Belden Inc (BDC) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden incorporated conference call. (Operator Instructions). I would now like to turn the call over to Gray Benoist, please go ahead sir.

Hello, and good morning everyone. My name is Gray Benoist, and I'm the CFO of Belden. Thank you for joining us today for our fourth quarter and full year 2009 earnings conference call at Belden. Joining me on the call today from here in St. Louis is John Stroup, President and CEO of Belden. First, the logistics, we have put a few slides on the web. To see these please go to investor.belden.com and sign on to the webcast. There is no www in that address, just investor.belden.com. Also, if you need a copy of our press release, you will find it at that location.

If I could have everybody turn to slide two. 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. 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 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, after which I will review additional financial results and segment analysis for both the quarter and the full year. Then John will discuss our outlook for the business. And finally, we will open up the line for questions. So at this time, I would like to turn the discussion over to our President and CEO, John Stroup. John?

Thank you, Gray, and good morning, everyone. If I could have you please turn to slide three. The market today is a much different place than it was one year ago, and the conversations we were having with our stakeholders, including customers, investors and employees, were of a different variety than the ones we are having today. It is reasonably safe to say that we are in a much better place today than we were one year ago. We have successfully weathered a historic downturn, and I believe we did a good job getting out ahead of the challenges. I think we were honest with ourselves about what we were going to face in 2009, and as a result, we took some difficult decisions related to restructuring our business very early on in the process.

Overall, our restructuring actions, which included the closure of a number of manufacturing facilities and the divestiture of HEW, generated $41 million in savings in 2009. While a significant amount of this restructuring activity occurred in Europe, actions and savings were realized across all of our businesses globally.

Many companies when faced with similar challenges tend to cut their costs arbitrarily, looking for the easiest or fastest path. But in our case, we were very precise with our decisions. We made certain that we did things that would address our issues not only in the short run, but also would continue to protect the investments that are important for the business to perform over the long run. We're pleased that even in the face of these economic challenges, we were able to make investments in 2009 in our Market Delivery System as well as lean and talent management.

We first introduced our Market Delivery System at our investor's day in 2008, and similar to lean, it is a journey. We experienced success with our Market Delivery System in 2009, including improved channel relationships and growing market share at our global accounts, which are those customers representing our largest end user revenues at Belden, despite revenue declines in many of those same companies.

We have transformed the sales culture from one that was product focused to one that is customer and application focused. Our sales processes are more disciplined and our sales associates no longer do everything. Rather, they are being trained in specialized areas, and a strong emphasis is being placed on understanding the customer and providing insights that are valuable to their business.

As someone with a lot of operating experience, I am very proud of how effectively we fixed and flexed our cost structure. Earlier in the year, we made the commitment to a one full turn improvement in working capital turns in 2009, despite the realities of weak demand. As a result of our focus on the fundamentals of Lean Enterprise, I am proud to report that our working capital turns in the fourth quarter of 2009 improved nearly four full turns over the fourth quarter of 2008.

Similarly, during the fourth quarter of 2009, we had tremendous success improving our inventory turns to 7.3 turns from 5.9 turns in the fourth quarter of 2008, representing not only the highest level in Belden's history, but also industry leading levels. Reducing inventory in today's environment is common. Maintaining turns, however, is unusual. Improving turns is a clear differentiator, and I believe it is the best evidence of our improved proficiency with Lean tools. Operationally, we have made an enormous amount of progress and we can feel good about it in terms of what we have accomplished in the face of this very difficult economic environment.

Although full-year revenues for 2009 were down approximately 30%, our focus on Lean Enterprise provided us with the tools to expand our year over year adjusted gross profit margins by 260 basis points, which is a tremendous accomplishment given the economic turbulence of 2009.

At this point, I would normally begin my overview of the highlights within each of our business segments during the quarter. However, following the success we had at our investor day back in December, we're making a change in how we discuss the results of our business with you. Gray will continue to provide a more detailed discussion of our operating segments in a few moments.

However, going forward, I'm going to talk about the performance of our business from the perspective of our three global product groups -- Cable, Connectivity and Networking. Cable is still our largest business both in terms of revenue and profit. Connectivity includes both industrial and Enterprise connectivity. And lastly, our Networking group includes our Industrial Networking, as well as our wireless products.

Beginning the discussion with our Networking group, during the fourth quarter, total revenue in this product category was $64.8 million, a sequential increase of 8%. In the Industrial Networking business, revenue increased throughout 2009 and ended the year with its best performing quarter.

Our Industrial Networking product has some of the best margins in the Company, and growth here has contributed to consolidated gross profit margin expansion during 2009. We are focused on applying this technology to fast-growing verticals such as large scale public transport systems, wind energy and power transmission. This is a global market, and our relatively low share in Asia and the Americas provides tremendous opportunity for continued growth.

The other element within our Networking product group is our wireless business. When we purchased Trapeze in 2008, we did so based on the vision of taking wireless communications to those applications, customers and markets that have historically relied on Belden to solve their signal transmission needs. While 2009 was a difficult year for Trapeze, the recent performance in our wireless segment is promising. Although the OEM business continues to be a concern following the Nortel bankruptcy and subsequent sale to Avaya, for the full year 2009, Trapeze branded products demonstrated solid growth of 19% compared to 2008.

Additionally during the fourth quarter, Trapeze reduced its operating loss by $3.5 million sequentially, and by $3.2 million year-over-year. We are committed to improving this business, and we expect Trapeze to reduce its operating loss throughout 2010. Our plan attacks the cost structure by reducing duplicate back office costs and improving our commercial productivity by integrating our sales forces. We have already seen some success as we have improved commercial productivity, 30% year-over-year.

However, we want to be clear that we are not cutting back on engineering or technical support, as the business requires product leadership and innovation to meet the demands of the market. We are not sacrificing long-term prospects for short-term gains.

We recently announced Dhrupad Trivedi as the new President of Trapeze Networks. Dhrupad previously worked at JDS Uniphase for 11 years, where he developed significant operational and product management experiences as Vice President and General Manager of the firm's transmission business. We look forward to working with him to drive continued improvement at Trapeze.

Our Connectivity business includes both fiber and copper connectivity for the Enterprise and industrial markets. Like our Networking group, this business has attractive margins and is favorable to our overall mix. During the fourth quarter, this business grew 15% sequentially, delivering $40 million in revenue.

New innovative products like the recent launch of the FiberExpress Brilliance Field-Installable connector, our newest and most advanced fiber connector for the Enterprise, will help fuel our growth going forward. This connector was officially launched at the BICSI Winter Conference in Orlando, which is the premier event for structured cabling manufacturing. It was the most exciting product launch on the show floor, with customers lined up four deep to have a chance to try the product.

Our patent-pending design not only eliminates the need for special tools, it also simplifies the installation steps typically associated with fiber terminations. It is the easiest, simplest and fastest connector in the industry, and we have clearly set a new standard for innovation, quality and functionality.

Also, in addition to Enterprise and Industrial Connectivity, we are now able to offer broadcast connectivity through our recent acquisitions of Telecast Fiber Systems. We acquired Telecast towards the end of 2009. The company is a developer of fiber optic video technology for television broadcast production, and expands Belden's core offerings and complements our leadership position in the broadcast space.

In January, we announced the hiring of Christoph Gusenleitner as Executive Vice President of Europe, Middle East and Africa. Christoph will also serve as the leader of our Global Connectivity business. Most recently, Christoph worked for Bain & Company, where he was a partner within the industrial goods and services practice. Prior to this, he held multiple key management positions with a diversified industrial manufacturer, Danaher. While at Danaher, he was responsible for leading three global business units.

The Cable product group is the largest of our product businesses. This business had revenues of $284 million in the fourth quarter, with growth of 9% sequentially.

Although we manage the business to be copper neutral, we're not entirely immune to the effects of significant swings in copper prices. During the first half of the year, we recognized a benefit, as we were able to maintain our prices, despite falling copper costs. But conversely as copper prices have continued to rise in the second half of the year, we faced a more challenging environment and experienced some mild difficulty in recovering costs due to the competitive pricing environment.

However, we believe that we're seeing signs that suggest a shift in buying patterns to higher end cable solutions as customers are demanding higher capacity systems in their data centers and at their desk top. Through our Market Delivery System and focused salesforce, we're well-positioned to capitalize on this growth opportunity.

In general, the economic downturn had a significant impact on our Cable group, as customers slashed capital spending to reduce capacity and conserve cash. Because our channel partners were forced to flex their inventory in the face of this lower demand, our revenue in the first three quarters of 2009 was depressed further. We believe that this excess inventory has finally worked its way out of the channel, and the orders we are now receiving represent real demand.

In 2009, not only did we focus on product innovation and cost flexibility within our product groups, we also placed a tremendous amount of emphasis on free cash flow, and asset utilization. We believe free cash flow is an indication of the quality of the earnings and the best way to fund our strategic initiatives. In 2009, despite the significant decline in revenue, our free cash flow has been outstanding. We generated $111 million during the year.

When I started this call, I said that the world is considerably different today than it was one year-ago. However, one thing that has been a constant throughout this ordeal has been the steadfast support and commitment to our corporate values from all our associates. Nothing that we achieved in 2009 would have been possible without them. We have clearly emerged from this challenge a stronger and more flexible Company.

With that, I am now going to turn the call over to Gray for a more in-depth discussion of the business results. Gray?

Thank you, John, and good morning, again, everyone. I will begin my comments with GAAP results for the quarter and the full year, followed by a review of our adjusted results of operations. Then I will walk through our segment results, cash flow, working capital and asset management, and close my remarks with comments on our global restructuring initiative and cost savings measurements. In the fourth quarter, GAAP revenue was $388 million, and the Company reported income from continuing operations of $21.3 million, or $0.45 per diluted share.

We incurred restructuring charges of $16.4 million pretax in the quarter, resulting from the execution of our global restructuring initiatives. Among this quarter's charges were costs incurred in continuing process to close one of our two manufacturing locations in Leominster, Massachusetts, and cap and costs associated with our German Connector Assembly operations realignment.

For the full year 2009, we're reporting GAAP revenue of $1.4 billion, which was 29.4% lower when compared to total revenue in 2008. 2009 revenue, without the effects of currency, acquisitions and divestitures, was 27.7% lower than in 2008. The Company is reporting a loss from continuing operations of $23.5 million or $0.50 per diluted share for the full year 2009.

In total, the Company incurred pretax restructuring charges of $105.4 million during the year, an amount consistent with our expectations as communicated in the fourth quarter of 2008 and the first quarter of 2009. I will provide a status of the restructuring programs later in this review. I will focus the remainder of my comments on adjusted results without these charges.

For your benefit, a reconciliation table between GAAP and adjusted results has been provided as part of today's press release. Additionally, these adjustments have been reconciled by a reporting segment on pages 9, 10, and 11 of today's slide presentation. We hope you find these disclosures helpful.

Consolidated revenue in the fourth quarter was $389.5 million, a decline of 8.7% compared to the fourth quarter of 2008. Currency translation was favorable by $14.8 million, or 3.4%. Year over year fourth quarter revenue when adjusting for currency, acquisitions and divestitures decreased 9%. Sequential revenues, however, grew 9.6%, with a favorable impact from currency translation of 5.3 million resulting in currency neutral sales growth of 8.1%. For the full year, consolidated revenue was $1.4 billion, a year-over-year decline of about 30%.

Turn to slide five and our breakdown of our revenues by geography, vertical market and products. The geographic mix of revenue for the fourth quarter is shown on the left. Revenue in the United States was 41%, Canada 10%, Europe 22% and Asia 22%. Sales were up in the US, and in the Canadian market on a sequential basis, as we experienced strong results for the fourth consecutive quarter in Canada, where revenue grew this quarter by 7.2% sequentially. Indicators suggest a recovery is underway in Asia, as sales increased 20.1% sequentially and 1.9% year-over-year. In fact, we experienced sequential topline growth across all of our geographies in the fourth quarter of 2009.

The geographic revenue mix for the full year was the United States at 43%, Canada 9%, Europe 23%, and Asia 19%. The pie chart at the top depicts revenue by vertical market. The industrial market rose to 47% of our business in the fourth quarter, up from 44% in the previous quarter. As John mentioned earlier, the fourth quarter saw strong topline sequential performance in our Industrial Networking business group. I will add that sequential sales volumes improved as well in both Industrial Connectivity and Industrial Cable, leading us to conclude that most, if not all, of the channel inventory correction in this key vertical market is behind us.

The Enterprise vertical, which includes our wireless segment, accounted for 30% of our overall revenue, down 240 basis points from last quarter and 110 basis points from the fourth quarter of last year. This vertical is displaying tight market conditions in category cable sales and a challenging fourth quarter in Trapeze OEM business.

Revenue in our Video, Sound and Security vertical fell 70 basis points from the last quarter to 11% of total revenue. Our other verticals remained unchanged from the previous quarter, with Consumer OEM at 8% and Transportation and Defense at 4%. The pie chart on the right side depicts revenue by product line, which John discussed in his comments. Note that our product portfolio has shifted to where 27% of the Company's revenue is now being generated by products beyond Belden's traditional cable core.

We can continue down the income statement and return to slides three and four, please. Adjusted gross profit margin was 31.8% in the fourth quarter, in line with the prior quarter gross margin of 31.9, and a 410 basis point increase from the fourth quarter of 2008. Copper cost fluctuations make quarterly and year-over-year comparisons challenging; however, the majority of our year-over-year gross profit expansion was delivered through tight cost management, Lean Enterprise techniques which drive productivity, and the benefits of the global restructuring plan.

Year-over-year fourth quarter gross profit margins expanded across the businesses, with Trapeze, EMEA and the Americas recording improvements in excess of 500 basis points. Asia gross profit margins declined 70 basis points from prior year fourth quarter results, but this change was due exclusively to mix, as sales expanded considerably at LTK, one of our thinner margin businesses. For the full year, adjusted gross profit margins expanded 260 basis points to 32% from 29.4% in 2008.

SG&A expense in the fourth quarter was 70.8 million or 18.2% of revenue, an improvement as a percentage of sales of 100 basis points, sequentially on 110 basis points compared to the fourth quarter of 2008. For the full year, SG&A expense was $273.2 million, 19.7% lower than in 2008. Excluding the July 2008 acquisition of Trapeze, SG&A for the full year 2009 was 24.2% lower than in 2008.

Fourth quarter spending in R&D was S15.8 million or 4.1% of revenue, an increase of $1.6 million sequentially and $2.8 million year-over-year, testimony to Belden's commitment to continued strategic investment in technology and product innovation in all of our businesses. For the full year, R&D investments totaled $58.9 million or 4.2% of sales. This compares to $46.5 million and 2.3% in 2008, indicative of the acquisition of Trapeze Networks.

I will now discuss debt and our debt covenants and you can turn to slide six, seven, and eight. At year end, we had $590 million of total debt outstanding consisting of $544 million in senior subordinated notes at a blended interest rate of 8% and $46 million drawn under our revolving credit facility. At year end, the Company had additional liquidity under the revolving credit facility of $60 million.

Interest expense for the fourth quarter was $13.1 million, and our interest coverage ratio was 3.7 times. The Company's debt to EBITDA leverage ratio at the end of the fourth quarter was 3.62 compared to 3.46 in the prior quarter.

Income tax expense was $3.7 million, and the adjusted results are 16.6% of pretax income for the quarter. The effective tax rate for the full year, adjusted results was 23.3%. During the quarter, the Company recorded favorable return to tax adjustments, most notably in Germany and Sweden, resulting in a lower tax rate relative to our earlier expectations.

In the third quarter, GAAP income tax expense was $16 million or 188.1% of GAAP pretax income for the quarter. This odd result was due to an anomaly in the application of APB-28, as applies to the quarterly tax provision. Under APB-28, a company in the position of estimating a negative tax rate on forecasted annual and operating income must then apply this negative rate, in Belden's case, to third quarter and a cumulative pretax loss. This mathematical combination created accounting tax expense in our third quarter.

In the fourth quarter, this accounting circumstance was reversed through the annual tax true-up process, resulting in a GAAP tax benefit of $15.7 million or 276.9% of GAAP pretax income. The full year 2009 GAAP effective rate was 31.7%.

Adjusted income from continuing operations for the fourth quarter was $18.4 million, and adjusted earnings per diluted share were $0.39. For the year, adjusted income from continuing operations was $54.4 million, and adjusted earnings per diluted share was $1.16. If I could have you turn to slides 9, 10 and 11, we will spend a little time on our segment results.

External revenue of the Belden Americas segment was $205.5 million in the fourth quarter, affiliate sales were 11.6 million. Including affiliate sales, total fourth quarter revenue of Belden Americas increased 5.8% sequentially, but declined 9.3% year-over-year. For full year, the Americas segment report $810 million in revenue, a decline of 26.5% from 2008.

During the fourth quarter, adjusted operating income for Belden Americas was $35.5 million or 16.4%, a sequential decline of 80 basis points. Full year adjusted operating income was $138.8 million or 17.1%, an improvement of 140 basis points over 2008. The EMEA segment's fourth quarter external revenue was $89.9 million, an 11% increase sequentially and a 14.4% decline year over year.

Including affiliate sales of $16.6 million, total revenue of EMEA increased 13.1% sequentially, but declined 14.9% year-over-year. Full year external revenues for the segment were $345.2 million, 31.2% lower when adjusted for divestitures.

Fourth quarter operating income of the EMEA segment was 14.1 million or 13.2% of total revenue. This compares with $10.4 million or 11% of revenue in the third quarter of 2009, and $5.3 million or 4.2% of revenue from the fourth quarter of 2008. For the full year, EMEA reported operating income of $34 million or 8.5% of revenue, a decrease of 110 basis points over 2008.

The Asia Pac segment had fourth quarter external revenues of $79.3 million, an increase of 18.2% sequentially and an increase of 2.3% from the previous year. For the year, Asia Pac generated revenues of $250.3 million, a decline of 33% versus 2008. Adjusted operating income for the fourth quarter was $10.6 million or 13.4% of revenue, up 340 basis points sequentially, and up 140 basis points year-over-year. Full year adjusted operating income was $29.9 million or 12%, a decline of 90 basis points compared to 2008.

As we discussed last quarter, the Financial Accounting Standards Board recently created rules which impact the requirement to establish the SOE vendor-specific objective evidence, thereby eliminating much, but not all, of the deferred revenue many companies are required to currently report. Under this guidance, the Company will no longer defer revenue on bundled Trapeze sales, which include post-contractor customer support, or PCS.

Belden has decided to be an early adopter of this guidance beginning in our financial reporting in the first quarter of 2010. During the fourth quarter, Trapeze reported GAAP revenue of $13.1 million. Trapeze deferred revenue balances increased $1.7 million in the quarter, while the deferred cost of sales balance increased $522,000. The net unfavorable impact to gross profit on a GAAP basis was $1.2 million, creating an unfavorable impact or reported GAAP results of about $0.02 per share.

Trapeze had adjusted revenues of $14.8 million, and adjusted operating loss of $3.4 million in the fourth quarter. As John mentioned earlier, Trapeze branded sales grew 19% year-over-year, and the wireless team is working towards profitability. In the fourth quarter, segment operating losses were reduced by $3.5 million sequentially and $3.2 million from the fourth quarter of 2008.

Now if could I have you turn to slide 12, our free cash flow. The Company had $308.9 million in cash at the end of the year. $155.9 million is in depository accounts that are used in the day-to-day operation of the business, and $153 million is in short-term investment accounts, primarily denominated in government issues. Free cash flow in the fourth quarter was $17.7 million, comprised of net operating cash flow of $31.9 million less capital expenditures of $14.2 million.

This marks our 12th consecutive quarter of positive operating cash flow. For the year, the Company generated $111.4 million in free cash flow. Depreciation and amortization was $15.2 million in the quarter and $55.9 million in the year.

Now if I could have you turn to slide 13, we will discuss inventory working capital and PP&E turns. As John discussed earlier, we're pleased by our operational successes in driving inventory turns to record levels. Inventory turns in the fourth quarter were 7.3, up sequentially from 6.6 turns in the third quarter and more than a full turn higher than the 5.9 turns we reported in the fourth quarter of 2008.

Working capital turns also set new highs, as fourth quarter turns were 10.9, a 1.5 turn increase sequentially, and a 3.9 turn improvement year-over-year. We continue to stress the fundamentals of Lean, and our fourth quarter results in asset management highlight the benefits that can be derived from this focus, despite the difficult economic environment we all faced in 2009. Property plant and equipment turns were 5.2, one half a turn higher than the 4.7 turns in the third quarter and higher than the 5.1 turns in the year-ago period.

And finally, to summarize our restructuring activities, could I have you please turn to slide 14? During the third quarter call, we forecast fourth quarter cost reduction benefits of $12 million. We're pleased to have exceeded this forecast by an additional $1 million, bringing our fourth quarter results to $13 million and our 2009 full-year benefit to $41 million in savings. We expect benefits of this program in 2010 to be $56 million. At this time, I would like to turn it back to our CEO, John Stroup, for a few remarks about our outlook for the first quarter and full-year 2010. John?

Thank you, Gray. If you could please now turn to slide 15. Despite relative stability, we're still operating in an uncertain and challenging world. Most of our customers won't feel comfortable increasing spending rates until they experience several quarters of real economic growth. Although recent PMI data points to an expanding US economy, we're still seeing signs of low capacity utilization and weak ABI data. Given our exposure to the nonresidential real estate market, we are taking a cautious approach.

The German economic situation is still negative. And while the IFO index shows improved expectations, growth is yet to be realized in any substantial way. However, there are clearly some positives that should be highlighted.

Notably, we are exiting 2009 at a much higher profitability than our full-year average. Our emerging markets are growing, we're well-positioned to capitalize on expansion within the Networking group, and we continue to generate significant amounts of free cash flow. We remain committed to driving long-term shareholder value and improving profitability.

At our investor day, we shared with you our updated three-year goals related to organic revenue growth, operating margins, free cash flow and return on invested capital. We believe these are still the correct goals for the Company, and our priorities to achieve these metrics remain unchanged. Our first priority is to continue to work on improving our Market Delivery System.

We shared with you one year ago a number of things we were doing to be more effective commercially. As we discussed in December at our investor's meeting, we have made important progress over the last 12 months in those initiatives. It remains however, as our best opportunity to create shareholder value.

Our second priority is talent. Over the past three years, we have made tremendous progress with our talent, evidenced by our ability to triple the number of high potential associates in the Company and upgrade more than 75% of our senior level positions. Having the right people in the right places is essential, and we are making progress in our effort, but we still have more to do.

Our third priority is to strengthen our Connectivity and Networking platforms. Within our Cable business, we're able to easily make bolt-on acquisitions that drive business profitability. Our aim is to replicate this capability within our global Connectivity and Networking businesses so these businesses have the same leverage we currently enjoy in our Cable business. We want to make them stronger and a larger portion of our overall business.

Finally, we want to become one of the truly best Lean companies in the world. I am pleased with the progress we have made over the last three years, but the journey never ends. There is always so much more to do; and although we are proud of our progress, we are invigorated by what lays ahead.

Before we discuss our guidance, it is important to remember that our first quarter of the year is always seasonally our slowest, as we are impacted by slower US markets in the quarter, and generally lower volumes throughout Asia due to the Chinese New Year. That said, for the first quarter of 2010, we expect adjusted revenue and diluted earnings per share to be in the range of $370 million to $380 million and $0.20 to $0.25, respectively. Although it is still early in the year, we're seeing signs that point to continued stability in order rates across all our product groups.

While the timing and magnitude of a full economic recovery remains uncertain, we are reassured by these signs and believe that our markets have generally stabilized. As a result, on slide 16, we have elected to provide annual guidance. For the full-year 2010, we expect adjusted revenue and diluted earnings per share to be in a range of $1.5 billion to $1.55 billion, and from $1.35 and $1.50, respectively. 2010 revenue reflects the impact of higher copper relative to 2009, and earnings include the impact of a full year of restructuring benefits and the continued improvement of our wireless segment. Our 2010 tax assumption is based on a 30% tax rate.

We are well-positioned to deliver expanded profitability and solid cash flow, and we would expect to benefit further from the economic recovery when it occurs. 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 will remind you of the procedures for asking your questions.

(Operator Instructions). And Mr. Benoist, your first question is from Shawn Harrison with Longbow Research.

Hi, good morning. First question -- excuse me -- just has to go back to copper prices particularly. I guess as we head to the first half of the year on a sequential basis, maybe if you could discuss the headwind you're facing on a dollar basis so we can kind of, I guess, put that up against the earnings guidance. And then also, just the growth we should expect in R&D versus the December run rate for the fiscal year 2010?

Happy to take a shot at it. Boy, we thought copper was volatile before, Shawn, right? In January we have had a $0.50 spread between its peak and its nadir just over the last 20 trading days. It has been a phenomenal circumstance. So we couched our comments today to say that, hey, the level of unpredictability we have is quite challenging.

So with that in mind, our exit from the fourth quarter was copper around $3.20. Right now so far this quarter it is about the same, even with that level of volatility. So in essence, we're balanced, and therefore our inventory position at the end of the year -- or the value that we were carrying in inventory at the end of the year is fairly consistent with what we have at today's spot.

That said, we have no predictability associated with what the spot is going to do in February and March. And again, yesterday was down another $0.11. So there is that balance, if you will, of copper. Our sales will be slightly higher in the first quarter relative to the fourth quarter, maybe somewhere around $8 million to $10 million, associated with the average spot cost of copper Q1 versus the fourth quarter of last year.

Okay. And I guess, the point I'm trying to drill out is if your guidance for the full year versus where the rest us were is a starting point, it looks like there is margin compression versus our expectations. Is that pricing may be just a little bit of a lagger to come back to recover the rise you're seeing in input costs, or is there something else that we're missing? And that's why I was trying to touch on R&D as well.

Right. So if you want to talk about year-over-year guidance versus 2009 actuals. Let's talk about those (inaudible). The average copper that was in our income statement, both topline and cost of goods sold for 2009, was around $2.40. So we're exiting at a rate that is significantly above that, and we have adjusted our prices, as you would expect, to recover in neutrality 100% of that variation.

In this environment it has been difficult. It is not possible, it is just challenging. But you'll see year-over-year that sales are going to increase if that $3.20 or $3.10 is stable throughout the year, somewhere around $70 million in topline. And there is the expectation -- and we have guided -- neutrality associated with that topline adjustment. Right?

But margins will always decline -- if you're holding your gross profit and your operating profit dollars constant -- as copper rises because your denominator is increasing when your numerator is stable. So margin percents decline, all other things being equal. But the delta year-over-year is around $70 million to $80 million a pop.

Okay. And the expectation is eventually pricing neutrality, it's just difficult in the short-term, so maybe in the back half of the year you would see a better recovery than the first half?

I'm saying we're committed to neutrality every quarter, and it's just a challenging environment and there is nothing in the guidance right now that would suggest an inability to be in a neutral position.

Okay. And on the operating expense dollars, the run rate we had this quarter, should we expect it to step up in the March quarter on a dollar basis for more R&D, given the staff you're bringing on as well?

Well, it depends on a couple of factors. First in the fourth quarter, we didn't benefit associated with our flexible engineering model. I discussed the flexible engineering model maybe a year and a half ago, and really haven't talked about it since.

But with way we've constructed the engineering environment, most notably in our Industrial Networking business, they utilize third parties for some of that construction, and therefore they are able to turn on and turn off on fairly short periods of time incremental in R&D associated with those third party resources. So what we saw in the fourth quarter was the ability to turn on that resource, to be able to accelerate some expenses into the fourth quarter, to be able to get things done because we had a nice tail wind associated with the performance of the EMEA segment in the fourth quarter. That being said, we would probably like to continue that situation, but we won't if we're in difficulty associated with accomplishing our earnings guidance.

Okay, and then just two quick follow-ups. Will you be providing an 8-K with the restatement on the Cable versus the Networking product lines? And then if you could just -- I guess, John, real quick comment on the OEM relationship, if there is any update. Thanks.

Well, I think to the first question, what we tried to do today was provide you with more information than we have in the past, and the feedback that we have gotten is that's helpful. So what we will like to do going forward is provide you information, as we always do, of course, around the segments; but also try to provide you with additional information in my comments about how the product lines are performing. So we don't have any plans to release any additional information beyond what we did here today.

With regard to the OEM relationship, within Trapeze our relationships are fine. I think the issue that we're dealing with is that there has been so much change and turbulence going on within the Nortel organization because of the bankruptcy and then because of the acquisition by Avaya, that we just don't think that, A, they haven't been performing as well as they did historically, and we're concerned they are going to continue to face head winds, which means that we have got to get better, even faster on the Trapeze brand of product lines.

So as I said we're pleased with the results in the fourth quarter. We made good improvement compared to Q3 and year-over-year. I think we're moving in the right direction. I think that we're really gaining traction commercially, we're managing our cost better, so I feel good about the progress that we've made. But I think the challenge with the OEMs is going to continue through 2010, as we said. So we're going to have to manage that.

We will go to our next question from the line of Matt McCall with BB&T Capital Markets.

Thanks. Good morning, everybody.

Hey, Matt.

Gray, so thanks for the color on copper, that is helpful. I really want to understand some of the other assumptions that are in the guidance for the full year, and the -- any other color you could add on the topline, what the expectations are specifically for Trapeze. I know you put a helpful chart in the analyst day packet, but just an update on what the -- maybe the topline and profitability expectations are there. And then on the base growth, ex-copper, what -- and maybe ex-Trapeze -- I know that's a lot of "ex's", but what is the base contribution margin as we start to see some growth off this bottom?

Would you like me to handle that?

Yes, go ahead.

So first question first, and that is what are the mechanics of topline? We will and we do believe that much of the channeled inventory correction is behind us, all right? So that said, if you look at our first half performance in 2009 versus our second half performance, and you believe that the first half performance was impacted by this channeled inventory phenomenon, we have talked about $60 million to $100 million on an annual basis. So we do believe there is about $30 million worth channeled inventory "topline correction" that's still available to the corporation in the first half of 2010 when compared to the first half of 2009.

Right now, we're running on the increment, all right, somewhere between 35% and 40% variable margins on the portfolio. So if that channeled inventory comes back in that proportion, that's the sort of fall-through that you would expect to see associated with that correction of the channeled inventory.

The second piece, economic recovery. We do see elements. Let's talk about several of them and then let's summarize them. The first element we discussed also in the script, is Asia. Asia seems to be indicating, right, that there is real fundamental growth.

And the indicator that we're looking at -- I think the most pronounced one -- is our fourth quarter over fourth quarter annual sales improvement in Asia. Remember, it was 2.3% quarter over quarter. It was the only business group that we had which had expanding revenues over 2008's fourth quarter.

So we do see a recovery quote/unquote in Asia, that there is good stability in many of the markets there. We wish our base was a little stronger. Remember, our base in Asia is a lot of consumer electronics out of LTK that get exported and not necessarily consumed by the local market, so therefore the impact that we see in Asia is modified, if you will, associated with the fact that so much is being exported.

That said, we also commented on the fact that we don't see today economic recovery in Europe and Germany most notably; nor are we confident that the US, despite the GDP results that we have seen are in verticals to which we will benefit. Are they in Enterprise? Are they in Industrial? Are they in Industrial CapEx? We're not convinced, Matt, that the recovery is in those segments.

So therefore, we're very cautious to be able to expand our expectations for our topline beyond what we have front of us, and what we have in front us is the inventory correction. So that said, a lot of moving parts -- benefits here, detriments there -- I would say neutrality in the total, all right? And John's comment, I think, is very pointed when he talked about guidance, where John said if there is economic recovery, beyond what we currently are anticipating -- not enough road signs for us -- if there is economic recovery, we are we well-poised to benefit. All right?

The last piece that you asked about was with respect to copper. And again, I think that number is about $70 million, right, on a year-over-year basis. So when you think about our $1.5 billion to $1.55 billion, you can see that a lot of delta from our $1.4 billion this year or [1420] of the $130 million, the majority is just copper pass through, and there is $50 million worth of organic growth. Some of that is directly related to Trapeze.

Right now in the branded product in Trapeze, we have significant momentum that we hope to continue through 2010. However, the OEMs are still unstable, right? So balancing off the OEM piece versus the Trapeze branded piece is, again, one of our challenges that we are going to work very hard to address. If we're able to solve the issues associated with OEM successfully -- and again, new leadership in Trapeze is going be very helpful in that regard -- we hope to see the benefits of Trapeze's recovery actually accelerate from what we currently guided.

Okay, and then the last part of that Trapeze question was the expectation for the margin in fiscal year 2010?

Well, if you do dollars and just do exit, we lost $26 million in Trapeze in 2009, and our exit is at 3.5. So we're exiting right now at 14, so if we just continue on the current exit rate, the comparable benefit to 2010 performance is $12 million of operating profit -- which is one of our issues is we deal with our tax rate.

It is sort of a -- a sort of melded over so we can get maybe the tax rate dealt with in this conversation as well, is so much of our expansion to profitability in 2010 is in the US. You can think about it in term of Trapeze in the US marketplace associated with things that we're doing for our global sales and marketing initiatives and channeled inventory adjustments are in the Americas. So we're going to see fairly significant and disproportional profit expansion in the US, which is driving up our effective tax rate for next year. The tax rates in the US are high.

Right, and so you're exiting 3.5 -- and this is the last question I'll ask about it -- you're exiting 3.5. That gives it the run rate today, but I'm assuming you expect to improve on that next year. So what is the assumption or the direction of the assumption that's in your guidance on Trapeze? And thank you.

Yes, I think when it relates to Trapeze, the assumption that we've baked into our guidance is that from a cost point of view, we are going to maintain what we accomplished in Q4 through all of 2010. And then with the margins that we enjoy on the Trapeze branded product line, we expect to drop the margin down the incremental revenue. So I think the assumption that we put in the guidance is solid on the cost side; that is, we will maintain what we accomplished. Then on the revenue side, we do expect to see growth, and that's part of the growth that Gray talked about year-over-year, from roughly 1420 up to 1550, you're at about $130 million. Probably $70 million to $80 million of that is copper, which has no fall-through, and then remaining growth there is going to come at the fall-through that we typically see.

Okay, thank you, all.

Yes.

Thanks, Matt.

And we will now go to our next question, from the line of Gary Farber with CL King.

Thanks, good morning. Can you talk a little bit about your -- how you're going to use your -- might use your cash and your free cash flow, what the market looks like for acquisitions, and also how you think about capital expenditures?

Yes. Well, I mean, as we always do, our first priority for cash is to fund our strategic investments, our strategic objectives, which clearly we have no difficulty doing. So that's always our first priority. As I mentioned, we made a very small acquisition in the fourth quarter, which is great, because it really improves our broadcast capability and adds connectivity to our broadcast segment, which we're excited by. We do see other similar kind of opportunities in 2010 -- bolt-on opportunities that we think would be a nice fit.

And then regarding CapEx, no, I think that we're probably still around that $30 million to $40 million range of CapEx. We do have some IT upgrades that we're going to make in 2010 that might take us north of $30 million. But given our utilization levels right now, there is not going to be any major factory CapEx investment, given where we are there.

Okay, thanks.

We will now go to our next question from the line of Nat Kellogg with Next Generation Equity Research.

Morning guys, thanks for taking my question. Just a couple of quick things. Gray, you -- in that guidance, I guess, it says "ex" deferred revenue issues. With the new accounting treatment, my understanding is most of that is going to go away with Trapeze, but so I just was -- if you could clarify that a little bit, what you would expect as you look at next year?

Yes, it's about $0.13. This is the reversal of (inaudible) who are not students of VSOE. We said on the balance sheet $17 million worth of sales and $14 million worth of -- or $13 million worth of operating profit that is deferred associated with the bundling for GAAP purposes. That will get reversed next year, most of it -- not all of it. Some of it has two year contracts and 3 year contracts. But the majority of it will come off on GAAP results. We intend to pro forma next year, right? So those are not included in our guidance, are to the benefits of GAAP associated with that rolloff.

For those of you who are really interested in the dynamics and fundamentals of how this really works, the most profound example is Apple. So looking at Apple they are an early adopter. They put it in the fourth quarter. And much of their iPhone revenue is also deferred over two to three years. And now with the application of this new financial accounting standard, they are not required or able, right, to defer that revenue as they have in the past. So that benefit is somewhere around $0.12 to $0.13.

Okay, okay, that's helpful, but that will be obviously a gain that you guys will be stripping out?

Be a gain. Our GAAP numbers in theory are going to be higher than our pro forma numbers.

Right, right. Okay. That's helpful. And could you just one more time what you had that the adjusted SG&A number was in the fourth quarter?

The adjusted SG&A. Let's see, I think I said 70 -- hold on. SG&A was -- for the fourth quarter was 70.8.

Okay, that's great. That's all I've got for now. I appreciate you taking my questions, I'll hop back on.

You're very welcome, Nat.

Our next question is from the line of Jeff Beach from Stifel Nicolaus.

Yes, good morning, John and Gray.

Hi, Jeff.

Hi, Jeff.

A couple of questions. First of all, do you expect at this point more restructuring actions in 2010? Or if you don't want to say, is it possible you're looking at them?

Jeff, I would say at this point we're reasonably confident that the activities in 2010 are going be things already announced. Now, I'm never going to commit to the fact that we may not do something additional, but I think our focus in 2010 is going to be to finish the Leominster factory relocation which we started in 2009 and drive improvement through a much better cost structure, and focus on growth and being ready for this economic recovery whenever it comes.

All right. And can you talk about in the last -- in January here, if you have got some read, the level of incoming orders versus your billings. Are you seeing stability continue into the early part of this year?

We are, Jeff. January behaved an awful lot like we saw in the fourth quarter in all of our businesses.

All right. And then I noted you're talking about, I guess, an extremely conservative outlook for your business in general in the Americas. But I'm noting here that from the low point in the first quarter of '09, the revenues have moved up steadily, and I will call it meaningfully, through the year, even though you have had inventory channel reductions. And again, looking out into 2010, even a continuation of the revenues at the recent level would suggest some pretty good growth. Can you just comment on this?

Sure, Jeff. If you look at our first half and compare it to our second half, I think a meaningful portion of that improvement was, in fact, the inventory correction ending. So in the first half, I think our revenue was lower than real market demand, as we had to work through the inventory in our channel partners, so I think a big chunk of that improvement from the first half to the second half was the inventory destocking over, and we are baking that into the 2010 over 2009 bridge.

From a market growth point of view, we are expecting, as Gray said, some growth in our Industrial Networking business and our Asia business. We do believe that those markets will continue to grow. They have grown, and we think they will continue to grow -- wireless business.

But the part that we're cautious of right now, Jeff, is we have exposure to non-residential in our Enterprise Cable business. And it is not clear to us whether or not that market isn't going to be worse in 2010 than it was in 2009. So obviously there are some people that are expecting the second half of 2010 to be significantly better than the first half from a market growth point of view. We think that dialing that in currently to our guidance is just premature.

Given that most of our business goes to people that are responsible for building products for others, we think it's probably going to be after two to three quarters of real economic expansion that we would start to see the benefits of overall market recovery. And as a result, we didn't bake it into our full-year guidance.

Okay. And just one more question. On the tax rate, the last two years through '08 and through '09, you have talked about a 30% tax rate, and we have never seen, I think, a quarter yet of 30% tax rate. What will be some of the -- are we likely going to see tax benefits as we go through 2010 that will produce a tax rate again under the 30%?

The two items that are most pronounced relative to what you should expect for the tax rate are following. It's that is jurisdictional mix, right, where our income is domiciled. It is fairly stable right now in terms of rate in those jurisdictions, but the more income that we generate in Asia, the more income that we generate in Europe, the lower our effective tax rate. And it's just that simple. The more money you make in the US, the higher your effective tax rate -- for us.

That said, we have a list -- there may be ten items on that list right now -- that we're going to try to fund and execute this next year to improve both our cash as well as our effective tax rates, right? Just like this last year, we had several programs which created benefit for the corporation, we again have those kinds of programs identified for this year, and I would hope that we would be successful in executing many of them.

All right? That, again, needs to be balanced relative to that jurisdictional mix. The more and the better the performance on the Trapeze, as an example, the more you are going to need those kinds of elements just to maintain the 30% rate.

We have a lot of volatility in the rate, obviously, because our earnings are shallow or shallower in 2009 than they were in 2008. That won't be the case in 2010. A bigger base, a stronger base, will give us more predictability in the effective tax rate. And again, it is just a place holder; and to your point, the business does have a significant set of actions to improve on that rate. And, hopefully, we will do so, right, throughout the year.

And last question. There is a discrepancy between the reported wireless revenues in the press release of $13.1 million and the $14.9 million that you showed on the slide show. Can you -- do you know if this is an error, and maybe it is total revenues and not external? Or can you address that?

Absolutely. One is GAAP and the other is our pro forma results. So GAAP, as I had mentioned in my comments, was affected by $1.7 million for the additional deferrals. Again, those deferrals end, right? So -- the reversal of the deferrals next year, right? But we won't be continuing to need -- as we embrace the new financial standards for reporting purposes, we won't need to defer the same level that we're currently deferring associated with VSOE treatment.

All right, I follow. Thanks a lot.

Thank you.

You're welcome, Jeff.

And we will go to our next question from the line of Dana Walker from Kalmar.

Good morning.

Hey, Dana.

Could you relate the $0.39 you reported to your guided range of what was 27 to 32, how much of a role tax rate or other factors played in the difference between the two?

Happy to. $0.04 on tax and $0.04 just operational performance.

Understood. And if severance was a drag on cash flow to the tune of 60-plus million in '09, what role would you expect that to play in 2010 and beyond?

Minor. So if we do $10 million next year -- I think we have been talking about maybe our GAAP adjustments next year -- on the negative side -- this is the completion of our European restructuring and the Leominster closure -- may incur another $10 million of GAAP -- I hope it is less than that. 2010. So you can see there is a significant improvement in the cash flow potential for the corporation associated with the utilization of that cash.

Dana, I'm quick to say that yes, we have to run it through the income statement, that severance. It is not. It is capital spending. It is spending on a permanent change in your cost structure, just like productivity. So the $60 million though it ran through the income statement last year on severance really had to do with improving the performance of the business, just as a machine would improve -- so again, it is a one-time element and I think it is a good observation on your part.

Gray, you made a point about the role that a return to normalcy of the channel might play on your 2010 outlook. Would you repeat those comments, and then remark to what degree you incorporated them into your guidance?

My comment was as (inaudible), when observing our results -- and I think John reiterated -- look at the first half versus the second half 2009. And the first half of 2009 is when the majority of what we believed to be the inventory purge took place -- inventory purge -- real demand not seen at any manufacturer in the world, as global inventories were utilized to satisfy end user demand.

Global inventories have come down, I think, a trillion dollars. So there is a trillion dollars worth of missing topline, right, associated with all manufacturers that serve their customers through the utilization of inventory rather than directly to end users. And we believe number was $60 million to $100 million in our business model.

John pointed out, and we agree, we saw enough indication both in the third quarter and the fourth quarter that much of that recovery has been purged from our financials in the second half. That being said, this thing is the first half piece, so we're utilizing a half rate (inaudible), if you will, on $60 million worth of annual inventory correction, saying that we should see about $30 million of incremental volume in the first half of 2010 associated with that element missing on a year-over-year comparison to the first half of 2009. Not a sequential improvement; that is a year-over-year year measure.

Which is in your guidance?

Is in our guidance.

But your -- and thus, if one were to back out the copper effect on the bridge between '09 and 2010 revenue, which appears to be a volume improvement of roughly 1 to 4%, that $30 million would account for -- let's say 30 on -- would account for some good portion of that?

Yes, the two together are probably about $110 billion.

At the low end.

Yes.

Okay. You have made two key hires -- or what we will hope to be key hires and certainly you believe to be key hires. You have also changed the cost structure in Europe in connectivity and in wireless. I presume that your new hires are very agreeable and/or of like mind on what you have done to the organizations that they will run forward from here, is that is a fair statement?

Yes, I think it is. I spent a lot of time with both individuals before making my decision, and in both cases they are entering businesses in much better shape than where they were 12 months earlier. In some respects they are going to get the benefit from a lot of work that we did in the past, but I think in both cases they align perfectly with our culture. The have great experiences, outstanding skills -- and speaking for myself, I couldn't be happier to have them on board.

Where does Trapeze have less resource today than it did six months ago?

Most of the cost reduction have been in the areas of sales, marketing, and back office G&A cost centers. In the area of sales, we have integrated with the Belden salesforce, which has given us leverage. And as it relates to back office, we have asked other parts of the Company to help them with areas that, quite frankly, were just redundant.

Compared to where we stood two months ago, as we heard you describe an outlook for Trapeze in 2010, does it appear to be different today than it might have two months ago, or do you just have more confidence that you can deliver upon what you described?

Well, we have the fourth quarter results, obviously, that (inaudible), give us more confidence. I would say as it relates to two months ago, I feel good about execution -- better than I did a couple of months ago. I'm probably a little more worried about the OEMs, though, than I was two months ago. I am concerned about the integration of Nortel into Avia and how that might affect our business. I think that's a little bit of head wind that we've got to overcome, but I feel good about what we're doing on the sales side of Trapeze branded products. I feel like we're making good progress there.

Final question relates to your cash. You have a fair amount of cash which is earning next to nothing, but it is that which you can deploy and which you don't have to ask from others. How -- do you expect to deploy some reasonable amount of that cash in the next 18 months?

Well, I would hope we would. Yes, I would hope that we would deploy that cash in the next 18 months on organic activities, on good acquisitions that are consistent with our strategy, and are accretive to our financial model. That would be certainly our expectation and our hope. I remind people all the time that it is amazing how in such a short period of time, from a situation where people were concerned about whether companies had ample cash, to now where we're back to the world of what are you going to do with your cash? So probably generate a little bit of comfort knowing that we have a strong cash position. We worked very hard to have it. But certainly the focus now going forward is how do we use it to the benefit of our shareholders?

Given that there is a wide spread, though, between the cost of money and the return of money, and your net debt position is quite a bit of less than your gross debt position, do you believe you have overborrowed?

No, I don't. I like the structure of our debt. I like the flexibility that comes with it. I like the relatively attractive rates given historic norms, so I do like that. But I think your point about the relatively low returns on our cash compared to historic norms and that spread between the two is an opportunity to create balance.

All right. Thank you, Dana.

Good luck.

Thank you. (Inaudible), one more question, please.

Our last question comes from the line of Kevin Sarsany with Legend Research.

Hey, guys.

Hey, Kevin.

A question, I think Jeff Beach asked on further restructurings. But do you expect to continue to have charges and adjustments in Q1 and outgoing quarters?

The answer to that is yes. The number that we talked about during the response to Jeff was somewhere around $9 million or $10 million in 2010. I'm not predicting what quarters those will occur in. It is a little sporadic. So -- but on an annual basis, that's what your expectation should be, Kevin.

Okay. And my original question was, looking at your guidance versus this year and computing incremental margins, it really didn't seem like there was a lot of leverage, but I think you answered it because -- add to it or correct me if I'm wrong -- you're really expecting 1% to 4% kind of volume growth this year. The other growth in revenue is coming from copper, which you should really look at kind of neutral. So you kind of use the volume to what the incremental profits are, that is kind of how you should look at the incremental margins, which on that basis, are pretty good?

That's right. That's exactly right, and then the two head winds. One is the fact that we do have more interest expense in 2010 versus 2009, and the tax rate adjustment, which is holding back what you normally would expect to fall through. You would expect more to fall through but for those other two items.

Okay. And so your 1% to 4%, if we could see something higher than that, then, I mean, it could be -- the costs you have taken out, the richer mix, added volumes -- you could really see a pretty good pick-up in the incremental margins would be my guess the way you're modeling it?

That's exactly right, Kevin.

All right, guys, thanks.

Okay. Thank you, Kevin for your comments and also the other questions. Thank you very much, everybody, for your good questions this morning. If we didn't get to you, please give us a call this afternoon. And thanks again for joining us on the Belden earnings conference call. We sincerely appreciate your interest, and we're happy to entertain a call for follow-up questions. This concludes our call today, and thank you very much.

Thank you, ladies and gentlemen. This concludes our call for today. You may now disconnect from the call, and thank you for your participation.