Belden Inc (BDC) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Belden Incorporated fourth-quarter earnings release conference call. This call is being recorded. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time.

( Operator Instructions )

I would now like to in the conference over to Mr. Matt Tractenberg. Please go ahead, sir.

Thank you, Catherine. Good morning, everyone and thank you for joining us today for Belden's fourth-quarter 2012 earnings conference call. My name is Matt Tractenberg and I am Belden's Director of Investor Relations. With me this morning are John Stroup, President and CEO; and Henk Derksen, Belden's CFO. John will provide a strategic overview of our business, and then Henk will provide a detailed review of our financial and operating results, followed by question and answer.

We issued our earnings release earlier this morning and we have prepared a slide presentation that we will reference on this call. The press release and the presentation are available online at investor.belden.com. Please note there is no www in that Web address.

Turning to slide 2 in the presentation. During this call, 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. Actual results could differ materially from any forward-looking statements that we make, and the Company disclaims any obligation to update this information to reflect future developments after this call. For a more complete discussion of factors that could have an impact on the Company's actual results, please review today's press release and our annual report on form 10-K.

During this call Management will reference certain adjusted or non-GAAP financial information. In accordance with Regulation G, we have provided a reconciliation of the most closely associated GAAP financial information to the non-GAAP financial information we communicate. This reconciliation is in the appendix of the presentation and has been posted separately to the Investor Relations section of our website.

I will now turn the call over to our President and Chief Executive Officer, John Stroup. John?

Thank you, Matt, and good morning, everyone.

2012 was an extremely exciting and important year for Belden. In the face of a challenging and volatile business environment, we executed our strategic plan well and made significant improvements to our business portfolio. We also improved our capital structure, which will have a long-term impact on our cost-of-capital and value-creation initiatives. Gross margin levels are already best in class, and we see meaningful opportunities to further leverage our SG&A investment. I am eager to share with you a few of the key strategic actions we have recently executed, discuss the performance for the fourth quarter and full year, and offer some insight into what we expect for 2013.

As you've seen, we were quite active during the quarter. In November we announced the divestiture of our Thermax and Raydex businesses, for approximately $265 million. Despite our numerous attempts to build a connectivity business in the aerospace and defense sector, we were unsuccessful. Therefore, acquisition opportunities became scarce, and it was clear that Thermax and Raydex would be more successful within an established aerospace and defense company. I believe this notion is fully supported by the valuation multiple of the transaction. This transaction closed in December and the results are categorized as discontinued operations and hence, excluded from our discussion today.

The acquisition of PPC, a leading provider of broadband connectivity solutions, was announced and completed in December. PPC significantly enhances Belden's broadcast solutions platform and increases our competitiveness in the broadband application. I would like to welcome the talented employees of PPC to our Belden team. And finally, late in December we closed the sale of our consumer electronics assets in China. This action, which we foreshadowed early in the year, allows us to focus precious local management resources on more attractive opportunities.

The impact of these changes is transformational. We have successfully transitioned nearly 35% of our revenue to higher-margin products applied in faster-growing markets. We have reached a critical point in our transformation, evolving into a provider of innovative signal transmission solutions with the following four global business platforms -- industrial IT, industrial connectivity, enterprise connectivity, and broadcast solutions.

The team has efficiently executed these actions in order to achieve even better profitability levels in 2013. I want to thank everyone at Belden for their contributions to our success. In addition to these strategic actions I would like to remind everyone that our Board of Directors recently authorized an additional $200 million share repurchase program. We believe that buying back Belden stock, paired with the purchase of attractive businesses, such as Miranda and PPC, is an effective use of capital, and will continue to drive shareholder value.

Please turn to slide 3 in our presentation for a review of our fourth-quarter highlights. I am pleased with our fourth-quarter revenue, an increase of 8.2% year over year, to $477.7 million. Solid operational execution drove a 450-basis point year-over-year gross margin improvement to 33.2%. Operating profit margins also increased year over year by 260 basis points, to 11.5%. We attribute the improvement in both gross and operating margins to organic and inorganic improvements to the portfolio, a richer mix of end markets, and the benefit of leverage on our fixed cost structure.

Please turn to slide 4 to review the fourth-quarter income statement. On a year-over-year basis, excluding acquisitions, currency, and copper, revenue was approximately flat. Order rates in the quarter were volatile. We believe this was partly due to fiscal cliff concerns, resulting in tighter inventory management by our channel partners and project postponements by some of our customers.

The order strength we experienced at the end of the fourth quarter has continued into the current quarter, increasing our optimism for 2013. Profit levels were in line with our expectations and consistent with trends experienced during the year. Income from continuing operations per diluted share totaled $0.78, up 23.8% over last year's $0.63 per diluted share. The effective tax rate for the quarter was less than 27% rate estimated in our previous guidance, due to the recognition of discrete tax items during the quarter, which had a favorable impact of $0.10.

Turning to slide 5, our strong performance is equally evident in our full-year highlights. I am particularly pleased that our earnings from continuing operations per diluted share increased 16.7%, from $2.40 to $2.80; and gross margins increased 320 basis points to 32.1%, up from 28.9%. We also achieved our full-year goal of free cash flow in excess of net income. For the year we generated $145 million in free cash flow, or 113% of net income from continuing operations.

Our cash balance increased slightly to $395 million. In addition to our quarterly dividends, I am pleased that we were able to repurchase $75 million of Belden stock at an average price of $36.20. This represents 60% of our free cash flow that was returned to our shareholders during the year. Unfortunately, M&A activities in the quarter prevented us from repurchasing any Belden stock. We look forward to being back in the market in 2013.

That completes my portion of today's call. I will now ask Henk to provide additional insight into our fourth-quarter and full-year financial performance. Henk?

Thank you, John. I will start my comments with results for the quarter, followed by a review of our operations and segment results, a discussion of the balance sheet, and close with our cash flow performance.

Please turn to slide 6. I'd like to begin by discussing the impact of our inorganic activity to our income statement. First, as a consequence of the divestiture of the Thermax and Raydex cable business in December, the results of this business have been excluded from continued operations for 2012 and 2011. Please refer to the 8-K issued in December for prior quarter figures.

Second, the acquisition of PPC closed on December 10. And therefore, the results have been included for the remainder of the fourth quarter. Third, the sale of the consumer electronics assets was not treated as a discontinued operation for accounting purposes. Therefore, those results are included in continued operations in all prior periods up through the date of the sale in late December. And finally, Miranda is included for the full fourth quarter. The combined treatment of these strategic actions is consistent with the information presented at our Investor Day in December.

Fourth-quarter adjusted revenues were $481.2 million. Adjusted income from continued operations per diluted share were $0.78 and included $0.10 from favorable discrete tax items during the quarter. Adjusted revenues for the quarter grew 9% year over year from $441.3 million in the prior year. Copper-adjusted organic growth declined 40 basis points year over year. Revenues were unfavorably impacted year over year, by lower copper prices, and currency translation of $9 million and $3.4 million, respectively.

On a sequential basis we experienced a larger-than-anticipated channel and customer inventory reduction, with an impact of approximately $13 million, or 280 basis points. Adjusted gross profit margins at 33.2% increased 450 basis points year over year, and declined 20 basis points sequentially. On a year-over-year basis, we benefited from acquisitions, which added 330 basis points, leverage and productivity gains of 50 basis points, and mix of 30 basis points.

Fourth-quarter SG&A expenses were $88.5 million, or 18.4% of revenue. R&D expenses for the quarter were $18.4 million. SG&A and R&D expenses increased sequentially and year over year as a result of the acquisitions of Miranda and PPC, with a combined impact of $18.5 million year over year. After adjusting for the impact of currency and acquisitions, SG&A and R&D expenses combined were down more than $3 million sequentially. We continue to benefit from leverage and productivity gains.

For the fourth quarter 2012, we recognized $2.5 million in operating income from the equity method investment in our Hirschmann joint venture, that services as the Chinese crane manufacturing market. I am pleased with the fourth-quarter adjusted operating profit margins of 11.5%, up 260 basis points year over year. Our ability to expand margins through acquisitions of attractive companies like Miranda and PPC, coupled with productivity gains and leverage on growth validates that the business model is solid, and is delivering results. I would like to remind everyone that the operating profit margin includes the results of our consumer electronics assets, which were sold in December. As a result, consolidated operating profit margins will be favorably impacted by approximately 60 basis points to 70 basis points going forward.

The adjusted effective tax rate for the fourth quarter was 15.9%. This was lower than the 27% rate estimated in the Company's guidance, primarily due to the recognition of favorable discrete tax items. Our guidance now includes the impact of the extension of the research and development credit for the year 2012 under the American Taxpayer Relief Act. For financial modeling purposes for the first quarter, we suggest using a 25% effective tax rate; and for the full year 2013, we suggest using a 27% effective tax rate. These rates are incorporated in our guidance that John will share with you in a few moments.

Turning to slide 7 for segment results. Looking at revenue by geography for the quarter, in our Asia Pacific segment, active portfolio management within our consumer electronics business impacted our results. Fourth-quarter external revenues totaled $77.1 million, affiliate sales were approximately $400,000, and total revenues were $77.5 million. Fourth-quarter external revenues were down 7.2% year over year, and down 7% sequentially. After adjusting for currency and copper, revenues declined approximately 4.4% year over year. When excluding the impact of our consumer electronics business and adjusting for currency and copper, revenues was up 4.3% year over year. Within the segment, our industrial networking business did particularly well, with growth of 18% year over year. We are encouraged by recent spending patterns in key end markets within China and remain committed to share capture programs in the region.

We also saw strength from our global accounts program, and channel management initiatives showed solid gains in countries like Indonesia, with growth of 76% year over year. Fourth-quarter operating income was $9.6 million, or 12.4%, an increase of 740 basis points year over year, driven by the portfolio management mentioned earlier, productivity gains, and a favorable product mix. Operating profit margins in the Asia Pacific segment, excluding consumer electronics, is now approximately 18%. I am proud of the significant progress made in the segment in 2012. We now begin the new year with a stronger product offering and a focused management team.

Results from our EMEA segment were in line with our expectations. Fourth-quarter 2012 external revenues totaled $81.9 million, affiliate sales were $33.9 million, and total revenues were $115.8 (sic - see press release $115.8 million). After adjusting for currency and copper, external revenues decreased 3.6% year over year, and decreased approximately 90 basis points sequentially, mainly as a result of continued economic contractions seen in the demand.

Operating income in the fourth quarter 2012 was $18.8 million, or 16.3%, down 160 basis points year over year when adjusting for currency and copper, driven largely by lower volume. Sequentially, operating profit margin improved 30 basis points on a similar basis, driven primarily by productivity. I am pleased with the margin levels, despite the contraction in the amount.

And finally, given the state of the US economy in the fourth quarter, I am pleased with the 1.9% copper-adjusted organic growth that we experienced in our Americas segment. Here, external revenues totaled $322.2 million, affiliate sales were approximately $8.3 million, and total revenues were $330.5 [million]. The industrial end markets within the America segments performed very well, with growth of almost 14% for the fourth quarter, and 11% for the full year. Our market delivery system, which allows Belden to identify and capture attractive opportunities, is working well, as evidenced by this performance. Fourth-quarter 2012 operating income was $44.3 million, or 13.4% of revenue, up 200 basis points year over year, driven largely by the addition of Miranda. The team is making solid progress against our long-term goal of achieving operating margins of 14% to 16%.

If you will please turn to slide 8, I will begin with our balance sheet highlights. I am pleased with our cash and cash-equivalent balance of $395.1 million at the end of the fourth quarter. This is an increase of $9.5 million over third quarter. Inventory turns were 7.4, an improvement of 0.8 turns, both year over year and sequentially. Days sales outstanding was 57 days in the fourth quarter, a one-day decrease year over year, and a one-day increase sequentially. Working [Capital] turnover was 9.1, down 1.4 turns year over year, and 0.5 turns sequentially. The decline was driven primarily by the sale of our consumer electronics assets and its impact to our balance sheet.

Total outstanding debt principal increased to $1.15 billion as a result of financing activities taken in 2012, including a $255 million term loan used to facilitate the Miranda transaction, $700 million of newly issued debt in the third quarter, and $198 million on a revolver used to facilitate the acquisition of PPC, and $5.2 million of remaining 2019 notes. I am pleased that we were able to extend maturity, while reducing our current weighted average cost of debt by over 300 basis points, from almost 8.7% one year ago to 5.5% today. I would like to point out that for modeling purposes, interest expense will amount to approximately $16 million per quarter. Based upon our strong current cash position and liquidity available under our unused credit facility, at the end of the fourth quarter, the Company had $450 million of dry powder, which allows us to continue our M&A strategy, in combination with our share repurchase program.

Please turn to slide 9 for a few cash flow highlights. Cash flow from operating activities for 2012 was $176.6 million, compared to $184.5 million in the year-ago period. Net capital expenditures for the year totaled $31.4 million, compared to $38.8 million in 2011. Free cash flow of $145.2 million, or [113%] of net income, was at similar levels in the year-ago period.

As John mentioned, we announced in November an additional $200 million share repurchase program. This is in addition to the previously authorized $150 million program. These programs are open-ended. For the full year, we purchased 2.1 million shares of Belden common stock for $75 million under the previous authorization, totaling 3.71 million shares repurchased under this program at an average price of $33.72 per share. We still have $25 million remaining available under that program. In the fourth quarter, because of numerous material events that occurred and SEC-required blackout periods, we were unable to repurchase any Belden stock. We expect to resume this program going forward.

That completes my prepared remarks. I would now like to turn this call back to our CEO, John Stroup, for the outlook and his closing comments. John?

Thank you, Henk.

Please turn to slide 10 for our outlook regarding the first quarter and full-year 2013 results. We are off to a solid start in 2013 with an extremely strong business portfolio. We remain focused on attractive markets with favorable secular trends and share capture. With the expectation for slow global economic growth in 2013, we continue to emphasize our strategic initiatives, including our market delivery system and lean enterprise. We are confident that these initiatives position us to perform well and we are therefore increasing our earnings outlook for 2013.

For the full year 2013 the Company expects revenues to be between $2.07 billion and $2.12 billion, and adjusted income from continuing operations per diluted share between $3.44 and $3.69. We expect our first quarter 2013 revenues to be between $505 million and $515 million, and adjusted income from continuing operations per diluted share to be between $0.76 and $0.81.

That concludes our prepared remarks. Catherine, please open the call to questions.

(Operator Instructions)

Shawn Harrison, Longbow Research.

First, wanted to get back to the comment made on the order rate strengthening probably in the month of December and in through January. If you could articulate regionally where you are seeing that, and maybe a little bit on the end markets as well?

Sure, so it's across the board, Shawn. In the first part of the quarter, we believe because of the concerns folks had with fiscal cliff discussions, orders were a little weak, and a little more volatile than we had seen. We think channel partners were managing their inventory tightly. We saw that in the inventory reduction, as well as customers postponing discretionary projects. We saw that improve somewhat at the end of December. We had a book-to-bill for the fourth quarter that was 1.02 and we had a book-to-bill in January that was 1.04. So, we had good strength toward the end of the year and good strength in the month of January. And it really has been across the board in all regions and actually, in all end markets. It feels to us, anyway, like some of that pause that people might have been taking in the fourth quarter was temporary.

I guess with that, John, you kept the -- it looks like the organic growth rate for the year unchanged. Is it just more you waiting for -- to see how the rest of the quarter plays out?

Yes.

Okay.

It is kind of early in the year, Shawn. We don't want to let the string out all at once. We have an opportunity to revisit this every quarter and we will reflect on the first quarter results.

Just as a second question, a follow-up, Henk, did you say that the EBIT margin in Asia is now 18%?

That is correct.

If you exclude for the consumer electronics business, Shawn, it is 18%.

With that, as we go throughout the year, where would you expect to see most of the margin expansion going forward? It sounds like you are already at a really high level in Asia.

Yes. I think the margins in Asia are probably right where they need to be. I would not expect significant expansion of margins in Asia. I would see, though, significantly improved growth rates. The management team is far more focused than they were. They are focused on the right things, the right portfolio. Pretty optimistic about our ability to generate revenue growth in Asia in 2013.

Also, aggressive growth expectations in South America as well in 2013. So, margins in Asia, I don't see a lot of expansion for -- up at 18%. Obviously, year-over-year it's going to be tremendous because we are exiting so much stronger than we were, but really optimistic about growth rates.

Other regions you would expect -- maybe the Americas, more margin expansion?

Yes. I think the Americas is benefiting significantly from the full-year impact of the acquisitions that we made in the second half. As we know, Miranda is more profitable than average. PPC has got nice margins. I see that as an opportunity. I think there's still opportunity at the consolidated level from leverage on the SG&A investment. So, gross margin improvement year over year is going to come largely from the full-year benefit of the acquisitions. And operating margin expansion will come from that, as well as leverage on growth, as well as the full-year impact of the acquisition. The updated operating margin targets that we shared with everyone in December, we feel real good about those in 2013.

Do think on that SG&A, John, that you can get it into the low 17%s as a percentage of sales as we go through the year?

Yes, that would be aggressive, right? Because that would imply a 16% to 17%. That would be, I think, a little bit too aggressive by year-end, Shawn. But I do think that you should expect us to continue to invest in R&D. R&D costs will roughly go up at revenue levels. You are going to see our sales and marketing costs probably go up half as fast as revenue. And you're going to see most of our G&A costs remain flat, because we think we have a G&A cost structure to support a much larger enterprise.

Thanks so much for the insights, and congratulations on the guide.

Steven Fox, Cross Research.

Just a couple questions from me. First of all, given the greater-than-expected reduction in inventories, is there any inventory refill in your guidance for the quarter, or is that something that is sort of wait-and-see? Secondly, now that you have had PPC for an additional six weeks since we've -- you last spoke publicly, I was wondering if you could discuss for the outlook for that business for this year from a top line and any other sales synergies you might see going forward?

On the first question, we have a very modest expectation in the first quarter for a little bit of channel inventory restocking. It's not significant, but we do have some in the guidance. It is difficult to predict, obviously, in terms of how the distributors are going to manage their inventory, but we did see them take their inventory down the fourth quarter, and I think that we'll probably see a little bit of restocking in the first quarter. We'll see how that goes.

With regard to PPC, too early to be able to claim victory on any major synergies, revenue synergies. The team, though, is well on plan with the integration. They have already started with some of the sales and marketing integration and alignment that we plan to be outset, so we're on target with that. And the order rates out of PPC right now are as expected. At least, based on the first six weeks, things are going well.

Just one follow-up, John, on the enterprise market. Can you talk a little bit about any kind of differences in your expectations for the quarter within enterprise connectivity, whether it be data center versus land, or product-wise? Any color there would be helpful.

The enterprise has been probably the toughest market for us to be able to accurately project, and we're not alone, of course. We always say we are one year closer to a recovery. We just don't know when that recovery is. So, I think we are. We did see a weak fourth quarter in the enterprise business. I believe, though, that some of that weakness in the fourth quarter was temporary in terms of people postponing projects. We have not baked in significant improvement in the enterprise market for the first half of the year. We do think that in the second half, there might be growth, but it is going to be very, very modest. If there was any sort of major, significant uplift or return in the enterprise market, including data centers, that is upside to our guidance.

Tony Kure, KeyBanc.

Wanted to touch on the impact of the restructuring savings. I think last quarter you said it was going to be $22 million, $7 million in 2012, $15 million in 2013. Are those numbers still on track?

Yes. We actually did a little bit better in 2013. $22 million is still the full-year number, and we had roughly $9 million of savings that we were able to capture in 2012.

But the $20 -- the overall total remains the same?

Yes.

Just wanted -- what was the -- can you just talk about what the deferred gross profit adjustment -- a $2 million deferred gross profit adjustment was?

Sure. That is consistent with prior practice, as a result of the VSOE accounting, our Miranda acquisition, invoices, some software on the US GAAP that gets deferred. And for presentation purposes, consistent with our prior practice, we excluded that from our proforma numbers, Tony.

Given the movement into broadcast recently, can you talk about what the most attractive markets going forward now are for M&A, and maybe provide some expectations for scale in 2013 and '14 relative to the flurry of activity in '12?

I would expect us to do a number of smaller acquisitions built around the Miranda platform. The Miranda platform is an outstanding platform. And really with only a few significant important competitors, most notably Evertz. There are a number of product additions, technology investments that we are working on within that platform that I would expect us to do in 2013. They could be as small as $10 million to $15 million of revenue They could be as large as $100 million of revenue. The funnel is very rich there. The team is active in the area. That is really just completing the overall solution within the area of content creation and contact -- content distribution, which as you know is the two areas that we're focused on with Miranda.

Thanks for that color on this. A couple on CapEx for the 2013 -- maybe I missed it. Could you talk about what that might be?

CapEx will be at around $14 million, Tony, for the full year, 2013.

One last one on low-margin business, the pruning actions you did in the third quarter. Any more of that activity, or maybe increased, walking away from low-margin business?

I think it will be on margin, Tony. I think we have some areas where our general managers are taking actions that they feel are appropriate to achieve both their organic growth and their operating margin goals. Of course, they have the discretion to turn those dials. But they are at that level, rather than at the enterprise- or the portfolio-level.

(Operator Instructions)

Noelle Dilts, Stifel Nicolaus.

Going back to the channel partner inventory reductions in the quarter, could you comment on whether these were concentrated in the particular product line or geography?

They were mainly in cable only because that's the product line that is the overwhelming majority where we go through distributors. So primarily cable. It was all around the world. I'm sure more of it was in the United States that it was anywhere else. But we saw it everywhere. It seemed to us like all of our lines of distributors were managing their balance sheet in the fourth quarter. Some of them were public companies, of course, so they want to be able to present their balance sheet in a proper way at the end of the quarter. Some of them are privately held and they're just managing cash. But we never saw the turns get to an alarming number, but we saw them be a little more aggressive with inventory management than we expected.

In the Americas, you saw a very strong growth in the industrial market in the quarter. Could you expand just a little bit, provide a little bit more granularity on the drivers of that growth?

Yes. A lot of it came out of our initiatives in oil and gas, as well automation. The team in the US, especially, but Canada as well, has done a very nice job of acting on the vertical markets that we identified within the industrial space that we thought were most attractive. The fact that we could grow that business 14% year over year in the Americas in the fourth quarter, I think, as Henk said, is a testament to those initiatives working, the team executing them well, clearly taking share at that kind of growth levels, but also picking good markets helps.

One last question. You've talked about getting back into the market in 2013 with the share repurchase program. Obviously, your stocks had a very nice run. Can you give us some updated thoughts on how you are looking at that program in view of the move in the stock?

Yes. The way we do it is really simple. We have a DCF analysis based on our internal start plan, and as long as the stock is trading below that, we are buyers. I can tell you that the stock is trading significantly lower than our DCF analysis.

Brent Thielman, DA Davidson.

John, on the M&A strategy going forward, obviously, you have been pretty active in the broadcast market, but from a geographic perspective, are there markets that are more of an emphasis for you than others?

Not really. I would say that we tend to look at the platform. So, for example, a lot of the more attractive industrial connector companies happen to be European. Many of them are German. We tend to look at it that way. There are some activities in South America that we are looking at, where the team is looking at expanding our footprint because we have done well. We like that market. But I would say the majority of our time is spent from a platform point-of-view of building our funnel rather than a geographic point-of-view.

The Chinese industrial crane interest you have. It looks like it is a little lower year over year than your Q3 levels. Are you seeing improvement in that market such that we can see some better contributions there this year?

I do not think so. At this point, we expect that, that business will be roughly flat year over year. The construction market in China is not currently any better than it was. That could change, of course, but at this point we don't bake any of that into our guidance for 2013.

So you are thinking sort of flat year over year for guidance?

That is correct.

Lastly, Henk, I apologize if you touched on this, but in the reconciliation of adjusted operating income, you report amortization as $7.1 million, but the income statement says $9.6 million. Can you help me understand the difference there of $2.5 million?

Those are acquisitions that we did in the fourth quarter.

Got you.

Gary Farber, CL King.

Just a question on your comments on the enterprise market. Can you speak to -- from the outside, what should investors focus on to try to gauge if that market is getting better than -- instead of a slower recovery in the back half of the year?

The macro of numbers that we always look at, of course, is nonresidential starts, is a good macro number to look at. The leading indicator to that, of course is ABI. And I would say IT spend. So, when those things are moving in a positive direction, that is going to have a positive impact on our business. It is difficult to be able to know for certain how that is going to go. Currently, the projections we are looking at is that there should be some year-over-year improvement in the second half in all those areas. Like I said, we have taken, I think, a fairly conservative view of those markets, given the fact that they just haven't rebounded aggressively since the peak in '07. But, if those things start moving up, Gary, then you will see it in our business.

And the ABI has sort of moved up a little bit. Is there some level at which it is going make a -- it's more evident that there's going to be change happening/

I think it all comes down to nonresidential starts. The ABI, of course, is a indication of confidence level within the architectural community, and that should give you some sense of things, but you and I both know the AB&I -- ABI over the last three years has been all over the map. It will go above 50, and then the below 50, and then back above 50. It just hasn't yet been a particularly good predictor of activity.

The thing I would look at is non-res starts. The residential market is doing well, as we all know. Typically, non-res follows the residential market. That might be good news. The fact that the amount of available office square pace -- square feet is coming down is good news. At some point, this thing will recover. The question is, when.

Just one last one. Do you weight -- you talk about IT spending in non-residential -- do you weight one more heavily than the other, or are they sort of equally weighted as to try to determine what is going on?

For the land market, the local area network market, non-res spending is more important. For the data center market, IT spend is probably more important. With our portfolio the way it is today, Gary, we are still a little bit more exposed to the non-res spend than we are the IT investment.

(Operator Instructions)

Brett Levy, Jefferies.

You're at Ba2 with Moody's and B plus at S&P. Obviously, there is some disparity there. Is there a chance that the S&P rating moves up? And is that a priority for you? And then, can you es -- talk about -- is there a target level of leverage that you think is most optimal for this Company?

We talk to Moody's and S&P on a frequent basis. Probably once a year. And we believe there is room for improvement, especially with S&P. Is it -- will it happen over the next quarter? We will have to wait and see. On the leverage parts that are optimal for the Company, its current configuration, we feel the net leverage of 2.5 is an appropriate level that allows for continuing the M&A strategy, in addition to completing our commitment to repurchasing shares.

Thanks very much, guys. The rest of the questions were answered.

Noelle Dilts, Stifel Nicolas.

I was hoping you could comment a little bit on -- provide a little bit more granularity on what you're seeing in Europe by country, in particular, touch on what you're seeing in Germany? And then discuss some of the European expectations that are baked into your 2013 guidance?

On a year-over-year basis, our EMEA business was down about 3.5% year over year. We did see some contained weakness in southern Europe on a year-over-year basis, as you might expect. We did see little bit of weakness in Germany, though, as well. So, there was some impact from Germany. We think that, that's exports within the European Community as well as the impact from China. As it relates to our guidance for next year, it is our expectation that the European market will be no better than flat. If there is any growth in Germany next year, which there may be based on China's performance, then that, too, would be good news for us.

One last question. Last quarter you talked a bit about actively pruning some of your stand-alone lower end cable products. Can you provide an update on how that is going and if that was much of a drag in the quarter?

It is really getting done, at this point, at the operating level of the general manager level. On a sequential basis, most of the portfolio management that we saw was within the consumer electronics business in advance of the sale. There was a little bit that was done within our enterprise business and our industrial business, but it really was not significant. In 2013, I think we will see some as our general managers make trade-offs between the achievement of their operating margin goals and their organic growth goals. And they will use that as a lever if they see appropriate, but it is going to be at that level, not at a enterprise level.

Matt McCall, BB&T Capital Markets.

Henk, I think of a earlier question -- you said there was about $22 million of restructuring savings this year, was that the correct number?

No. It's $22 million on the full-year basis, of which we realized $9 million.

So that is going to -- so that will still give you probably $0.15 this year. I'm trying to -- I guess the question is, so you have got some accretion from Miranda, you have got some remaining accretion from Miranda to be recognized this year. Obviously, PPC, then you've got the cost savings. I am trying to gauge how much of the roughly -- if I start with the to $2.80 of adjusted EPS this year -- or the 2012 that you just reported -- go to the midpoint of guidance range -- you have got about $0.75 of incremental EPS next year. It seems like there is very little, even though you've seen some more, some better trends recently.There's very little organic EPS growth in there. Am I miscounting?

I think you need to include the fact that some of our restructuring savings are reinvested in strategic initiatives. I think that is the component that you are missing in your model.

So then, how much organic revenue-driven earnings growth is in the current guidance?

It is probably around $0.32 to $0.35.

$0.32 to $0.35. What is the organic revenue assumption in the new guidance? Is it 0% to 3%?

Yes. It is unchanged from the update we gave you in December.

We have no additional questions. I would like to turn things back over to Matt Tractenberg for any additional or closing remarks.

Thank you, Catherine, and to everyone on the call, thank you for joining us today. If you have additional questions, please reach out to the Investor Relations team here at Belden. We are happy to help you. Have a great day, everyone.

Thank you. Ladies and gentlemen, that does conclude today's call. Thank you all for your participation, and have a good day.