Belden Inc (BDC) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated conference call. Just as a reminder this call is being recorded. At this time you are in a listen-only mode. (Operators Instructions) I would now like to turn the call over to Mr. Gray Benoist, Chief Financial Officer of Belden. Please go ahead, sir.

Thank you, Bill. Hello and good morning, everyone. My name is Gray Benoist; I am the CFO of Belden. Thank you for joining us today for our fourth quarter and full year 2008 earnings conference call at Belden. Joining me on the call today here from St. Louis is John Stroup, President and CEO of Belden.

First some logistics, we have a few slides on the web. To see those please go to investor.belden.com, sign into our webcast. There's no www in that address, just investor.belden.com. If you need a copy of our press release, you'll find that in the same location.

During the call today management will make certain forward-looking statements. I would like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor Provisions 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. 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 for a more complete discussion of factors that could have an impact on the Company's actual results.

This morning John will begin with comments about the performance of the business in the fourth quarter and the full year of 2008 after which I will review some additional financial results and segment analysis. Then John will speak about our outlook for the business. And finally, we will open up the line for your questions. So at this time, let's turn to our President and CEO, John Stroup. John.

Thank you, Gray, and good morning, everyone. During 2008 the US economy entered a recession and economic activity turned down globally. In response, we've been very proactive in restructuring our operations and reducing our costs. And in the fourth quarter we took significant restructuring and cost reduction actions. In this regard we are continuing to make progress on our efforts to position the Company for success when economic conditions improve and industry sales and production levels recover.

Please turn to slide three. Revenue during the fourth quarter was $417 million compared with $584 million a year earlier. Excluding acquisitions, divestitures and the effect of currency translation, the organic change in revenue in the fourth quarter was a contraction of 26%. We estimate 5% of that decline was the result of price reductions due to lower copper prices.

Before I discuss our operating and net income results for the quarter, I'd like to briefly address the $461 million non-cash goodwill and other asset impairment charge you may have seen in our press release from earlier today. We recorded this charge in connection with our required annual goodwill and other asset impairment testing and is largely the result of the significant deterioration of the broader equity markets during the fourth quarter.

We cannot stress enough that this is a non-cash item and it will not impact our cash flows, liquidity or borrowing capacity under our existing credit facilities and is in no way an indicator of our business outlook or our ability to build long term shareholder value. Gray will provide additional information on this charge in a few moments.

Adjusting for the impact of this charge, as well as the effects of restructuring charges and the deferred revenue impact in the wireless segment, operating margin in the fourth quarter was 4.4% of revenue. Excluding the wireless business acquired in 2008, adjusted operating margin was 6.2%, down from 10.9% in the fourth quarter of 2007.

Similarly adjusted, diluted earnings per share were $0.26 in the quarter compared with $0.83 in the prior year quarter. The fourth quarter 2008 results compare favorably to the range discussed in our outlook update in January due to a slightly better operating performance and the favorable effects of full year tax adjustments on the quarter.

For the full year 2008, we had revenue of just over $2 billion, roughly 1% lower than in 2007. Adjusted operating margins for 2008 were 9.7% compared to 11.5% in 2007. And adjusted earnings were $2.68 per share compared to $2.87 per share in 2007.

Would you turn now to slide four please? During the fourth quarter we generated $46 million in cash from operations; an amount in excess of net income for the period even ignoring the large non-cash goodwill impairment charge. That brings cash flow from operations for the full year to $173.9 million and free cash flow, that is cash flow from operations less $53.6 million in capital expenditures during the year, to $120.3 million.

Our liquidity coming out of 2008 into 2009 is in excess of $300 million. It consists of $227.4 million in cash and $103.2 million in unutilized capacity under the Company's revolving credit facility. We can manage our liquidity as we move forward into 2009 by adjusting the level of our capital expenditures as well as by harvesting cash from working capital as we bring working capital down to a level commensurate with the level of demand.

The combination of our good liquidity and modest leverage puts the Company in a strong position to fund its strategic priorities during these difficult times and to capitalize on business opportunities as the economy emerges from these current difficulties.

One of the business opportunities we identified in 2008 was Trapeze Networks. Last quarter we made the decision to break out Trapeze Networks and report its results as a separate segment. Consistent with the third quarter, we have again deferred the revenue from this segment in our GAAP results as we continue to work to satisfy the SOE requirements.

Moving on, copper prices throughout 2008 demonstrated historic levels of volatility. As a result of these swings, one of the enduring questions that we received from investors is, 'How does the price of copper impact Belden's operations?' As a reminder, Belden is a FIFO-based company, and as a result, copper prices have a trailing effect on our results.

Given the amount of volatility associated with copper prices, it's difficult to predict with any certainty where it's headed. As we manage through this cycle of purging out the older, higher cost copper and we start purchasing lower cost copper, it's going to have a positive impact on our inventory turns and may also have a positive impact on our margins, depending how pricing goes.

But we always manage the business to be copper neutral and we think the value is really independent of copper. I believe we've done a pretty good job of managing that on the way up and the way down in the past. And I expect we'll do that again.

If you turn to slide five, in December we took significant action towards reducing our cost structure and made a commitment towards achieving $30 million in savings in 2009 and $50 million on an annualized basis.

Based on the market conditions at the time, as well as our initial projections for the economic landscape in 2009, we felt it was necessary to devise a sustainable cost structure that would allow us to succeed during this prolonged period of weaker demand.

During the fourth quarter we announced and enacted several specific actions that well-positioned us to accomplish our goal. Additional actions that are part of the overall fourth quarter restructuring plan will be forthcoming during the first half of 2009.

Some of the actions that we have already announced include the closure of our plant in Hoyerswerda, Germany, which is the first step in our goal towards achieving European low-cost manufacturing consolidation.

Additionally, we announced three separate actions in North America. We consolidated two West Penn Wire manufacturing plants in Washington, Pennsylvania into one. And as it relates to our specialty business in Mexico, historically their operations were housed in several separate buildings. Through the implementation of lean techniques we were able to consolidate operations and reduce the overall footprint.

We also consolidated a warehouse that was designed for our specialty products in California with our new Americas Division's West Coast warehouse.

Additionally, as part of our restructuring initiatives that we announced in December, we made the decision to combine the Belden Americas and Specialty Products businesses in 2009. By combining these businesses, we will be able to operate with less cost, and we feel this change will facilitate and accelerate our progress regarding product, brand and channel management. Denis Suggs will lead the newly combined division.

These are always extremely difficult decisions to make and we feel bad for those people that have been impacted by this economic crisis. At this point in time, I can comfortably say that we're on schedule to achieve both of the 2009 and full year annualized cost savings goals. And that we firmly believe these actions provide us flexibility while also positioning us well for the upturn that will follow.

Let's take a few moments to look at some of the macro factors that we follow and care about. As you've seen from the disclosures of other industrial players, Europe is really struggling right now and recent reports indicate that German exports were down between 10% and 11% in December. This follows a monthly decline of 10% in November.

As a result of this pullback our businesses have also suffered. Our HEW business, which manufactures highly specialized cable for the high temperature sector, is strongly tied to the German automotive industry. The overall decline in exports adversely impacted their results and they posted their lowest quarterly margins in over four years.

In addition to HEW, we are seeing weakness across all of Europe as a significant portion of our cabling business is tied to industrial applications, which are also struggling. Although most reports on new construction are lagging in nature, the Architecture Billing Index, known as the ABI, is a leading indicator of construction activity.

The ABI reflects the approximate nine to 12 month lag time between architecture billing and actual construction spending. Recent ABI ratings have been well below the median mark of 50, which signifies an increase in billings. The ABI Index was 34.7 in November and 36.4 in December.

One of the traditional lagging indicators we follow is non-residential construction reports. Based on the most recent data for November 2008, industry analysts are forecasting a moderate downturn in non-residential construction spending growth rates. They are basing this on current levels of supply and demand, the shorter recovery cycle from the previous recession, and that in general this sector has seen spending growth for 25 consecutive years.

Although we have significantly reduced our exposure to this sector, we keep a close watch on these reports and track order flow after each monthly release.

Throughout the fourth quarter the Bishop Worldwide Connector Confidence Index continued its negative trend and fell as far as 19.3 during the fourth quarter. Based on the new January report, the index has posted a new all-time low of 11.5 points out of a total of 100.

When asked to rate the current business conditions in the month of December, individuals in the United States and Europe averaged a score that was less than 10, while those in Japan provided a score of zero confidence. After seeing this report, we were not surprised that our European segment, which is already being adversely affected by lower exports, reported a sequential revenue decline of 21%.

The Institute for Supply Management conducted a survey in late November 2008 to gauge the impact of the current economic climate on capital spending and future production capacity. As one might expect, the results of the survey confirmed that many are preparing for a prolonged period of difficult economic conditions.

For example, over 75% of these respondents indicated they had plans to reduce their capital spending in 2009. Within that subset of respondents, nearly 65% cited economic uncertainty as the primary driver behind their decision to halt spending.

We are seeing very similar patterns in our end markets as well. Orders are being delayed or pushed back and competition for projects is intensifying. However, our refined go-to-market strategy and focus on building better relationships with our channel partners has prepared us to weather the storm.

When we recently evaluated the consumer electronics space, we saw the same things that you likely did. Many of the industry leaders reported weaker than expected earnings for both the fourth quarter as well as for the full year of 2008.

Given that LTK has significant ties to the consumer electronics space and its extensive supply chain, this business has been feeling the pinch of the slowing economy. To counteract the current economic climate we have increased our efforts to localize the Belden product portfolio for Asian markets to absorb LTK's manufacturing and engineering capabilities.

I'd like now to spend a few moments talking about a few of the brighter spots in our portfolio. First, let's discuss some of the synergies that we have seen with Trapeze Networks after only two quarters.

Trapeze has a strong brand that is already established within the wireless industry, but when coupled with the Belden brand and its worldwide reach and presence, we believe significant growth is possible. Together we are able to solidify positions within the healthcare and education markets, but most of all as a combined entity, we have the capability to offer a full compliment of solutions to any customer.

Moving to our industrial Ethernet solutions, it is important to understand that it's different from commercial Ethernet because we design unique protocols that are suited for machine control, data collection and device configuration. The environment in which these devices will be used is particularly harsh. The operation of the machines is viewed as mission-critical and cannot afford to be interrupted, nor can the security of those machines be compromised.

Despite the headwind in the industrial markets, this business experienced sequential topline growth and is in line with the prior year. This is due to the ongoing trends of decentralized communications and the adoption of Ethernet on the factory floor.

As we noted last quarter, we did not expect to see inventory increases at our channel partners in the fourth quarter. Unfortunately, our assumption proved to be correct. As inventory levels have not come back, and in fact we saw further inventory corrections, which had a significant impact on the 19% sequential decline in our topline performance during the quarter.

However, we know that our channel partners are going to actively manage their inventory levels as they, just like us, are trying to find the ideal operating structure to withstand the current market conditions. We continue to work on strengthening our relationships with our channel partners and are developing a closer relationship with them through improved planning, better cooperation and crisper execution. The combination of these things will yield successful results for both Belden and our channel partners.

Our go-to-market model is transitioning to a customer-focused single point of accountability performance organization. For those of you that attended or listened to our Analyst Day presentation, you know that we have recently transitioned to a vertically aligned demand creation sales model and implemented an end user focused sales funnel process.

We have designated resources for end users. We always offer the full Belden portfolio to address their needs, not just cable. We build and leverage our relationships, but sell solutions that are based on the customer's needs.

In the fourth quarter while we saw a mix of new project business, we also had a continuation of project delays, push outs and cancellations. The uncertainty is global and project spending has reduced significantly.

To counteract this we are becoming smarter in terms of how we go after this type of business, especially since the environment will likely become even more competitive going forward. By focusing our efforts on strengthening the skills of our sales team leaders, we will not only be able to penetrate new markets throughout 2009, but also create sustainable demand in the future. We believe this new sales platform will greatly enhance our organic growth opportunities in all economic situations.

We began our implementation of the lean culture in 2006. In 2008 we built on our successful kyzan activities and initial strategy deployment process and took them deeper into the organization. We focused on lean daily management of KPIs, a structured process to focus resources on the right data to drive daily improvements, and we laid the groundwork for addition value stream improvement.

By implementing a functioning culture of lean, we are able to better manage our workflow and balance customer needs in this difficult environment. This truly was a cultural transformation here at Belden. With lean manufacturing we are not only able to do more with less, but we are able to do it with less of the dependency on fixed assets and working capital through cycle time reduction.

Our lean initiatives are a key driver of our free cash flow. For example, we have identified an additional $40 million to $50 million of potential cash that can be unlocked through lean and our asset light initiatives. As we have said in the past, being able to identify and access additional sources of liquidity will provide us the financial flexibility needed during this economic downturn.

And now I'm going to turn the call over to Gray for more discussion of the business results. Gray.

Thank you very much, John. On January 15, the Company pre-announced our fourth quarter results and provided a fourth quarter adjusted EPS range of $0.12 to $0.17 as we finalized what has turned out to be a deeply complex business and accounting quarter.

We are pleased to deliver adjusted EPS of $0.26 in this release, about twice the level we had anticipated. You can imagine our conservative nature when creating estimates in these times. But the improved result from mid January to today does reflect better than expected final performance in both operating income margins from about $0.03 to $0.05 and the final effective tax rate of about $0.08.

I will talk to both of these items in more detail later. For now I will continue my comments with a discussion of the consolidated results of operations for the fourth quarter and the full year and then turn to the segment results followed by a discussion of our cash flow, asset management, liquidity and working capital.

If I could have you turn to slide six please. The weakening global economy and the resulting slow down in orders hit us hard during the fourth quarter. Revenue of $417.3 million was 28.6% lower than a year ago. The Company looks at many macro and micro economic indicators of the markets we serve. John shared with you many of the examples, such as non-residential construction, the Architectural Billing Index, US industrial CapEx, Germany and China export trends, the Bishop Report on connectivity, both Gartner and Infonetics reports on enterprise and wireless demand are excellent.

These are all good, fairly reliable sources of market information. As we regularly examine these many road signs, there remains a general murkiness that makes the review of current period demand and the market analysis challenging, and the future view of demand and market dynamics very difficult to predict.

That said, the US dollar's continued strength in the fourth quarter resulted in an unfavorable currency affect of $14.8 million or 2.6%. Year-over-year organic revenue growth for the fourth quarter without the effects of currency, acquisitions and divestitures was negative 26.3%.

Lower organic revenues resulted, as John noted, from market, channel and portfolio activities. Additionally, though theoretical but consistent with our desire for a neutral net position with respect to changing commodity metals costs on the business, we estimate that the organic change in revenue could have been negatively impacted by approximately 500 basis points in the quarter by the year-over-year and sequential decrease in pricing resulting from the dramatic decline in metal commodity costs, most notably copper.

Full year 2008 revenue of just over $2 billion was basically flat when compared to total revenue in 2007. For the year, annual organic revenue growth with the effects of currency, acquisitions and divestitures -- without the effects of those was negative 11.2%.

Again on slide six, revenue in the United States was 45%, Canada 7%, Europe 23% and Asia 20%. US and Canada generated 52% of our revenue in the quarter, which is a sequential increase in the US and a sequential decline proportionally in Europe. I will discuss segment performance in more detail later in these comments.

The pie chart at the top depicts revenue by vertical market. We incurred revenue from Trapeze Networks, our wireless segment, in the enterprise vertical, thereby the expansion of this market to 29% of our revenue, up from 25% a year ago.

Additionally, as has been the pattern all through 2008, we continue to see year-on-year market growth and/or stability in higher bandwidth enterprise structuring cable solutions and decreasing demand at the low end of the enterprise product family. These are consistent with our expectations.

Sales in the industrial market were 47% of total revenue. Results in this vertical include cable products, industrial Ethernet and our industrial connectivity businesses. We experienced declines in industrial cable revenue both sequentially and year-over-year.

The decline was most pronounced in Europe, where for two consecutive quarters we've experienced significant sales reductions. A survey recently conducted with 3,000 European manufacturers noted that Germany specifically showed signs of deepening contraction here again in January. Despite this negative environment, our Europe-based industrial Ethernet business showed top -- showed growth in topline sequentially and was up slightly year-over-year; a positive indicator for the future of this product family.

The Video, Sound and Security market is about 12% of total revenue, the Transportation and Defense vertical remains about 4%. In the Consumer Electronics and Consumer OEM market served by LTK, our attention to portfolio management activities and sharpened market focus on serving specific vertical segments resulted in the conclusion this quarter to shift about 5% of our revenues previously reported in our consumer vertical to the Industrial or Enterprise or Transportation and Defense verticals, which resulted in a net position in consumer verticals of a less pronounced 8% of our total revenue.

If I could ask you to turn to slide seven please. As mentioned in our press release, the Company recorded a significant goodwill impairment charge and restructuring charges that adversely impacted our reported GAAP results during the fourth quarter.

First on restructuring, we recorded a charge of $32.7 million for severance, fixed asset impairments and the loss on the sale of assets related to the actions we announced during the fourth quarter. Slide Five details the actions we have taken so far and the forecasted calendarization of the income statement benefits expected in 2009. There are additional actions to be announced in 2009, most of which are to be finalized with employees or works councils during the first half of the year.

Secondly, in connection with our required annual goodwill and other asset impairment testing, we recorded a non-cash goodwill and other asset impairment charge of $461.1 million, or $9.47 per share. The non-cash charge relates to the application of FAS 142, which requires an annual assessment of potential goodwill impairment as predicated by the accounting literature. The determination of goodwill impairment is highly dependent on the Company's market capitalization at the point in time the annual impairment testing is performed.

As our total market capitalization was significantly impacted during the fourth quarter downturn in the equity markets a goodwill impairment charge was required under generally accepted accounting principles, primarily via the calculation needed to reconcile our book value to our then current market value. This is the required accounting treatment. All of our acquisitions continue to perform well and either are meeting or exceeding our expectations for adding long term value to Belden.

Given that the one-time charges we incurred during the quarter do not reflect the ongoing operational environment at the company, I will focus the remainder of my comments on the adjusted results without these charges. For your benefit, reconciliations between GAAP and adjusted results have been provided as part of today's press release and are also available at the end of today's slide presentation.

Adjusted for these items, operating income in the fourth quarter was $18.9 million, or $4.4% of revenue and adjusted earnings per diluted share were $0.26.

As a reminder, in the third quarter of 2008 and again in this fourth quarter discussion, we look to improve the transparency of our operational performance in light of the complex accounting associated with SOP 97-2 on software revenue recognition.

As such we continue our practice of adjusting revenue and gross profit for the effects of all revenue deferrals at Trapeze Networks. John's earlier comments captured the current performance and opportunities with respect to Trapeze operationally. I will add some additional color on the state of vendor-specific objective evidence and revenue recognition later in my remarks.

Gross profit margin was 27.7% in the fourth quarter, 100 basis points lower than the fourth quarter of last year and 240 basis points lower sequentially. For the full year gross profit margin was 29.4% an improvement of 100 basis points over 2007. A commitment to a deep and continuously active regional manufacturing rationalization program has allowed the company to successfully deliver our planned and committed objective of $26 million in annual savings for 2008.

Despite cost increases associated with transportation and non-metals raw materials now coupled with the additional challenges to flex our global manufacturing cost commensurate with the drop in Q4 production, we were still able to accomplish this goal.

The ability to hold gross profit margins at a relatively stable level considering the economic deterioration experienced globally compounded with volatile commodity costs highlights the effectiveness of the manufacturing rationalization initiative we have been working on for the past 18 months.

As John mentioned, we are a FIFO company. We have about six turns of inventory, thus much of our fourth quarter COGS was reflective of third quarter input costs -- a condition made more difficult by the abrupt nature of the production drop in November and December.

Fourth quarter SG&A expenses were $82.3 million or 19.3% of revenue. Excluding the results of the wireless segment, SG&A expenses were $73 million or 17.8% of revenue. In making comparisons to 2007 results, you may recall we did not identify R&D expenses of that period. Adjusting for this particular and creating an apples-to-apples comparison SG&A excluding the wireless segment is $6.9 million lower sequentially and $21.8 million lower year-over-year.

Currency translation had a favorable impact of about $3 million to SG&A year-over-year. Excluding this translation impact, SG&A was $18.8 million lower year-over-year. Our focus on controlling costs enables us to continue to make important investments in our strategic initiatives of lean talent management in global sales and marketing. We believe that these initiatives are the keys to emerging as a healthy and formidable player in the signal transmission space as the economy recovers.

R&D expense was $13 million in the fourth quarter or 3% of revenue. Excluding the results of the wireless segment, R&D expenses were $9.3 million compared with $11.4 million in the third quarter of 2008 and $10.5 million a year ago.

We deployed a somewhat flexible contractor model in much of our connectivity and industrial Ethernet R&D expenses that allows for fairly quick cost reduction in certain areas while advancing our investment in new product development. It is a critical differentiator for our leadership product positions.

Other income in the quarter, which represents the income from non-consolidated manufacturing and marketing joint ventures in China, was $2.4 million.

Intangible amortization expense was $3.8 million in the quarter. In the third quarter we started to break out the amortization of intangibles in the body of the income statement. The identification of this cost element is important not only because it is a significant non-cash expense item impacting our operating income, but also to aid in analytic comparisons of our results with others as many companies set aside this expense as a pro forma item.

If I could have you turn to slide eight please. Interest expense for the fourth quarter was $9.6 billion and our interest coverage ratio was 3.7 times. Our current status relative to our revolver debt covenants is included on slides 11 and 12.

Income tax expense was $0.7 million in the adjusted results or 5.2% of pre tax income for the quarter. During the quarter we recognized a tax benefit of $1.2 million from the release of valuation allowances in both Hong Kong and Sweden NOLs.

In addition we recognized a tax benefit of $2.6 million from the recognition of US manufacturing tax credits at a one-time opportunity to step up our tax basis of goodwill in Italy. These tax benefits were partially offset due to the recording of additional tax reserves of $1.1 million in the quarter related to the tax return positions taken in Europe and Asia as required under FIN 48.

For the full year, 2008 adjusted results income tax expense was $46.3 million and the effective tax rate was 26.7%. Adjusted net income for the fourth quarter was $12.2 million and adjusted earnings per diluted share were $0.26. For the year we reported adjusted net income of $127.1 million or $2.68 per diluted share.

If I could have you turn to slide nine. External revenue of the Belden Americas segment was $169.5 million, which is lower by 24.8% compared with the fourth quarter a year ago and lower by 16.3% sequentially.

Interdivisional sales were $12.8 million. Including the interdivisional sales, total shipments of Belden Americas were $182.3 million. Segment adjusted operating income was $27.2 million or 14.9%. The 14.9% adjusted operating margin is a contraction of 610 basis points over the Americas record performance in the third quarter of adjusted operating income of $46.3 million or 21%, and a 300 basis point contraction year-over-year.

As we have noted, the actions announced on December 3 with respect to restructuring and the resulting benefits in 2009 are expected to improve our cost structure by $3 million to $11 million from Q1 to Q4 in 2009 and $50 million annually when fully implemented in 2011. Each of our segments will benefit with a restoration of operating margins associated with these actions of between 150 and 350 basis points.

The specialty product segment's external revenue in the fourth quarter was $42 million, which is lower by 33.8% compared with the fourth quarter a year ago and lower by 25.8% as compared to the previous quarter. The division's revenue from affiliates was $9.1 million, representing a 57.4% and 42.4% decline from the previous year and previous quarter, respectively.

Operating profits for the fourth quarter were $1.1 million or 2.2%, down 890 basis points sequentially.

The EMEA segment's external revenue was $130.4 million in the fourth quarter, a 31.5% decrease year-over-year and a 20.6% decrease sequentially. Operating income of the EMEA segment was $6.4 million or 4.8% of total revenue. This compares with the prior results of $18.2 million or 9.3% of revenue and prior quarter results of $12.9 million or 7.6% of revenue.

The EMEA segment results reflect weakness generally in the automotive and industrial markets and a global connectivity product business, which is facing rapidly deteriorating economic conditions. As we discussed in the third quarter and reinforced in our December restructuring actions, our ability to flex manufacturing costs and align more capacity to more favorable cost environments has a heightened focus and heightened activity level in Europe.

The Asia Pacific segment had fourth-quarter external revenues of $69.4 million a sequential decrease of 22.2% and a 34.1% decline from the previous year. The lower comparative revenue was driven by consumer product demand contraction for our LTK brand products and slowing China demand for Belden branded products. As a result, segment operating income was $5.6 million or 8% of revenue, down from $8.8 million in the previous quarter and $12.3 million in the previous year.

The fourth quarter marked the first full quarter that Trapeze Networks was operated as a Belden Company. We will continue to make every effort to ensure the transparency of results within this segment, especially given the complexities associated with the GAAP requirement to recognize revenue associated with VSOE.

Deferred revenue increased $9.5 million during the quarter and $18.3 million for 2008. While deferred cost of sales had an increase of $4 million in the fourth quarter, the net benefits of cash flow and the corresponding deferral of gross profits for GAAP is equal to $5.5 million. This is the net impact to our GAAP results in the fourth quarter related to Trapeze's revenue recognition.

This translates to a negative impact to our reported GAAP results of $0.07 per share in the quarter related to VSOE. We continue to make progress on institutionalizing processes, managing the documentation and establishing business practices to achieve VSOE in a timely fashion.

The wireless segment had non-GAAP revenues of $15.7 million and an adjusted operating loss of $6.6 million in the fourth quarter. The business had good year-over-year growth as external billings increased approximately 14% when compared full year 2008 to full year 2007.

If I could have you turn to slide 10 please. The Company had $227.4 million in cash at the end of 2008. $97.5 million is in depository accounts that are used in the day-to-day operation of the business and $130 million is in short term investment accounts focused on government issues.

Free cash flow in the fourth quarter was $24.9 million, comprised of net operating cash flow of $46 million less capital expenditures of $21.1 million. Free cash flow year-to-date is $120.3 million.

At the end of 2008 we had $590 million in outstanding debt, $240 million bearing interest at 3.38% under our revolving credit facility and $350 million bearing 7% interest in our senior subordinated notes.

In addition to the cash on the balance sheet, the Company had $103.2 million in additional liquidity available under its revolving credit facility. The facility is fully supported and runs through the end of 2010.

If I could ask you to turn to slide 13 please. Inventory turns in the fourth quarter were 5.9, up sequentially compared with 5.5 turns in the third, but lower than the 6.6 turns we experienced in the fourth quarter of 2007. Absolute inventory dollars decreased $49 million sequentially as a function of reduced commodity cost and improved inventory management.

Working capital turns at 6.9 turns this quarter were favorable sequentially and year-over-year. We continue to stress the fundamentals of lean and remain committed to a one turn improvement in working capital again in 2009.

Property, Plant and Equipment turns were 5.1, lower than the 6.2 turns at the third quarter and lower than a year ago. The capital and real estate markets remain soft, therefore our asset life results will be more difficult to accomplish in the near term, yet we are reinforcing our 2009 goal to balance our 2009 capital budget expenditures with asset-light activities, to deliver a net zero increase in the fixed asset investment in the company.

At this time, I'd like to turn back to our CEO John Stroup for a few remarks about our outlook for the first quarter of 2009. John?

Thank you, Gray. If you could now turn to slide 14, over the last few weeks since we provided you our updated guidance not a lot has changed. Visibility has remained poor and business conditions are very tough. However, we've proven able to tackle difficult challenges swiftly and execute effectively. As a result of our strategic actions we made progress in reducing our costs and are well positioned to withstand the down turn and emerge ready to capitalize on the recovery.

Although it may take us slightly longer to meet our long term objectives, we will continue to take actions and prioritize what investments we do make to achieve our stated goals when conditions moderate. These long terms goals remain -- organic revenue growth between 6% and 8%, operating margins of 15%, free cash flow to exceed net income and return on equity of between 15% and 17%.

As we noted at our Investors Day in December, until visibility improves we believe it is prudent for us to provide guidance on a quarter-by-quarter basis. For the first quarter of 2009 we expect adjusted revenue and diluted earnings per share to be in a range of $330 million and $350 million and $0.10 and $0.15, respectively.

The first quarter of this year is typically our weakest quarter especially for the cable business because of the weather and the amount of construction that's being done. As we navigate through what is an extraordinary period in our economy, we remain focused on our efforts to implement our restructuring and lean initiatives, to strengthen our channel relationships and expand end user demand to offset weak markets.

We feel that our balance sheet and liquidity will work to our advantage and that as a lean company we can be nimble and opportunistic to satisfy volatile demand. We feel we have taken the right steps to be ready for difficult times and they are consistent with our management philosophy and historical actions.

We will do the best we can for our customers and our shareholders. We will emerge from this difficult economic climate a stronger company, one with an even more attractive competitive position and one with a balanced portfolio of solutions that will continue to win the trust and loyalty of customers. In other words, we will become one of the true leaders in our markets.

Thanks to all of you on the call for your interest in Belden. This concludes our prepared remarks. We now have some time for your questions. Our operator, Bill, will remind you of the procedures for asking your questions.

(Operator Instructions) And Mr. Benoist, your first question comes from Celeste Santangelo, Bank of America-Merrill Lynch.

Good morning.

Hi, Celeste.

Good morning, Celeste.

A quick question, could you provide a little more detail on the upside in the quarter? Gray, I think you identified the margin upside as $0.03 to $0.05. Where is exactly did that -- what surprised you in the past couple of weeks?

In the process of closing the book, Celeste, we had general accruals on the balance sheet that needed to be reviewed and vetted both internally as well as with external auditors and through that process many of those positions were released, most of those positions being in Europe. So we were surprised in our cost structure, most of it in SG&A associated with the release of those accruals. It was a very favorable circumstance.

On the tax rate, it was really a balanced set of items, very interesting set of items. First we had not completed our FIN 48 work and the list of issues that we were dealing with were quite profound. So we were very conservative in our estimation about what the FIN 48 impacts would be.

And then during the review of our final tax provision, several items associated with the complexity of our relationship with Cooper, which is a very complex relationship that goes back to the spinout in 1993, surfaced that created some advantages for us, most notably around the claim of the credit associated with the manufacturing tax credit allowance for US manufacturers.

So we got some very nice pleasant surprises during the close. I'd say there was a couple of negatives that surfaced as well, but basically everything sort of just went in our direction. It was a very nice circumstance over the last couple of weeks.

And then looking at the Q1 outlook, if you look at the midpoints, it looks like operating margins should be relatively stable going into Q1. You outlined the kind of cost savings, the pace of cost savings throughout the year, the $3 million in Q1. But how should we think about that benefit from lower raw materials, given demand stays basically where it is and assuming copper where it is today? Is that not really a benefit until Q2 because you still have inventory to work down? Or how should we think about that from maybe just a margin progression standpoint?

Celeste, this is John and I'll start and let Gray fill it in. I think if you look at Q4 to Q1, clearly you've got lower revenue in Q1 than you do in Q4 largely because of seasonality that we typically see in Q1, but also we saw a significant deceleration through the fourth quarter. So our December run rate was significantly lower than November and significantly lower than October.

So, you've got less revenue in Q1 than you have in Q4, and of course the variable margin impact on that is a significant negative. Offsetting that, however, is cost actions that we took that's going to give us benefit in Q1 compared to the fourth quarter.

And then of course also, we're expecting to see some benefit in the first quarter on raw material because as we indicated in the fourth quarter we had to start adjusting prices in the fourth quarter appropriately. But then we were eating copper that had been purchased in the third quarter.

So as you think about the bridge from Q4 to Q1, I think you should think about it as variable margin fall off in the first quarter on lower volume, offset by improved cost as we talked about and also the fact that we will start to see some of the benefits of the lower cost of copper coming through the income statement.

And I would reiterate in Q1 there's really two things driving the volume. One is that that we exited Q4 lower than we entered and then secondly, we typically have a seasonality in Q1, which we would expect to see again.

And then just talking about the deterioration that -- the linearity in the quarter, particularly in Enterprise. I believe you talked about projects getting -- although new ones are rolling in, project cancellations or push outs, was that broad based across the whole business or can you talk maybe specifically about Enterprise?

I would say it was relatively broad based. We saw a pretty significant decline in November compared to October and then another decline in December compared to November. And our Enterprise business is more project driven, Celeste, than some of our other businesses and so we started seeing some signs of issues in the sales funnel perhaps a little bit earlier.

I would say though that if you look at our Q4 revenue numbers and you annualize that and you compare it to the full year numbers, you'll see that we saw a more significant down turn in Europe and a more significant down turn in Asia than we did in the United States, just doing the math.

So that was clearly a big part of what we saw, but I think, like we've heard from other companies and you've probably heard as well, there was a very, very significant downward slope in the fourth quarter.

Okay. Thank you.

Thank you.

And your next question comes from Matt McCall, BB&T Capital Markets.

Morning, everybody.

Hi, Matt.

I guess following up on the last question. In the guidance I think in Q4 some of the non-operating items were maybe a little different than expected. Can you talk us through what's baked into that guidance from looking at the other income lines, the tax rate and share count?

Are you talking about first quarter guidance now, Matt, with respect to the key assumptions?

Yes.

Tax rate at 30%, alright. The 26.7 was driven by a series of extraordinary items and for conservatism we're not currently forecasting the continuation of many of those items. So 30% on the effective tax rate seems to be a fairly good conservative assumption.

With respect to other elements, the drive performance, there's no change expected in the share count. So using the [46 8] that we just closed at seems to be a fairly good number.

But as John mentioned, what we are guiding right now are adjusted results. So there aren't -- they do not include other items that may surface associated with the fourth quarter restructuring. Let me reiterate that. We had indicated on the third of December that the total program costs were going to be somewhere between $55 million and $65 million. We've incurred $33 million of that here in the fourth quarter.

I think your expectations should be for modeling purposes on a GAAP basis, if in fact you're interested in that, that we do have another $30 million worth of charges that are currently in process, both cash as well impairments associated with the completion of the fourth quarter restructuring activity.

So we are not guiding with respect to that per se other than the fact that we hope we can get the majority of those activities concluded by the first half.

Thank you. And Gray, you said that -- I think the words were you could have experienced about 500 basis points of topline pressure from copper. Walk me through the math of how that could have impacted your --

Again, this is merely theoretical, Matt.

That's right. And how that could have impacted your operating income and operating margin lines in the --.

I'd say generally, and this is just a general comment. Where the value proposition is has equity, has value, which is the majority of our portfolio. Us and others in the industry have not seen this significant movement in pricing. The pricing has been fairly stable.

But that's not true for the entire portfolio. Elements of our portfolio, most notably the portfolio that's in Thermax on some of their high temp cable, almost the complete portfolio at LTK is tied to the underlying commodity with respect to certain relationships they have with their customers.

So when we do the calculation, we're using about a half rate convention on price degradation associated with LTK and Thermax, a couple of other elements of the portfolio. And the theoretical calculation, just for the others on the call, has to do with the fact that the total copper that we consume on an annual basis is somewhere around 100 million pounds to 110 million pounds.

And when copper goes from $3.50 to $1.50, that's about a $200 million impact associated with the input cost of the business. And if 100% of that were to be passed through then you'd see about a $200 million decline in topline without any incumbent change in either your operating or your gross profit dollars. That's the theoretical.

And since pricing has held fairly consistently, at least through this last quarter, right, not to say that it will continue to be so in the future because we are looking for neutrality in our business model, not advantages or disadvantages associated with copper. We use about a half rate convention for the fourth quarter.

So when you do that math, just quick and dirty, you can see 200 divided by two billion is 10% divided by two is five.

Got you. And then you were also -- you also commented on the inventory issue in the channel. You said that it was part of the 19%, I think, sequential decline. Similar question, how much of a part and maybe what was the impact on your margins in general in the quarter and what's baked into the guidance there? Is that -- it sounded like that situation may have gotten a little better.

It didn't really affect our margin, what it really did is put pressure on topline because our channel partners are managing their inventory exactly the way they should. They're trying to adjust their inventory investment with the new realities of demand.

But we saw inventory in our channel partners come down again in the fourth quarter compared to the third. Again, it's not surprising given the environment. And as we look at sell through information with our channel partners, our performance was obviously better than it was on a billing basis.

For example we had a very, very good quarter with Anixter who -- Anixter announced great results here earlier in the week. They did really very, very well and we were pleased that we did well with them also. So that's a relationship that we continue to value very much.

I think that our expectations are that the channel inventory is probably going to either come down some more or it's going to remain stable. We have no expectation that in the short run it's going to come back up.

Then final question. Gray, did I understand correctly, or John, I'm sorry if it was you, but it sounded like there was more -- the potential for more restructuring announcements to come? Or is it -- were you speaking about the savings? Did I misunderstand that?

I think what we tried to say, Matt, is that we have a plan. The plan has been completed for some time. The plan was completed at the time we shared with all of you the cost of the benefits. But some of the details associated with that plan have not been completely articulated and as we make those announcements, as we complete the spending, we'll update you on that.

So no expected incremental savings?

Nothing above what we've already committed.

Got you. Thank you, all.

Yes.

And your next question comes from Jeff Beach, Stifel Nicolaus.

Yes. Good morning, John and Gray.

Good morning, Jeff.

Hi, Jeff.

You were just talking a little bit about the impact of lower copper on a couple of businesses, but if you can to some degree step away from the copper, can you just run through all of your business, not only cable but the connectors and the other businesses, Trapeze, and talk in general about the pricing trends? Let's say through the fourth quarter, but also what you've seen in January?

Sure, let me try to do that for you. First of all, I would say our industrial Ethernet business the pricing situation's quite stable. No significant shifts in either direction. It's a business that has relatively shorter product life cycles and you're continuously trying to obsolete your own products through better technology. But I'd say the price environment there is fairly stable.

At Trapeze, I think the pricing environment's gotten more competitive. As the growth rates are expected to come down, companies like Aruba and Cisco and others in the space I think are going to become more aggressive. And so our team at Trapeze is working on how to deal with that effectively and modeling that appropriately.

And then in our connector business, that's more of an OEM business, Jeff, and therefore it's more of a design win business. And so I'd say the pricing environment there is also relatively stable. As we compete for new design wins, it'll have an impact in the future. There might be a little bit more price pressure, but I don't think that's going to be significant.

In the area of the cable products, I think as Ray appropriately said, you really have two sort of worlds. You've got the product lines where the pricing tends to be relatively stable, largely because the product lines are highly differentiated and the product lines in many cases have a much larger sort of daily order rate or MRO component to them. And we think that that pricing environment will probably remain fairly stable.

But then we have other product lines where it's more project oriented, particularly in the enterprise segment and certain parts of our industrial segment where it's far more project oriented. And we would expect that pricing pressure there will be very, very high. And in fact we saw that in the fourth quarter already where our team did in fact take business at price levels that make sense based on current copper costs, but were quite challenging based on the copper cost that was in our income statement.

So that's a relative, Jeff, view of kind of the portfolio on a product line basis.

Alright. Another question, particularly in Europe where the volume has fallen off the most sharp -- excuse me -- where volume has fallen off the sharpest in your company, you've taken a lot of actions to cut cost but employment agreements, other things cause a lag there.

When do you think that you'll be effectively catching up with your lower costs, particularly in Europe, but in other markets with the lower demand that's occurring?

We're going to see some of that improvement in the first quarter, Jeff, but I think that we'll see sequential improvement again in the second quarter. You're right, it does take longer to take the actions necessary to reduce your cost structure in Europe than it does in North America or even Asia.

But I think sequentially we'll see improvement from Q4 to Q1. The team has made good progress. We've been negotiating intensely with the various constituents in Germany and other parts of Europe over the last two to three months. I think the leadership team is doing a good job in Europe, making good sound business decisions but also in a very sensitive and appropriate way.

So I think we'll see sequential improvement, Jeff, but in Europe especially, we'll probably see another ratchet from Q1 to Q2.

And by second quarter, mid-year, do you think unless the volume continues to deteriorate sequentially that even though you might continue to cut cost, that by then you -- a lot of the actions you've taken are effective in stabilizing margins?

I'd say the current plans right now, Jeff, most of that will be completed in the first half as Gray indicated. But we're watching the European business very, very closely. And we've got a couple of businesses that are especially tied to some segments that we think are going to continue to go through difficult times like the automotive industry.

And so I can't rule out at this point that we might not take additional actions in Europe if that's what's required.

Last question, back on Trapeze on a -- on the standpoint of a cash basis or recognizing all of the revenues, is Trapeze near break even or losing money? Can you make a comment about that?

When you adjust for the revenue and the gross margin deferral as we have in these results, Jeff, they did have a loss in the fourth quarter. And we believe that we've got the actions in place to turn that business breakeven in 2009 and that's what we're focused on. The team has already done some very good things in reducing cost, particularly in sales and marketing.

And, Jeff, as you recall, a big part of this transaction was what we believe a significant opportunity to leverage the existing Belden sales and marketing organization to their benefit. So the R&D investment in the business continues to be at a very stable rate. We're looking at ways to make it more efficient, but the investment's at a very stable rate. And what we're really focused on is driving much, much better productivity from a sales and marketing point of view to get that business to break even as quickly as possible.

Thank you.

Thank you, Jeff

And we'll go next to Gary Farber, CL King.

Hi, can you just talk in aggregate for foreign currency, the aggregate dollar value of foreign currency benefit to revenue in the past year?

The aggregate, Gary, I do have, and if you'll go to your next question, I'll retrieve the answer to that --.

That's the only question I have.

Well that's not fair, Gary. Somebody want to pull up the reconciliation on that.

Gary, you're looking for full year FX?

Right.

Okay. That's the year-over-year; he's looking for the full year. We've already mentioned on the call that the quarter year-over-year was $14.8 million, unfavorable. But Gary is asking what the full year impact was of FX.

Gary, we don't have that right off the top, so if you don't mind, we'll try to get it while the call is still open --

Okay, sure.

-- and get that answer out to you. Okay?

Alright, thank you.

Thank you.

And we'll go next to Nat Kellogg, Next Generation.

Hi, guys, just a quick question. Do you expect any changes in the amortization expense given the goodwill and what not write downs? Does that have any effect of amortization going forward?

So interesting the way FAS 142 is written, Nat. The majority of the intangibles, I'd say almost 100% of the intangibles, are staying on the balance sheet. Only the goodwill is being impaired, so we have a total balance in excess of $150 million in intangibles, which are not impaired on the methodology that you utilize associated with the impairment approach.

That's another anomaly associated with how FAS 142 was written. Great question, one that we addressed here in a lot of detail just to understand how those mechanics work under 142.

And now I'm going to pause because I have the answer to Gary Farber's question. And the answer, Gary, is $45.6 million favorable in our annual year-over-year results. And recall that we said our organic growth adjusted for FX, divestitures and acquisitions was a minus $11.2. So you can see that about 3%, 4% of that -- excuse me, 2.5% of that relates to the FX adjustment.

My apologies and now back to you, Nat.

I think you guys gave the growth for Trapeze for the full year at 14%, but I was just wondering what it was in quarter. You may have said it; I'm sorry if I missed it.

Quarter Trapeze, John.

We'll have to get back to you on that.

Okay, that's okay. And that's all I've got. Thanks for taking my questions, appreciate it.

And we'll go to Keith Johnson, Morgan Keegan.

Good morning. I just had a couple of questions real quick. I guess maybe just kind of housekeeping as far as how should we look at CapEx? How looking at it for the year in 2009?

CapEx for 2009, we established a target similar to this last year's target when we met at the Investor's Meeting on the 11th of December.

Right.

We have modified our expectations. We're having a full review with the business groups here in the middle of February. I think it's going to be sitting at about 50% of our current appetite, but we still haven't finalized that. So somewhere around $30 million, perhaps a little bit above or a little bit below depending on the prioritization of the projects.

But we certainly have to cut back our appetite and we have processes in place to make sure that we're prioritizing the right programs for 2009. So there's a place marked for free cash flow, I would suggest using around $30 million at this juncture.

And I would just add that remember that in the last two years we've had significant building investments -- one in Nogales, Mexico, and the other in Suzhou, China -- that affected our 2007 and 2008 capital spending. We have nothing like that planned in 2009.

And if I understood correctly, you're running probably about a 30% tax rate for 2009?

I think that's a good number to be utilizing at this juncture, yes.

A little bit on -- if you could give a little bit more color on the new plan in China. I guess you're ramping up with LTK products first, then followed by Belden-specific products next. As we look in '09 would we expect any logistic savings or some type of savings as we get further into the year from that plan?

We actually have two cells in the new factory that are Belden-branded cells. I was at the factory in January and so I got to see production in the new facility. So we actually do have two cells that are Belden-branded localized production. So we do expect that our 2009 results will include the benefit of localization and the benefit of reduced logistic costs as we no longer have to import that from Europe and the United States.

Any way to put a little color around the possible value there versus kind of what you guys were doing in 2008? A dollar amount?

Yes, I think that the way we tried to describe it previously is that if you look at the average cost of labor and transportation, you're looking at anywhere from a 10% to 20% benefit. And then we think that that benefit will either translate into expanded margin or improved growth rates.

So I think that in 2009, I think if you look at the Belden portfolio and the Belden brand product, you should expect that we would see 100 to 200 basis points margin improvement in that product line going into 2009 versus '08.

And then just a couple last questions. I guess first off you've talked about non-metal inflation costs coming through 2008. Is there a way you could give us the dollar amount, or what you would attribute to the dollar amount in '08 for the year?

Compared to '07 copper was basically flat year-over-year.

Okay.

Was it non-metal?

I'm sorry, non-metal.

Non-metal was about $10 million to $15 million worth of headwind that we needed to recover in order to get to our $26 million target.

And then final question, how does the credit status or any change in bad debt expense as you kind of look at -- I know you deal with some large customers, but as you look at your customer profiles, increasing risks there of potential credit problems?

And again a heightened level of attention obviously, us and just about every other company, making sure that the balance sheet is incredibly clean with respect to our activities with our customers in receivables.

We have the luxury or the advantage of dealing with very, very strong channel partners so the majority of our receivables do sit well-defended and protected with very well-capitalized channel partners. That is generally the case.

There are exceptions and most notably in China the exception is where we deal in a extended or protracted supply chain with the LTK products, there are risks. And several of those risks were recorded in our balance sheet and income statement in the close.

We increased our reserve for bad debt allowance in China specifically by almost $2 million in the quarter. And we also took a specific action associated with the declaration of bankruptcy at Nortel, right? And the incumbent risks that were associated with that as Nortel is a critical OEM partner for Trapeze.

We fully defended both the balance sheet as well as the income statement associated with those positions in our fourth quarter. It was a very good question, Keith, and very astute to the things that we're dealing with.

Okay, so to make sure the dollar amount, I guess, was the $2 million related to the China accounts, and then review the Nortel situation.

Yes, and the Nortel issue has been fully reserved, as you would expect, associated with our exposure at Nortel. It was under $1 million.

Okay, under $1 million. Okay, thank you.

And due to time constraints that will conclude today's question-and answer session. Mr. Benoist, I'd like to turn the conference back over to you for any additional or closing remarks.

Okay. Thank you, Bill and thank you for everybody's participation on today's call. If we didn't get to you, please give us a call this afternoon. Thanks again for joining us on the Belden Earnings Conference Call. We sincerely appreciate your interest and will be happy to entertain a call for follow-up questions. This concludes our call today. Thank you very much.

And thank you ladies and gentlemen, this does conclude the call for today. You may now disconnect from the call and thank you for participating.