Belden Inc (BDC) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden CDT Inc. conference call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode and later we will conduct a question and answer session. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Richard Reece, Vice President of Finance and Chief Financial Officer of Belden CDT, please go ahead, sir.

Thank you Shaun, and good morning to everyone. And I also like to thank you for joining us today for the First Quarter Earnings Conference Call of Belden CDT. With me here in St. Louis today is Baker Cunningham, our President and CEO. I hope that each of you has a copy of our press release that can be found on our Website beldencdt.com or if you would you like a copy faxed to you, please call Linda at 314-854-8000.

During the call today, we will make certain forward-looking statements. I'd like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The comments we will make today are management's best judgment based on information currently available. Our actual results could differ materially from any forward-looking statements that we might make. However, the Company does not intend to update this information to reflect developments after today and disclaims any legal obligation to do so. Please review today's press release and our annual report on Form 10-K filed on March 31, 2005 for a more complete discussion of factors that could have an impact on the Company's actual results.

This morning, Baker has a few comments regarding our recent quarter, then I'll review the first quarter financial results including some of the elements of the balance sheet and cash flow, and then after that Baker will discuss our business outlook and then we will open up the lines for questions. Baker?

Thanks Ricky and good morning everyone. The first quarter really came in right on track with our expectations both in terms of revenue and earnings. Our first quarter price increases were successfully implemented. In the year-over-year comparison, we benefited from pricing, both pricing actions we enacted in the first quarter plus the year effect of price increases in 2004. Sales volume in the first quarter of 2005 did have a pretty tough comparison with the first quarter of a year ago, when as you may recall, we announced price increases that are going to be effective at around the end of the first quarter last year, and we believe some customers bought heavily ahead of that announced price increase.

The fourth quarter a year ago also had some distributors restocking from the year-end inventory lows, and we did not see that same effect this year. We observed the new project business is really picking up. An example right here in St. Louis is the new Busch Stadium for the Cardinals, where Belden CDT has been awarded the Broadcast Cable and other products. We are also shipping product for the world championship athletics track and field competition is taking place in Finland this August. We have a project with a center for disease control for their emergency paging system and upgrades for the video system. Some other projects, which we are currently shipping products include a number of casinos, some CCTV projects, and the wireless communication projects.

In the specialty business, we sell a specially designed cable used in commercial aircraft for in-flight entertainment systems. That business has grown in volume this year and it appears that we are finally out of the aircraft industry's post 09/11 slump and more aircrafts are being refurbished, upgraded, or replaced. The news in the past couple of weeks about new orders for both Boeing and Airbus makes us expect that the volume of our aircraft business will continue to grow. Another specialty niche that is growing well for us this year is satellite radio, where we supply a custom coaxial cable for automotive satellite radio. We now see the product being installed on more and more new cars in addition to the retrofit market.

Our electronics business has reasonably expanded, the fibre optic product offering, the complements are industrial, broadcast, and security product lines. This product line extension takes advantage of the excellent fiber optic cabling capacity at our Leominster, which is part of the networking , another serendipitous benefit of the merger. In speaking of the networking division, our Mohawk brand has been very successful in the period since the merger. Of the industry consolidation that took place in 2004 actually benefited Mohawk, because many of the connector companies that don't have their own cable brands are being paired with Mohawk now in an open-architecture market as we had anticipated.

Both in the open-architecture market, and the systems market, we continue to see the migration to higher bandwidths. We can measure improvement in the mix from one quarter to the next. This trend boards well for our new high bandwidth system, Belden IBDN System 10-GX. We launched our 10 Gig system in January, announced our first customer order in February, and began shaping all components of this system by March. The 10-GX system employs new technology to provide performance to the exceeds proposed in this three standards and is the only system in the market today with independently verified head room above the standard. We don't expect this to be a large component of our sales this year, but it is an important advance in technology.

In Europe, the merger is helping our us strengthen our channel relationships. Sonepar, a major European distributor, has made Belden CDT a preferred supplier, and we have a program of training and joint customer visits underway from right now. We've added Belden brand products to the portfolios of 3 distributors in the United Kingdom who are already distributing CDT products. In addition, the Belden new-gen product line has been introduced in Europe by another 3 distributors including Anixter. This industrial product group was previously not available in Europe. I'll talk about our outlook in a few minutes, but first I'd like to have Ricky give you a more detailed review of our financial results.

Turning to our first quarter results, revenue came in at the high end of our expectations at $309.1 million, that's an increase of 4.7% compared with the pro forma combined revenue a year ago. It's normal for our first quarter to be seasonally light compared with the fourth quarter just as it was this year. That's mainly because our accounting fiscal first quarter is shorter and the factors that helped the fourth quarter such as expiring budget cycles and program goals are absent in the first quarter.

As Baker mentioned, price increases taken both in 2005 and in 2004 contributed to the year-over-year revenue increase as it currency exchange rates. Until the anniversary of the merger, our analysis of relative importance of price, currency, and volume is only approximate. We are attributing little of the revenue increase to volume improvements year-over-year. Both Belden and CDT experienced strong volume in the first quarter a year ago. As distributors replenished inventory and some customers got ahead in few of additional steel price increases. That makes our first quarter comparison tougher. These factors however resulted in easier comparison in the second quarter.

On an adjusted pro forma basis that is with the merger cost and severance cost excluded, our gross margins for this quarter was 21.2% of sales. This compares with a pro forma combined gross margin in the first quarter of 2004 of 20.9%. SG&A cost on a pro forma basis were 47.4 million or 15.3% of sales, an improvement from a year ago pro forma SG&A of 16.6%. Our adjusted pro forma operating profit was $18.2 million or 5.9% of sales compared with 12.6 million or 4.3% a year ago. This improvement in profitability reflects the benefits from merger related synergies. Interest expense for the quarter was $2.9 million, compared with pro forma combined interest expense a year ago of $4.3 million. And that improvement reflects the fact that we paid off a tranche of our long-term debt in 2004. Income tax expense for continuing operations was recorded at an effective rate of 35%.

Income from continuing operations in the first quarter was $8.5 million GAAP or $0.17 per share and adjusted for the merger-related items and severance $9.8 million or $0.20 per share. For the diluted EPS calculation, we had 53.7 million average shares for the quarter, including about 6.1 million shares dilution from the convertible debentures. For basic EPS, the average shares were 4.7 million. The diluted effect of the convertible debentures in the quarter was only 8/10ths of $0.01 per share. In March, we received the contingent portion of the payment for the North American Communications assets we sold last year. That payment of $10 million constituted a gain of 6.4 million after tax or $0.12 per diluted share. And this was recorded under discontinued operations. The operating loss of discontinued operations was $.03.

Let's briefly review results by segment. Our Electronic segment had revenues of $184.9 million for the first quarter, which represents 59.8% of total Company revenues for the quarter. Excluding the severance charges and merger related items, the segment's operating profit was 12.4% of sales. Revenues increased from pro forma first quarter 2004 by about 6%, almost entirely from pricing and currency. The Networking segment had revenues of a $124.3 million for the first quarter of 2005, which was 40.2% of total sales. Adjusted operating profit for the segment was 6.7% for the quarter. Revenues were up about 3%, compared with the pro forma last year amounts. Price and currency again benefited the comparison, partially offsetting these positive effects with the strong first quarter volumes in 2004, as I previously mentioned. Before I move on to the balance sheet and cash flow, I'll quickly give you the geographic breakdown of sales. In the first quarter, the US and Canadian sales made up 60%, Europe was 32%, and the rest of the world, mainly Asia-pacific 8%.

Now, turning to some selected balance sheet and cash flow items. As of March 31, 2005, we had $190.3 million of cash, up slightly compared with year-end 2004. Cash with sale by the receipt of the contingent payment for the communication assets, offsetting the use of cash for severance payments and increased working capital. Working capital grew from December 31, due to an increase in receivables, partially offset by increases and payables and accruals. These increases reflect stronger activity in March compared with the holiday slow December period. In addition, we had planned increases in inventory to bridge stock as we transfer production from the facilities we are setting down and as we prepare ourselves for the expected seasonal pick up in the sales.

Depreciation during the quarter was $9.7 million and capital spending was 5.9 million. Our forecast of depreciation for the year 2005 is about $38 million and we expect between 25 to 30 million in capital expenditures. Just a comment on our status with respect to Sarbanes-Oxley. If you're looking at our recent 10-K, you would have noticed that we reported no material weaknesses on the Sarbanes-Oxley section 404. We availed ourselves of the opportunity to differ certification of the legacy CDT entities until this year. We made a good start on that work and we will be continuing throughout the year to work on our documentation and testing. In a couple of divisions, we will be implementing significant changes in our IT systems to conform our manufacturing software and better integrate the businesses. These changes will require us to recreate documentation and retest in many areas. For these reasons we expect that our expense for compliance activities in 2005 will continue at a level similar to our 2004 spending. With that I now like to turn the conference back over to Baker.

Thanks Ricky and just a few recommend and update on the cost reductions flowing from the merger. We have ceased manufacturing at all three manufacturing locations that we announced last call that we will be closing. And we newly ramped up the work through exiting those facilities and thus taking that overhead out of our cost structure. Much of that overhead but not all of it are classified as discontinued operations today.

As we consolidate our capacity, we expect to achieve improved utilizations through remaining plants. These plant closes constitute a major element of the expected synergy savings from the merger. Completing these actions will help our margins into remaining quarters of 2005 and beyond. As we said in our press release our revenue outlook for the year remains unchanged.

A benefit of our recent price increases and continued cyclical improvement in volumes in most of our markets should bring our 2005 revenues to a level 5 to 10 percent above our pro forma combined revenues for 2004 which was $1.24 billion. Our price increases were successfully implemented in the first quarter of 2005 and the pricing ticking. However, we feel that our expectation that parts of the business we get small increases in real prices that is beyond the rising cost of materials was not generally achieved.

For this reason we have adjusted the outlook for operating margin downward by half a percentage point from our previous estimate. We now expect that our operating margins for the full year will be in the range of 8 to 9 percent. It is a normal pattern for us to see our lowest volume and our lowest margin in the first quarter followed by better volume and margins in the second and third quarters with the fourth quarter being the best of all in both revenue and operating margin.

We expect the revenue in the second quarter of 2005 to be about $340 million more or less which is a 10%increase sequentially and about 9%better than the pro forma combined revenues for the second quarter of 2004. We expect that our operating margin for the second quarter will be between 7 and 7.5 percent. We expect to close on the sale of our real estate in Phoenix within the next few days. The net cash proceeds are expected to be around $20 million, which will result in a gain of approximately 15 cents and discontinued operations. There are also several other smaller portions of real estate also the super sale, which we hope to liquidate this year. We often get questions about what we might do with the cash that we have and we continue to generate. We do want to maintain a very strong balance sheet and preserve our access to capital.

We also want our fund grow whether that is product line expansions or penetrations of new vertical markets. We continued to look at acquisition opportunities both in the cable industry and to some extent in related product categories, which might enable us to expand our offerings in some of the markets where our brands are very well known and respected. Cable acquisitions, we need to be a good strategic fit that is bringing us something new in the way of products, channel partners are entering into a market that we don't currently serve. In any way we are enjoying a lot of flexibility right now and with the merger integration going so well, I am beginning to spend more of my time on planning for the next phase of our growth. And that completes my remarks. So thank you for your attention and now back to you Ricky.

Thank you Baker. I would now like to turn the call over to our operator Shawn who will remind you of the procedures for asking your questions.

Steven Fox, Merrill Lynch.

Could you talk a little bit more about the margin targets, may be breakdown, how you see yourself getting to the 8.5 to 9% range, and where it could go beyond that, what would be a reasonable long term target?

Sure. As Baker mentioned, we usually see sequential improvement throughout the year in revenue and that obviously benefits our margins due to the additional absorption and variable margin on the sales. In addition to that, we are forecasting the $35 million of synergies of which $25 million we would anticipate recognizing this year, but via that 35 million run rate by the end of the year. So, we will be seeing increasing margin benefit from the synergies we realized, hopefully some improvement here in the second quarter to the 7 and 7.5 range that we've provided in the guidance, that's beginning to reflect the savings and the overhead from the plants we are shutting down, and then additional savings in the second half of the year as we complete some of the integration of businesses and benefits from some of the automation that we are putting in. So, we are feeling if the market hangs in there that the 8 to 9% for the year average even with this bit of a steep incline throughout the year is achievable. As far as targets going forward, recognizing we are only looking at $25 million of the synergy savings pre-tax this year, but hopefully be at the 35 million rate for next year, that obviously will improve the margins such that we still have targets to get the double-digit margins, which is a reflection of higher than that up in to the teams in our electronics business. And at the lower end of the average in the networking business, which tends to be a bit more competitive and we have some of the telecom business in Europe, it's not quite as profitable as our other business. So, still see the target of double-digit achievable. I'll be at a year or so out.

This is a follow-up to the second part of that question. Could you just discuss, in terms of the rough target that you're looking for about half of the improvement that come from the restructuring program or the cost savings your taking out in place, and then the other half from volumes? And I was just wondering if that rough math is correct. And then secondly, how much price pressure or raw material pressures are your factoring into these assumptions?

First, the synergies are probably a little more than half of the margin improvement for forecasting volume, while we are forecasting some volume improvement. It's relatively modest in the low-to-mid single digit type of volume improvements and then the difference between that in the 5 to 10% targeted revenue improvement is due to price. Raw materials, what we are factoring in is pretty much in line with what we are currently seeing in copper, which of course has been bouncing around a little bit but been trading in that buck 45 to buck 50, occasionally got into the buck 55, but we are kind of looking at in that bucks 50ish type of range, and we are forecasting some modest increases in compounds based on what's happened to petroleum, both crude oil as well as natural gas, which are feed stocks to some of that, but not a lot. We are sensing that some of that's having trouble to stick. We're certainly trying to do our push back in that area, but are still committed on both copper and compounds to strive to achieve recovery of that through pricing shift or assumptions prove to be wrong.

Devlin Lander, Morgan Joseph.

I was wondering if you could talk a little more about networking, what you're seeing going into the second quarter and how much you expect volumes to pickup year-over-year if you exclude pricing increases?

What we have seen, we did see a nice acceleration in March in demand, both here and in the North America, as well as in Europe. We are hoping that will sustain itself. Got a little nervous here recently with some people wondering if the economic expansion in the US may slow down a bit in terms of some of the new construction, as well as capital spending in durable goods. So, those would be areas to watch. There's a fair amount of our networking products finds it way to the factory floor and in the industry, as well as into commercial and other buildings. Our outlook is to see modest growth. We are not overly bullish here in North America on networking growth, what we are more bullish on is the mix improvement, is the expansion into greater bandwidth drives us to more profitable in higher price products. First, it's more difficult to make in more value added content. Europe, we are looking at some meaningful growth probably at on a much lower base. We are aggressively expanding our participation in the networking business, the data networking business in Europe. Baker mentioned expansion of distribution channels there in addition to Sonepar and then taking the Belden IBD in-product to some of the traditional CDT distributors. We are also seeing the 10-gig product being reasonably well received in Europe and some markets even more south than we have seen in North America. So, definitely we are a little more bullish in terms of revenue growth in Europe on the data networking side. However, I need to remind everyone, we also include in networking our telecommunication business in Europe, which is primarily in the UK where we are the exclusive supplier to British Telecom for their copper cable needs. We have experienced in the first quarter and would expect the rest of the year to be relatively sluggish compared to pretty robust year we had last year with BT where we may be down as much as 10 to 15, may be with 20% with BT based on some information that we've been receiving from them as they divert some of their spend into their 21st century network expansion where they are wanting to offer voice, video, and data to build up homes. So that may dampen some of the reported revenue in our networking. But data networking we are seeing modest type growth but banned with expansion helping our profitability in benefiting revenues in North America. Europe, we are looking at more robust growth and hopefully get the bandwidth expansion there as well.

And then looking at the gross margin, the decline from the fourth quarter, the first quarter is that it is purely due to the reduced volume and going forward, how much of the gross margin improvement is due to volume and how much cost savings are in the gross margin versus just SG&A?

The second part of the question is easier to answer, on the cost savings, we exited 2004 at about call it 12 to 13 million of cost saving run rate mentioned before we are hoping to exit 2005 at 35 million so we've got meaningful improvement in cost savings throughout the year most of which starts hitting us in second quarter as we see their savings from the shutdowns of the facilities as well as some of the integration. So, a meaningful part of the margin expansion is due to that as far as fourth quarter to first quarter the sequential, not a meaningful pickup in synergy savings. The run rate in the fourth quarter did not change meaningfully in the first quarter so the decline that we saw in the first quarter relative to fourth is pretty much volume driven. We did see a little pickup in some professional service fees here in the first quarter based on some various activities in pension areas as well as compensation studies and so forth as we continue to harmonize benefits between the businesses that had a little dampening effect in the first quarter beyond the volume. In other words, SG&A was a little bit higher than it might have otherwise been but most of it Devlin was due to the volume decline and pretty much expected. We had indicated in our guidance back when we announced year-end results that we thought would be in the mid-single digits and we came in on the adjusted pro forma basis at 5.9. So came in pretty much where we thought it did, where we thought it would and it was due to the volume declines result. The number of days in our first quarter are quite a bit slow. We actually only had a 3-week January based on our, trying to get the calendars all in order so we had quite a few fewer days in the first quarter, which of course we had anticipated.

Thank you so much.

Jeff Beach, Stifel Nicolaus.

Good morning. I have two things. First on this segment income, it appears as though you hold of say $7 million maybe on an ongoing basis out of the operating income in the two segments enfolded into corporate in order that is what it looks like. Can you expand on this a little bit if that is right what you have done there because it is going to make comparisons not apples to apples and if that is also true, can you expand on how much each of the two segments were impacted?

I can certainly respond to the first one. I don't know that I can quantify the exact impact of what we have done. What is included in that other column as you rightly surmise, Jeff is both the corporate SG&A cost, which we do not allocate out to the segments that's consistent with what we have historically reported. The other thing that's in that column is the elimination of profit on intersegment sales. That area we did make a change as a result of the merger; however, we restated prior year to be consistent with this change. What we have changed is what we are calling a law-to-law approach where we will enable the manufacturing operation to recognize the manufacturing profit and then the selling organization will also recognize the profit on the manufacturing effort as well as the selling effort. So another word for the selling organization will see the benefit of the margin from the actual manufactured cost all awaited a sales price. So it is indifferent to the selling organization whether they make it or sister segment makes it -- motivation for that was to encourage sourcing from other companies within our universe as opposed to looking outside as there is a tendency if you split that margin that they can get a better price than the inner company transfer price buying outside. And as we integrate the businesses and try to encourage cost sourcing, we've entered this approach. The impact is more pronounced on our networking business as opposed to the electronics business. The electronics business is the primary manufacturers supplying to the networking business who then sells it to the third party. So, if you look at that segment information, you'll see the relative amounts I am talking about on the affiliated revenue line where electronics, for example, in the first quarter of '05 has 26.2 million versus networking only having 1.7 million. So, electronics on the 26 million recognized their manufacturing profit consisting what well we've always done. However, networking is getting the benefit of seeing the full wall-to-wall profit. The impact of that, I don't have the exact quantification of that, but I am surprised to say that on that $26 million, you know, there is obviously profit on that amount above roughly quarter to a third that they would have been recognizing in the past on the selling effort. They are picking up now the other three quarters to two thirds. So, networking is the main beneficiary of that, but I don't have a precise number for you, Jeff.

So, the number does sound like it's in the $6 to $7 million mark on listening to what you just said on those sales that has been transferred out of the, largely the networking into the corporate and other?

Yes, portion there, and then there is some in electronics, but that's again not quantified on the exact amount, but there is some of that benefit.

And again, we're moving a lot of that production, Jeff, to facilities that networking now has. And therefore I don't think you're going to see a meaningful, I mean, if that moves in the -- they will get the full margin for manufactured cost or sales price, which is one of the other regions we did it this way. So, it's kind in different words manufacture. That is, the profit networking makes between manufactured cost and selling price, but it is a difference from how we reported it previous.

And just to expand on that, just looking back at the fourth quarter of the two divisions and trying to reconcile rather than working at this first, just looking at the fourth quarter, your electronics met from 28 to 23, lots has been that without this change. And on a 11 million lower sales, the profits were down more than 6 million. And in networking if you make this adjustment from the fourth quarter, I know volume is down sound, but you're basically looking it, what looks to me like break-even on the old method and my question is, you know, there is some volume here but what happened? And particularly in electronics to see 6 or 7 million lower profits on 11 million lower sales seems to be, you know, pretty significant.

I'm not sure I am totally following what you're doing, maybe...

I'm looking at 20 in the fourth quarter on the -- you had reported over 28 million of profits in electronics this quarter less than 23, but it's been bumped up because of this change in your reporting. So, the number is down more than that. And I'm just wondering, it seems to be an extremely high decline in your profitability on the sales change.

I have in front of me the both ways in why we do see a decline in our profitability fourth quarter to first, if we restate fourth quarter to do a consistent with how we are doing the first quarter, the decline is not quite as much as you're estimating, it's around 5 million or so dollars and move the relative profitability down some. And most of that is attributable to volume, as I look at the components of it as we had, as I mentioned, quite a bit fewer days. We had 58 shipping days in the first quarter compared to 66 in the fourth quarter although our costs tend to run pretty flat and sensitive is the shipping days. So, the volume was the primary thing that attributed to that. We did have some modest increase in SG&A cost as a percent of sales in the first quarter. But again, as I mentioned that's because most of those cost are kind of flat. And their revenue were down. I guess as we look at it on apple-to-apple not much makes us nervous. There may have been a very modest negative midshift in the electronics business. We saw some growth in some of the lower margin, lower below average margin stuff, but not meaningfully so. So I think it really is mainly volume, Jeff.

And just one more question that maybe will help everybody on the call. It's trying to figure out what's happening. Your second quarter sales guidance of $340 million above what you just reported significantly for the third quarter of 2004 up from the fourth quarter of 2004 and those quarters were I thought you were getting pricing pressure from raw materials. You had margins that were up in the 8.5% area. On higher second quarter sales, why are your price increases in the first quarter and it looks like moderating raw material cost? Why are the margins lower on higher volume looking out into the current quarter?

I think as papers mentioned we are content. We may have done a little better a year ago and getting some real price increases and now we are just at the stage of recovering the raw material. I think we enjoyed at some points last year getting price over and above some raw material and that's coming down a little bit and hopefully as we get more of these cost synergies, we can overcome that.

Kevin , Lingon Berg & Co.

I'm confused. Now, are you going to make available those adjustments going back or --?

Absolutely, we are going to post that on the Web site today and make that available.

Okay, because I don't get it and maybe I should just email my questions to Jeff Beach. Now book-keeping, did the $2 million restructuring was in, where is that in and if I want to, you know, adjust for that number. Would that be in electronics?

There was.

The $2 million in severance restructuring and merger related?

In electronics that was $1.6 million, networking only had $200,000, and then the remainder was in other corporate.

Okay. And I guess on volumes, it sounds like you guys are kind of doing very well in Europe or at least little more positive on that. I mean, from what I have been hearing Western Europe is a pretty tough environment right now and it seems like you are kind of saying that you are driving through that. What's going on there? Is it Belden's specific new products, new relationships, new sales people or if you could just highlight on that?

I guess first, to be fair, the main improvement we are seeing that I was talking about earlier in Europe that relates to the networking part of our business where we had a pretty small base to be honest and now with the bigger sales, combined sales organization and there and the opportunity to leverage the broader product offering with distribution we are doing better to add some amplification of that. Europe tended to be ahead of North America in their desire for a system. So under the legacy Belden where we didn't have the full system sales, it put us at a bit of disadvantage plus certain parts of the European market used different construction that you shield a type products and then you got low halogen and so forth different structure that now we are able to provide that broader offering and be able to do better in that market in the networking side with the full system sale in a broader product offering in the low haul as well as the shielded area. Outside the bed, as I mentioned the telecom, actually we are seeing it decline largely due to BT pulling back on some of their spin. In the electronics area, we do have a few good things going on there that are helping us that relates to some new products and some new relationships with existing products. That's true up in Scandinavia where we are doing very well with certain customers up there with some products in the high temperature, high-flex area. We have some opportunity down in Italy where we have been able to penetrate some markets and exploit some channel opportunities that CDT had taken advantage of and we are now taking Belden products through those channels. So we are seeing some improvement there, but I wouldn't want to give you the impression Kevin that we are over performing in the market across all areas in Europe. It's mainly networking of the small base and then certain nitches in the electronic area and some geographies that are boosting us. Most of the improvement and results in Europe we are seeing is on the cost reduction side. We are getting more synergy opportunity there. Just given the fragment at nature both of the previous companies or and as we call that together and get the synergies from that and we are shutting down a pretty expensive overhead related factory in the UK and those savings will start coming in later in the year. We are moving our data manufacturing from the higher cost Western Europe to Eastern Europe and that's given us some cost savings and we are also looking to expand the use of our facility in the Czech Republic which is a lower cost and some of the western as we see opportunities in assemblies and other areas that are labor intensive. So, the combination of a little of this, a little of that has given us a boost in Europe on our profitability. But, on the revenue side it did more than mislead everyone in the way of performing in the market. There are some areas that we are doing better.

But you're seeing yourself being more competitive in the networking business it sounds like?

Yes, we are. I think as I mentioned now having the full system, the 10 Gig was very well received in Europe. We are just now beginning to really train our people to sell that as well as get the distributors out, so there is opportunity. Again not expecting a lot of sales in Europe this year at 10 Gig, but at least it lets that market know we are a real player in that part of the industry, which before neither company had a stronger recognition in Europe in networking as we do now combined.

Johny Jimson, Buckinghham Securities

A couple of questions. First, your cash balance, how much of that is located in the US and of that amount located outside the US? Is it difficult to repatriate it back?

The US has about three quarters of that amount. So, let's call it about a 150 million or so as the US. The others there are some tax implications for us to repatriate that money that we are needing to work through. But, as far as restrictions politically or otherwise we don't have those, but we do have instances if we don't have inter-company loans or otherwise to move that money on a more tax efficient basis. We are little hesitant to start repatriating that and paying -- withholding taxes and so forth, particularly given that we are currently in a novel situation in the US and therefore wouldn't see the cash benefits from getting the credit and paying the taxes in the foreign jurisdiction. But, thought a 150 million call it is in the US, the other no formal restrictions on that. It's just can we repatriate that in an efficient manner.

Okay, and you talked earlier about your strategy for your cash and your cash flow and talked about potential acquisitions, and what about either share repurchases or do you have a philosophy with respect to your dividend, and also is there a minimum amount of cash you feel like you need to keep on the balance sheet?

Okay, I'll grab some couple of parts of that. Our first priority, if we can do it effectively, is to invest in further growth and we think we can generate higher returns that way. If in fact after some period of time we are unable to deploy all the cash we have successfully, we are certainly hoping to looking at those other options such as share repurchase. We have done share repurchase in the past. We don't have a philosophical ban against it, if you will, but we'd prefer do it to invest for further growth. As far as the dividend goes, that's a kind of an ongoing review by our board. They periodically look at our dividend policy and the other options that they have, and so there could be another consideration. But, as I mentioned, those types of distributions would be their lower priority than trying to continuing to expand the scope of our business.

There is in today's world, I don't know that we have a specific number on a minimum amount of cash. The main thing is we want to make sure we have access to the ample funds at all times, and right at the moment we have lines of credit available to us as well, and sort of just a matter of looking at the options of our credit facilities or credit availability and our cash balances and the other demands that we have.

Okay, and first your working capital management, is there more or less a longer-term goal as to where you want to be there, as far as the number of DSOs inventory days?

Yes, we do. We look at that primarily on a operating working capital as a percent of revenue, operating working capital we define as receivables, the inventory less the trade payables and operating type accruals. And, we target each of the businesses with improvement targets that are actually built into the management incentive plan, as well that were compensated on achieving certain improvements in that area. But, we look at it as a total. Obviously, the operating units we will break down into days and attack each of the pieces, but we look at the total investment we make in operating working capital. We do see opportunity to improve that, the Belden legacy, Belden businesses that put a lot of focus on that back a couple of years ago, and was down and for the most part have been able to sustain our operating working capital down into the mid teens, on average some businesses better that, some a little worst. Contrast that with CDT, where they hadn't had as much focus on that, intended to be in the 20, 20 plus as a percent of revenue that has caused the corporate average to be more than that 20% plus range. So, I -- as we analyze some of the businesses and as we merge and integrate distribution points and manufacturing sides and all. All of that creates opportunity, as well as just improvements in supply chain management where we can be more efficient in our user working capital. So, we are targeting improvement there and would hope to see throughout the year progress in that. We will tend to see an increase in working capital though mid year as a result of the seasonal pick up in certain businesses and then preparing for shut downs in Europe and some of our domestic facilities that we take during the third quarter, but we are targeting some 5 to 10% type of opportunity to try to improve, I mean decrease our working capital.

So, for modeling purpose where would you suggest remodel operating working capital as a percentage of sales at the end of '05?

I would say 20% and lets hope we can do a little better than that.

Okay, thank you so much.

[OPERATOR INSTRUCTIONS] Dennis Scannel, Rutabaga Capital Management

Hi Baker, Hi Ricky. Just a couple of quick things to follow up. Most of my questions have been answered, but when you say that pricing is in as robust as may be you were experiencing it on the second half of '04. Can you talk a little bit more about that I mean is that is somebody being a bit more aggressive in terms of some of these cost increases or is there just too much of inventory of the DOL level with the distributors so that you are getting some push back on the MM. I am kind of surprise that pricing would be somewhat deteriorating from last year?

Just is to make clear it's not the absolute prices deteriorating, but in the spread between raw material cost and price that spread that we may have been able to get a little ahead up like last year has narrowed its not been eliminated here towards the end of the first quarter and the end of second quarter as we continue to see increases in raw material, we exudate the year with copper at a forward average in the buck 45 range and then unfortunately we've seen an average above that for the first quarter we did put some price action and some of which benefited the first quarter to overcome that but that's not sure that we are seeing is much spread between what we are experienced in the raw material and price as we may have been able to get ahead up a little bit last year. We are to the second part of your question Dennis. We are seeing in certain markets a little more competitive as the project business picks up. For those of you who follow Belden CDT for a while now that while our day-to-day business we have a listed price and based on volume in all material in here is the price and the price sheet which are up there and when you hear us in another companies and our industry announced price increases that's generally what they were referring to. When it comes to major projects in all everybody teams to sharpen the pencil a little bit. Because they added volume you did and so far to see what may be necessary. Good news is we are seeing as Baker mentioned in his prepared remarks so pick up in project we are seeing more projects in the broadcast area, we are seeing more projects in the data networking area and sound and security continues to be an area with airports and schools and so far where they are putting in more sound and security systems. Casinos is another area where we get more project business, that mix of our business tends to be a little less profitable than the day-to-day business, as we tend to sharpen the pencil a little bit. Now, the volume obviously helps absorption in the factories and all. But I think that's another phenomena that is affecting us some and then as I mentioned earlier mix in the first quarter probably wasn't as favorable as we may have seen in the fourth quarter as we've seen certain of our products that don't enjoy above average margins grow a little more than in the other area. Network in Europe was one I mentioned we are seeing some good improvement. That's the low average profitability for us is just one example. So, combination of things...

I might also mention that one of the side benefits of the project business if you get the basic project in the initial installation, here is a certain amount of follow on business for changes repairs etcetera. Here we tend to get at the full margin, in the future but that's usually out a couple of years later, but it is important to keep active in the project business unless the project business does pick up. Since they tend to be larger orders where you can get some economies by shipping full truck loads or pair of loads is suppose to once you choose is it gets more competitive and you have to bid on those basically and negotiate the deals. So, that tend to be a little bit more price competitive on the project business that's not the new it's always been in that way, that's not particularly new. I would also comment I think the psychology back a year ago where people rapid increases in raw material cost. It was easier if you will, psychologically to pass on those price increases and try to get a little bit ahead of the game where as this year this has been more gradual increase and it's also been more sporadic as Ricky mentioned copper is being kind of generating around. The $50 ranged inevitably the day you go in and say you need to recover some price on copper, that's the day the copper has just dropped 5 cents. I think the psychological atmosphere of raising prices is a little bit more difficult today than it was a year ago, not to say that we are not still able to pass along the raw material cost increases, we are, we are just not able to get ahead of the game like we were.

Okay. Another quick thing just Rick, you alluded to -- some are saying we are seeing a slowing here in North America. Can you comment on, I wonder you guys indeed are seeing that on the day to day business that things are slowing down?

I don't know that we are seeing enough to predict any trends. We were a little nervous early in the first quarter, things started back a little slower after the holidays. But then we had a very strong March in most of our businesses that seems to be holding as we go here into April, certainly first part of April was pretty good, a little bit slowing -- as we tailed off later in April more in Europe than what I saw here in North America. So I think it's more just the macro economic data and just some of the sediment that you are seeing out there that are suggesting maybe this strong economic expansion may be tapering off a bit as opposed to that much specific that we are either seen or hearing. Networking continues to actually look pretty good for us, but I get a little nervous just more based on the macro economics and then some other fits and starts we have seen in a few weeks.

Just today is an example of Wall Street Journal's little article , people are disappointed in the GDP numbers that were released and so that's the kind of things yet, we'll see how it plays out, we only recognize a few months later.

Yes. Absolutely. And then one last thing just to push on the cash and debt situation a little bit more. You guys should end the year presuming no acquisitions in a net cash position, taking cash net of debt. I would have -- with the proceeds from the real estate sale and just from your own operations. Baker, as you look out, what is -- if you look at kind of net debt to total capital, and what sort of range are you comfortable operating in. I mean historically you guys have run that kind of 30, 40 even 50% and you do look extraordinarily under levered.

Well, I guess I would agree with you. We have typically run -- we had in the past -- we had a policy trying to run in the 30 to 35, or 30 to 40% range that's total cap. I think in today's environment we might be a little bit more conservative than that. But nonetheless we are under levered. Part of that is -- we have gone through this merger integration process, I want to make sure by focusing on the immediate task at hand, which is to realize the synergies, get these businesses unified into a single entity, going forward. As I mentioned that's going extremely well, I would say that we are ahead of the schedule. You have seen that last year we are -- while we renounced fourth quarter earnings from last year, we increased our synergy targets etcetera. And so while we were generating cash we were also busy doing other things. Now we are getting the position where I think the organization can focus and take on a new project going forward in the not too distant future and that's what we are going to be looking at more seriously as we go into the second half of the year.

Okay. Thanks a lot.

Mr. Reece, there are no further questions at this time. Please continue.

Well, thank you. And I would like to thank everyone for joining us today on the call. We certainly appreciate your interest, we will be posting here throughout the day the information regarding the restatement of the segments. I appreciate that that is important. I want to stress that has nothing to do with the consolidated numbers, but it does impact how we allocated some of the earnings between the segments and how it gets eliminated, but we will post on the Website today the restatement of that to accommodate your analysis of that information and if you have any other questions certainly don't hesitate to give Dee Johnson or myself a call here in Saint Louis. Thank you again for joining us and have a great day.

Thank you ladies and gentlemen. This concludes our conference call for today, you may now disconnect from the call and thank you for participating.