during
the fourth quarter of 1998.
Income before income taxes decreased due to lower operating earnings and the
slight increase in interest costs, which was related to higher average debt
levels partially offset by lower effective interest rates. Average debt levels
are higher primarily due to the 1998 stock buyback program under which 1.9
million shares were repurchased, as well as the acquisition of EIW in the fourth
quarter of 1998. Average debt during the second quarters of 1999 and 1998 was
$149 million and $142 million, respectively. The Company's average daily
interest rate for the second quarter of 1999 was 5.3% compared to 6.0% for the
same period in 1998.
The Company's effective tax rate was 37.8% and 38.8%, for the three months ended
June 30, 1999 and 1998 respectively.
-16-
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $200 million Credit Agreement with a group of six banks. The
Credit Agreement is unsecured and expires in November 2001. At June 30, 1999,
the Company had $113 million available under the Credit Agreement. In addition,
as of June 30, 1999, the Company had unsecured, uncommitted arrangements with
four banks under which it may borrow up to $82 million at prevailing interest
rates. At June 30, 1999, the Company had $40 million available under these
arrangements. The Company also had privately placed debt of $75 million
outstanding at June 30, 1999 that will mature in 2009.
Related to the acquisition of CSI, on June 28, 1999, the Company borrowed $125
million under a short-term bridge loan. These funds, as well as available credit
arrangements, were used to finance the purchase price and pay off CSI's existing
borrowings. The Company intends to refinance these borrowings under long term
arrangements. Subsequent to June 30, 1999, the Company obtained commitments with
several lenders for long term borrowings with terms from 5 to 10 years. As such,
all debt has been classified as long term as of June 30, 1999.
The Company expects that cash provided by operations and borrowings available
under its credit agreements will provide it with sufficient liquidity to meet
its operating needs and fund its normal dividends and anticipated capital
expenditures.
Working Capital
During the first six months of 1999, operating working capital (defined as
receivables and inventories less payables and accrued liabilities, excluding the
effect of exchange rate changes and business combinations and dispositions)
generated cash of $7 million. The change in operating working capital was
primarily due to lower inventory levels and higher payables and accrued
liabilities.
Capital Expenditures
For the first six months of 1999, the Company made capital expenditures of $9.7
million, primarily for modernization and enhancement of machinery and equipment.
The Company plans on spending approximately $27 million during 1999 on these and
similar projects.
Restructuring Activities
In the third and fourth quarters of 1998, the Company recorded a nonrecurring
charge totaling $2.9 million ($1.8 million after tax) for salary continuation,
extended medical coverage and other miscellaneous employee benefits related to a
reduction of 35 salaried employees in the Electronic segment. All employees were
terminated prior to December 31, 1998. At June 30, 1999, $.9 million remained to
be paid related to this charge.
YEAR 2000 READINESS
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk.
Primary Business Operating Systems
The Company completed the implementation of an integrated business information
system at several operating units representing approximately 97% of 1998
revenues. The primary purpose was to replace numerous old mainframe legacy
systems with an integrated enterprise-wide business system in an effort to
streamline business processes, reduce programming and maintenance efforts, and
improve
-17-
<PAGE> 18
efficiencies throughout the organization. The Company incurred a total
capitalized cost of approximately $19 million relating to implementing the new
system which is being amortized into earnings over five years. Although
implementing this new system was unrelated to specific concerns over the Year
2000 issue, a benefit of this initiative is that the resulting system is Year
2000 compliant. Certain operating units, primarily those acquired by the Company
in 1998, have not completed enterprise-wide system solutions and are incurring
costs to deal specifically with the Year 2000 issue. These units represented
approximately 3% of 1998 revenues. The Company expects to incur less than
$500,000 in the remainder of 1999 related to completing the Year 2000 projects
at those operating units.
Manufacturing and Other Systems
The Company is now in the process of inventorying, assessing, renovating and
testing as it relates to manufacturing systems, and other supplemental
information systems and applications necessary to achieve a Year 2000 date
conversion with no effect on customers or disruption to business operations. The
Company has completed substantially all of the inventory and assessment phases
of its plan, and is in the process of completing the renovation and testing
phase. Critical manufacturing systems include plant accounting and reporting,
planning, and process controls. Plant accounting and reporting as well as
planning were addressed as part of the integrated enterprise-wide business
system and are therefore largely compliant. Process control units have been
replaced over the last three years with Year 2000 compliant units in the normal
course of equipment upgrades. Noncompliant units represent less than 10% of the
units in production and are being replaced throughout 1999 as part of the normal
equipment upgrades or have been determined not to pose a risk to the
manufacturing process.
Recent Acquisition
Related to the recent acquisition of Holding Company, all significant business
system remediation efforts have been completed. Testing efforts and remediation
of ancilary systems continues, however, is expected to be completed by the
fourth quarter of 1999. The Company expects to incur less than $500 for the
remainder of 1999 on this effort.
Third Party Readiness
The Company has initiated formal discussions with its key suppliers, customers
and financial institutions to determine the extent to which the Company is
vulnerable to third parties' failure to correct their own Year 2000 issues. For
virtually all products and services the Company has multiple suppliers. The
Company also has a diverse customer base with only one customer representing
more than 10% of revenue. While the Company continues to discuss readiness
issues with customers and suppliers, it has determined through its contingency
planning process that significant contingency plans may not be essential due to
the following: the Company has adequate distribution partners now to service the
market for our products in the event that certain distributors are not ready,
and all significant single source suppliers have indicated they are currently
prepared. The Company will continue to monitor the status of its readiness to
develop alternative contingency plans if necessary. The Company will also
consider strategic increases in its inventory levels during the upcoming months.
Due in part to the reliance placed on customers, suppliers and financial
institutions, and their own susceptibility to Year 2000 issues, there can be no
assurances that the Company will not be exposed to significant unfavorable
operating results related to Year 2000 issues.
Conclusion
The total cost of compliance and its effect on the Company's future results of
operations are not expected to be significant due to the recent implementation
of the integrated business information system. The expected completion date of
projects currently in process is the end of the third quarter of
-18-
<PAGE> 19
1999, which is prior to any anticipated impact on the Company's operations.
Contingency plans will be reevaluated on an ongoing basis.
-19-
<PAGE> 20
FORWARD-LOOKING STATEMENTS
The statements set forth in this Form 10-Q, other than historical facts, are
forward-looking statements made in reliance upon the safe harbor of the Private
Securities Litigation Reform Act of 1995. Actual results could differ materially
from such forward-looking information for the reasons set forth below. The
economic downturn being experienced in the Asia/Pacific and European regions and
its negative impact on revenues and earnings; heightened competition from
domestic and foreign competitors, including new entrants; the success in
identifying, acquiring and integrating acquisitions, including but not limited
to cost saving and profit improvement initiatives at CSI; results from transfers
of production to new facilities; developments in technology; the threat of
displacement from competing technologies including wireless and fiber optic
technologies; acceptance of Belden's products; changes in raw material costs and
availability; foreign currency rates; pricing of Belden's products; changes in
the global economy; the success of cost-saving initiatives and programs and
other specific factors discussed in the Company's Form 10-K and other Securities
and Exchange filings will have an impact on Belden's actual results. The
information contained herein represents management's best judgement as of the
date hereof based on information currently available; however, the Company does
not intend to update this information to reflect developments of information
obtained after the date hereof and disclaims any legal obligation to the
contrary.
-20-
<PAGE> 21
PART II -- OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 6, 1998, the Company held its regular Annual Meeting of Stockholders
("Meeting"). The stockholders considered two proposals; each of which was
approved by the necessary majority.
PROPOSAL 1:
Election for a three-year term, one class III director, C. Baker
Cunningham. Mr. Cunningham has served as a director since 1993. Mr.
Cunningham received 20,754,034 shares for his reelection and 329,641
shares were withheld.
PROPOSAL 2:
Approval of a modification to the number of stock options a participant
may receive under the Belden Inc. Long Term Incentive Plan to an annual
limit of 200,000. The voting on this proposal was as follows: for
18,210,144; against 2,782,983; and abstentions of 90,548.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2.1 Agreement and Plan of merger dated May
21, 1999 (incorporated by reference to Exhibit 2 to
Form 8-K filed on July 12, 1999).
Exhibit 10.1 Indemnification Agreement between the Company
and Paul Schlessman, Vice President, Treasurer and
Chief Financial Officer.
Exhibit 27.1 Financial Data Schedule
(b) Form 8-K filed on July 12, 1999
-21-
<PAGE> 22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELDEN INC.
Date: August 13, 1999 By: /s/ C. Baker Cunningham
------------------------------------
C. Baker Cunningham
Chairman of the Board, President
and Chief Executive Officer
Date: August 13, 1999 By: /s/ Paul M. Schlessman
------------------------------------
Paul M. Schlessman
Vice President, Finance, Treasurer
and Chief Financial Officer
-22-
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
AGREEMENT between Belden Inc., a Delaware corporation (the "Company"), and (the
"Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors,
officers and representatives the most capable persons available; and
WHEREAS, Indemnitee is a director, officer or representative of the Company; and
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors, officers and
representatives of public companies in today's environment; and
WHEREAS, in recognition of the Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the full extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to
serve the Company directly or, at its request, with another enterprise, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
(a) Change in Control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding
Voting Securities without the prior approval of the Board of Directors,
or (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation
<PAGE> 2
of the Company with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
(b) Claim shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted
by the Company or any other party, that Indemnitee in good faith
believes might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or
other.
(c) Expenses shall mean include all costs, expenses (including
attorneys' fees) and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal) or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event (including
all interest, assessments and other charges paid or payable in
connection with or in respect of any of the foregoing).
(d) Judgments shall mean judgments, fines, penalties and amounts
paid in settlement that are paid or payable in connection with any
Claim relating to any Indemnifiable Event (including all interest,
assessments and other charges paid or payable in connection with or in
respect of any of the foregoing).
(e) Indemnifiable Event shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, director
nominee, officer or representative of the Company, or is or was serving
at the request of the Company as a director, trustee, officer,
employee, agent or representative of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, employee
benefit plan, trust or other enterprise, or by reason of anything done
or not done by Indemnitee in any such capacity.
(f) Reviewing Party shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors
or any other person or body appointed by the Board (including the
special, independent counsel referred to in Section 3) who is not a
party to the particular Claim for which Indemnitee is seeking
indemnification.
(g) Voting Securities shall mean any securities of the Company
that vote generally in the election of directors.
2. Scope of Indemnification.
(a) Indemnification for Judgments and Expenses. In the event
Indemnitee was, is or becomes a party to or witness or other
participant in, or is threatened to be made a party to
2
<PAGE> 3
or witness or other participant in, a Claim by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law against any and all
Expenses and Judgments arising from or relating to such Claim. Except
as otherwise provided in Section 2(b), such indemnification shall be
made as soon as practicable, but in any event not later than thirty
(30) days, after written demand therefor is presented to the Company by
or on behalf of the Indemnitee.
(b) Indemnification and Advance Payment of Expenses. Any and all
Expenses and any and all expenses referred to in Section 2(c) shall be
paid by the Company promptly as they are incurred by Indemnitee (any
such payment of expenses by the Company is hereinafter referred to as
an "Expense Advance"). Indemnitee shall be obligated, and hereby
agrees, to repay the amount of Expenses so paid only to the extent that
it is proved by clear and convincing evidence in a court of competent
jurisdiction that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the
Company or violate the law or undertaken with reckless disregard for
the best interests of the Company. Indemnitee hereby further agrees to
cooperate reasonably with the Company concerning any Claim.
(c) Indemnification for Additional Expenses. The Company shall
indemnify Indemnitee against any and all expenses (including attorneys'
fees) that are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i)
indemnification of Expenses or Judgments or advance payment of Expenses
by the Company under this Agreement or under any other agreement, the
Company's articles, statute or rule of law now or hereafter in effect
relating to Claims for Indemnifiable Events and (ii) recovery under any
directors' and officers' liability insurance policy or policies
maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
(d) Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some
or a portion of the Judgments and Expenses arising from or relating to
a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof
to which Indemnitee is entitled.
(e) Indemnification of Successful Defense Expenses.
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
3
<PAGE> 4
3. Reviewing Party Determinations.
(a) General Rules. Notwithstanding the provisions of Section 2,
the obligations of the Company under Section 2(a) shall be subject to
the condition that the Reviewing Party shall not have determined (in a
written opinion, in any case in which the special, independent counsel
referred to in Section 4 hereof is involved) that Indemnitee would not
be permitted to be indemnified under applicable law; provided, however,
that if Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the
Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding until a final
judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed) and any such
determination by the Reviewing Party shall be modified, to the extent
necessary, to conform to such final judicial determination.
(b) Selection of Reviewing Party. If there has not been a Change
in Control, the Reviewing Party shall be selected by the Board of
Directors. If there has been such a Change in Control, the Reviewing
Party shall be the special, independent counsel referred to in Section
4 hereof.
(c) Judicial Review. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantially would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and the Company hereby consents
to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and Indemnitee.
(d) Burden of Proof. In connection with any determination by the
Reviewing Party pursuant to Section 3(a), or by a court of competent
jurisdiction pursuant to Section 3(c) or otherwise, as to whether
Indemnitee is entitled to be indemnified hereunder, the burden of proof
shall be on the Company to establish by clear and convincing evidence
that Indemnitee is not so entitled.
4. Change in Control. The Company agrees that if there is a Change in
Control of the Company then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments under
this Agreement or under any other agreement, the Company's Certificate
of Incorporation, statute or rule of law now or hereafter in effect
relating to Claims for Indemnifiable Events, the Company shall seek
legal advice only from special, independent counsel selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld), and who has not otherwise performed services
for the
4
<PAGE> 5
Company or Indemnitee within the last five years (other than in
connection with such matters); provided, however, a majority of the
Company's Board of Directors, which majority were directors immediately
prior to such Change in Control, may waive this requirement. The
Company agrees to pay the reasonable fees of the special, independent
counsel referred to above and to indemnify fully such counsel against
any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
5. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea
of nolo contendere, or its equivalent, shall not create a presumption
that Indemnitee did not meet any particular standard of conduct or have
any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
6. Nonexclusivity. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may now or hereafter have to
indemnification by the Company. More specifically, the Parties intend
that Indemnitee shall be entitled to indemnification to the maximum
extent permitted by any or all of the following:
(a) The fullest benefits provided by the Company's Certificate of
Incorporation and By-Laws or their equivalent of the Company in effect
at the time the Indemnifiable Event occurs or at the time Expenses are
incurred by Indemnitee;
(b) The fullest benefits allowable under Delaware law in effect
at the date hereof or as the same may be amended to the extent that
such benefits are increased thereby;
(c) The fullest benefits allowable under the law of the
jurisdiction under which the Company exists at the time the
Indemnifiable Event occurs or at the time Expenses are incurred by the
Indemnitee; and
(d) Such other benefits as are or may be otherwise available to
Indemnitee pursuant to this Agreement, any other agreement or
otherwise.
The parties intend that combination of two or more of the benefits
referred to in (a) through (d) shall be available to Indemnitee to the
extent that the document or law providing for such benefits does not
require that the benefits provided therein be exclusive of other
benefits. The Company hereby undertakes to use its best efforts to
assist Indemnitee, in all proper and legal ways, to obtain all such
benefits to which Indemnitee is entitled.
7. Liability Insurance. The rights of the Indemnitee hereunder shall also
be in addition to any other rights Indemnitee may now or hereafter have
under policies of insurance maintained by the Company or otherwise. To
the extent the Company maintains an insurance policy or policies
providing directors' and officers' liability insurance, Indemnitee
shall be covered by
5
<PAGE> 6
such policy or policies, in accordance with its or their terms, to the
maximum extent of the coverage available for any Company director,
officer or representative.
The Company shall maintain such insurance coverage for so long as
Indemnitee's services are covered hereunder, provided and to the extent
that such insurance is available on a basis acceptable to the Company.
In the event that such insurance becomes unavailable in the amount of
the present policy limits or in the present scope of coverage at
premium costs and on other terms acceptable to the Company, then the
Company may forego maintenance of all or a portion of such insurance
coverage. However, in the event of any reduction in (or cancellation
of) such insurance coverage (whether voluntary or involuntary), the
Company shall, and hereby agrees to, stand as a self-insurer with
respect to the coverage, or portion thereof, not retained, and shall
indemnify the Indemnitee against any loss arising out of the reduction
in or cancellation of such insurance coverage.
8. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse,
heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted by
the timely filing of legal action within such two-year period;
provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period
shall govern.
9. Amendments. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions thereof
(whether or not similar) nor shall such waiver constitute a continuing
waiver.
10. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
11. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, article or otherwise) of the
amounts otherwise indemnifiable hereunder.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company,
spouses, heirs, and personal and legal representatives. This Agreement
shall continue in effect regardless of whether Indemnitee
6
<PAGE> 7
continues to serve as a director, officer or representative of the
Company of or any other enterprise at the Company's request.
13. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable,
and the remaining provisions shall remain enforceable to the fullest
extent permitted by law.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.
Executed and effective as of this 23 day of July, 1999.
BELDEN INC.
By /s/ Kevin L. Bloomfield
-----------------------------------------
Name: Kevin L. Bloomfield
Title: Vice President, Secretary
and General Counsel
Date: August 6, 1999
INDEMNITEE:
By: /s/ Paul Schlessman
-----------------------------------------
Name: Paul Schlessman
Title: Vice President, Finance, Treasurer,
and Chief Financial Officer
Date: August 6, 1999
7
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