Belden Inc (BDC) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated conference call. Just a reminder, this call is being recorded. (Operator Instructions).

I would now like to turn the call over to Matt Tractenberg. Please go ahead, sir.

Thank you, Audra. Good morning, everyone, and thank you for joining us today for Belden's fourth-quarter and full-year 2013 earnings conference call. My name is Matt Tractenberg, and I'm Belden's Director of Investor Relations. With you here this morning are John Stroup, President (technical difficulty) 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.

Turning to slide 2 -- during the 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 the 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.

Additionally, during today's call, management will reference 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. Before we begin, I'd like to point out that following our discussion of our fourth-quarter and full-year results, we will offer further perspective on the announcement in this morning's press release that Belden has submitted a binding offer to purchase Grass Valley, a leading provider of innovative broadcast technology, for $220 million in cash. We'll present slides and take questions at that time.

Turning attention to our results, I'm pleased with our fourth-quarter and full-year performance, and I'd like to thank our associates for all their hard work. It was an extremely important year at Belden. In addition to a number of exciting product and commercial initiatives that drove meaningful share capture, we transitioned to our new global business structure and successfully integrated Miranda and PPC.

The 2013 macroeconomic environment was as we expected. Our regional and end-market balance, in combination with our disciplined approach to growth, margin expansion, and free cash flow generation allowed us to out-perform in a predictable fashion.

I'm proud of our progress with margin expansion. For the fourth quarter, gross margin improved by 200 basis points, and operating profit margins increased by 230 basis points, both on a year-over-year basis. While a little economic tailwind would allow us to more quickly showcase the operating leverage inherent in our business model, our proficiency with the Belden Business System is improving and delivering results. Following the formation of Belden's four global business segments this year, our commercial and product strategies are easier to execute, and we continue to benefit from geographic and end-market balance.

Results in our enterprise and broadcast platforms were solid, offsetting pockets of softness within the industrial platforms. From a geographic perspective, solid results from regions such as China, Japan, Europe, and Mexico more than offset weakness in the Americas.

It was clear to us during the quarter that the strengthening US dollar resulting from monetary policy here at home is impacting demand, or at least the timing of purchases in emerging markets, including Latin America and Southeast Asia.

Please turn to slide 3 in our presentation for a review of our fourth-quarter highlights. As a reminder, I'll be referring to adjusted results today.

And pleased with our fourth-quarter revenue, an increase of 7.2% year-over-year, to $515.9 million. Gross profit margins increased 200 basis points year-over-year to 35.2%, and remain best-in-class. Operating profit margins increased year-over-year by 230 basis points, to 13.8%. We attribute the increase in margins to organic and inorganic improvements to the portfolio. Income from continuing operations per diluted share totaled $0.91 for the quarter, up 16.7% over last year's $0.78 per diluted share.

Please turn to slide 4 to review the fourth-quarter income statement. Revenue for the quarter of $515.9 million was up $34.7 million, or 7.2%, compared to $481.2 million in the fourth quarter of 2012. Adjusting for acquisitions, divestitures, foreign exchange, and copper, revenue was up 2.5% year-over-year.

The growth environment remains mixed, with solid demand in Japan up 13%; Europe, up 10%; Mexico, up 8%; and China, up 7%. This offset softer performance from regions including the United States and Canada that were down 2%; and Brazil, down 28%; all on a year-over-year basis. I'd like to remind you that while we continue to view emerging markets as long-term strategic opportunity, approximately 75% of our revenue and two-thirds of our growth is generated in developed markets. As discussed last quarter, it appeared the demand in Europe has reached the bottom, and we may begin to experience growth, albeit shallow.

Please turn to slide 5 for a review of our business segment results. Broadcast revenue in the quarter was $171.8 million as compared to $118.9 million in the year-ago period, which included only two weeks of PPC, contributing an incremental $51 million to this segment from the year-ago period.

On a sequential basis, I'd like to point out that seasonal patterns do exist within our broadcast and broadband markets. Broadcast end markets tend to see a sequential increase; while broadband end markets, a sequential decline. Operating profit margins were 14.2%, increasing 230 basis points year-over-year, and accretive to consolidated margins.

Our enterprise connectivity segment saw strength during the quarter. Revenue was $120.2 million, up from $114.3 million in the fourth quarter of 2012, an increase of 7.1% after adjusting for changes in copper and currency. Operating profit margins were 9.7% for the period, an improvement of 260 basis points from the year-ago period. Operating margins declined sequentially, a result of the timing of higher input costs we spoke about on our Q3 call in October. We continue to see opportunity for margin expansion within this segment, and believe that consistent double-digit operating profit margin is within reach.

For the full year 2013, our combined industrial platforms grew revenue by almost 3% year-over-year, after adjusting for changes to copper and currency prices.

During the fourth quarter, our industrial business saw both challenging comparisons and specific pockets of end-market softness impacting results, with combined revenue up only slightly on a year-over-year basis. There are places we are doing very well, and taking share with strong execution as evidenced by our continued success within our industrial channel programs, up almost 10% year-over-year. Conversely, soft demand within Brazil, and the US project business, impacted industrial connectivity results.

Industrial connectivity had revenue for the quarter of $165 million, down $2.5 million from the year-ago period. After adjusting for changes in copper and currency, revenue growth was up slightly year-over-year. For the full-year period, industrial connectivity grew revenue by 2.7% year-over-year, after adjusting for changes in copper and currency. Operating profit margins were 13% for the fourth quarter, up 100 basis points year-over-year.

Industrial IT revenue of $58.9 million increased by $2.6 million, from $56.3 million in the fourth quarter of 2012. After adjusting for changes in currency, revenue was up 1.2% year-over-year. The year-ago period benefited from nonrecurring projects within China. For the full year 2013, industrial IT grew organically by 3.1% year-over-year. Operating profit margins were 19.5% for the quarter, up 220 basis points from last year's period.

Looking at slide 6 for our full-year results, I'm proud of our gross margins at 35.2%, up 310 basis points from 32.1% in 2012. Operating margins of 13.8% increased by 270 basis points from 11.1% in 2012, approaching our corporate goal of 14% to 16%. We were also able to increase income from continuing operations per diluted share to $3.69, up nearly 32% over last year's $2.80 per diluted share.

In 2013, we generated $200 million of free cash flow, or 121% of income from continuing operations. This is a testament to our high quality of earnings and our focus on working capital and fixed asset efficiency. This is the ninth consecutive year we have generated free cash flow in excess of income from continuing operations.

And finally, during the year, we were able to repurchase 1.7 million shares of Belden common stock for $93.75 million. This brings the total of both programs combined to 5.4 million shares repurchased, or more than 12% of the outstanding shares.

I will now ask Henk to provide additional insight into our fourth-quarter 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. As a reminder, I will be referencing adjusted results today.

Please turn to slide 7 for a detailed consolidated review. Fourth-quarter consolidated revenues were $515.9 million. Sequentially, revenues declined $9.7 million on $525.6 million. After adjusting for changes in copper and currency, revenues declined 2.4%, largely due to typical seasonality within our enterprise and broadcast segments.

Compared to the fourth quarter of 2012, revenues grew 7.2% from $481.2 million. We benefited from the addition of PPC as compared to the year-ago period, with an impact of $51.1 million. Additionally, the revenue from our consumer electronics business is no longer included in our results, with an unfavorable impact of $24.2 million.

Adjusting for changes in copper and currency, revenues increased organically in the fourth quarter by 2.5% year-over-year. Best-in-class gross profit margins were 35.2%, decreasing 80 basis points sequentially, a result of the timing of input costs which favorably impacted higher quarter results, with an impact of 50 basis points. Gross profit margins increased 200 basis points year-over-year, largely a result of inorganic activities, with an impact of 150 basis points.

Fourth-quarter SG&A expenses were at $93.1 million, or 18% of revenue. R&D expenses for the quarter were $20.8 million, or 4% of revenues. SG&A and R&D expenses as a percentage of revenue were down 10 basis points compared to the year-ago period.

In the second half of 2013, we recognized $4.4 million in income from our equity methods investment, of which $3.6 million was recognized in the fourth quarter. Compared to the second half 2012, this amount is down 12% year-over-year due to softer end-market demand within the Chinese train manufacturing market. In 2014, we expect the softer demand to continue, and to generate between $5 million and $6 million for the full year.

Operating profit margins were 13.8%, down 40 basis points sequentially from 14.2%, and up 230 basis points year-over-year from 11.5%. The year-over-year increase is largely due to the effective integration of our prior-year inorganic activities, with an impact of 140 basis points, and operating leverage with an impact of 30 basis points.

Net interest expense for quarter was $19.4 million, approximately flat sequentially. The year-over-year increase of $6 million is primarily a result of our euro debt issuance which took place in March 2013. Our weighted average cost of debt remains at 5.7%. We expect interest expense to remain stable at approximately $19.3 million per quarter.

The adjusted effective tax rate for the fourth quarter was 22.6% compared to 15.3% in the year-ago period. The difference was primarily due to discrete tax items that were recognized in the prior year. For financial modeling purposes, we recommend using a 24% effective tax rate for the first quarter and full year 2014.

Income from continuing operations for the fourth quarter was $40.2 million, down $2.2 million sequentially on $42.4 million. Compared to the year-ago period, income from continuing operations increased $4.9 million, or 13.9% on $35.3 million. Income from continuing operations per diluted share was $0.91 for the quarter, an increase of $0.13, or 17% from $0.78 year-over-year.

Please turn to slide 8. I will now discuss revenues and operating results by business segment. Broadcast solutions generated revenues of $171.8 million during the fourth quarter. On a sequential basis, revenues declined $7.4 million from $179.2 million. As John mentioned, this decline is largely a result of a typical seasonal decline within broadband end markets of approximately $7 million.

Compared to the year-ago period, revenues increased $52.9 million from $118.9 million. As discussed earlier, the addition of PPC contributed $51.1 million to this platform compared to the year-ago period. Growth on an organic basis, with PPC fully included in the year-ago period, was 2.6%.

Operating profit margins within the broadcast segment were 14.2% for the quarter, down 50 basis points sequentially, and up 230 basis points from 11.9% in the year-ago period. The sequential decline is attributed to leverage and volume, and the year-over-year increase is primarily due to the inorganic activities.

For the full year, broadcast operating profit margins increased 600 basis points, from 8.1% in the prior year to 14.1% in 2013, now within the range of our long-term corporate goal. I am extremely pleased with the performance of the acquired companies, and am excited about the addition of Grass Valley to the portfolio, and look forward to further success in 2014.

Our enterprise connectivity segment generated revenues of $120.2 million during the fourth quarter, decreasing $3.2 million sequentially from $123.4 million. The sequential decline is in line with typical seasonal patterns. Compared to the fourth quarter of 2012, revenues increased $5.9 million from $114.3 million. After adjusting for changes in copper and currency, revenues increased 7.1% compared to the year-ago period.

Operating profit margins of 9.7% declined 180 basis points sequentially, a result of the timing of favorable input costs experienced in the prior quarter. Operating profit margins increased 260 basis points year-over-year, primarily a result of leverage on volume and productivity improvements. For the full year, enterprise connectivity operating profit margins increased 80 basis points, from 9.3% in the prior year to 10.1% in 2013. We have a clear plan to improve profitability over the coming years within this platform, resulting into operating profit margins within the range of our corporate goal.

Our industrial connectivity segment generated revenues of $165 million during the fourth quarter, a sequential decline of $2 million from $167 million. Compared to the fourth quarter 2012, revenues declined $2.5 million from $167.5 million. After adjusting with changes in copper and currency, revenues were up 20 basis points year-over-year. As mentioned by John, our US project business saw a very strong performance in Q4 2012, as well as in Q1 2013, resulting in two tough comparisons on a year-over-year basis for this segment.

Operating profit margins of 13% declined 100 basis points sequentially from 14%, driven largely by unfavorable mix. Compared to the fourth quarter 2012, operating profit margins increased 100 basis points from 12%, a direct result of productivity improvements. For the full year, industrial connectivity operating profit margins increased 100 basis points, from 12.9% in the prior year to 13.9% in 2013.

Industrial IT segment generated revenues of $58.9 million during the fourth quarter. Revenues increased $2.9 million sequentially, and $2.6 million compared to the year-ago period. After adjusting for changes in currency, revenues increased 1.2% compared to the year-ago period, and 3% sequentially. Operating profit margins of 19.5% increased 150 basis points sequentially; and 220 basis points, from 17.3%, in the year-ago period. The year-over-year improvement is largely a result of improved productivity. For the full year, industrial IT operating profit margins increased 180 basis points, from 16.9% in the prior year to 18.7% in 2013.

In summary, I'm pleased with our fourth-quarter and full-year 2013 performance. I'm especially pleased with the best-in-class gross margin of 35.2% for the full year 2013. I believe that significant opportunity exists to improve profitability even further, by better leveraging our SG&A investment going forward.

If you will turn, please, to slide 9, I'll begin with our balance sheet highlights. Our cash and cash equivalents balance was $613.3 million at the end of the fourth quarter. This is an increase of $280 million on the end of 2012. Inventory turnover was 6.4 turns, and improvement of 0.3 turns year-over-year, and flat sequentially. Days sales outstanding was 56 days in the fourth quarter, an improvement of 1 day, both year-over-year and sequentially. Working capital turnover was 9.1 turns, an improvement of 1.7 turns year-over-year and 2.1 turns sequentially. The improvement was largely a function of the timing of payables. PP&E turnover was 6.8 turns, an improvement of 0.6 turns year-over-year, and a decrease of 0.1 turn sequentially.

Our debt balance increased $216 million year-over-year due to the euro debt issuance in March 2013 mentioned earlier. Net leverage improved from 2.7 times net debt to EBITDA in Q4 2012, to 2.2 in Q4 2013.

Please turn to slide 10 for a few cash flow highlights. Cash flow provided by operating activities for the fourth quarter were $113.8 million compared to $83.3 million in the year-ago period. Net capital expenditures for the quarter totaled $8.8 million compared to $0.9 million last year. Last year's net capital expenditures were impacted by the sale of intangible assets in the amount of $8.3 million.

Free cash flow was $105 million in the fourth quarter 2013. On a full-year basis, free cash flow increased 37%, from $145 million in the prior year to almost $200 million in 2013. We returned 50% of the free cash flow to our shareholders in the form of share repurchases and dividends.

In 2013, we repurchased 1.7 million shares for $93.75 million, at an average price of $54.76 per share compared to 2012, where we spent $75 million at an average price of $36.20. We still have $31.3 million remaining available from the current share repurchase program.

Dry powder at the end of 2013 was greater than $850 million, more than enough to fund the acquisition of Grass Valley, as well as the continued execution of our share repurchase program, and any other M&A opportunities in 2014. That completes my prepared remarks.

I would now like to turn this call back to our CEO, John Stroup, for the outlook.

John?

Thank you, Henk. Please turn to slide 11 for our outlook regarding the first-quarter and full-year 2014 results.

Belden's outstanding business portfolio and an improved organizational structure provide us with an opportunity to perform well in a variety of economic environments. We continue to emphasize our strategic initiatives including our market delivery system and Lean enterprise. We also remain confident in our ability to deliver consistent operating results as we enter 2014. We expect our first-quarter 2014 revenues to be between $495 million and $505 million, and adjusted income from continuing operations per diluted share to be between $0.77 and $0.82.

For the full year 2014, we are reaffirming our position that we shared with you in December. The Company expects revenues of $2.11 billion to $2.15 billion, and adjusted income from continuing operations per diluted share of $3.81 to $4.11. Both the first-quarter and full-year 2014 guidance exclude the potential impact of Grass Valley. We anticipate closing the acquisition of Grass Valley by March 31.

I would now like to turn our attention to the announcement you saw this morning. Please turn to slide 12.

Grass Valley is a well-respected company, providing a broad portfolio of innovative technology to the broadcast industry. Their customers include leading sports, news, and entertainment providers around the world. The binding offer includes consideration of $220 million in cash, and is subject to customary closing conditions, including audited financial statements, which we expect to complete in the first quarter.

The products, including hardware and software, fit within the same markets that Miranda and Belden serve, with limited overlap. We expect Grass Valley to contribute approximately $225 million in revenues to consolidated results from the second quarter through fourth quarter 2014.

Looking at the product categories on slide 13, and assessing our relative strength with the niche, illustrates the leadership position we can create. Studios, trucks, and venues need a mixture of all these items you see here.

The great thing about this combination is the limited product overlap. Miranda's strength is in routing, playout, multi-viewers, and monitoring. Grass Valley the strongest in switchers, cameras, servers, and editing systems. Together, it's a winning combination.

Please turn to slide 14. We believe that the value with this transaction brings to customers and shareholders begins with scale. By combining these two leading companies and aligning both resources and strategies, we create a business that broadens its offerings while realizing the benefits of scale.

Secondly, we enable the most complete product offering in the broadcast industry. We have the ability now to simplify the purchasing and management of highly complex infrastructures. And, third, there is a great deal of opportunity in the application of the Belden Business System, including Lean techniques and the market delivery system. The result is a more focused and efficient broadcast platform.

And finally, today's announcement results in a business that can deliver the financial results you've come to expect from Belden, including attractive sales growth, EPS accretion, and ROIC within our stated goals.

The market, as we think about it, can be seen on slide 15 -- creation, aggregation, and delivery. Miranda and Grass Valley focus on the creation and aggregation elements; while PPC and Belden, on delivery. We have the ability to cross boundaries and provide an integrated offering. That's unique. We've been in this market for a long time, and we know these products and applications extremely well. With this acquisition, our served available market increases by $1.4 billion, or 40%, from $3.5 billion to $4.9 billion that can now be served by this combined business.

I'll now ask Henk to discuss the likely financial impacts of this transaction.

Henk?

Thank you, John. On slide 16, we provide you with a number of important metrics. As you've heard, Belden has submitted a binding offer of consideration of $220 million for Grass Valley, funded with existing cash on the balance sheet. I want to remind you that this agreement is subject to regulatory approvals, the completion of audited financial statements, and other customary closing conditions.

In addition, we expect to invest approximately $25 million during the first 12 months of integration, largely due to structuring efforts to capture the value of the combined Company. The strategic actions will include cost rationalization, manufacturing footprint, and leveraging a combined sales and marketing function, and the implementation of Lean principles.

Grass Valley has turned a corner, and is on a path to improved profitability with current gross margins already above 40%, which are accretive to Belden's consolidated margins. Assuming a close date by March 31, the impact to Belden's 2014 adjusted revenue is expected to be approximately $225 million, on the second quarter through the fourth quarter 2014. Assuming those conditions are met, the impact to Belden's 2014 adjusted EPS is expected to be approximately $0.20.

We anticipate accretion of $0.50 in 2015. The accretion in our adjusted results includes the impact from restructuring investments following the close of the transaction. And, most importantly, our commitment to a cash ROIC that is between 13% and 15% in year 3 remains in effect.

For the purpose of calculation valuation multiple for this transaction, we assumed annual revenues of approximately $290 million, and $27 million of EBITDA. Including the restructuring investments we discussed, this results in an EBITDA multiple of 9, within the range we've communicated to you in the past that we believe provides an opportunity for increased shareholder value. I'm encouraged by the potential impact of the combined entity, and look forward to moving quickly to realize the cost and commercial synergies.

John?

Please turn to slide 17. In summary, we believe this is a great opportunity to combine two industry-leading companies. As you have come to expect from Belden, we've constructed a very detailed and achievable integration plan that will allow us to realize the results Henk just shared with you. While nothing is certain, I'm confident we have the processes and talent to be successful. We are obviously excited by this transaction, and we hope you are, too.

I now will take questions from our audience. Audra?

(Operator Instructions). Shawn Harrison, Longbow Research Investments.

I guess trying to clarify some numbers on the transaction. First off, my back-of-the-envelope math looks to be that EBIT margins right now are probably mid-single-digits, and you'd get them into the low-double-digits based upon the guidance for 2015. If you could just maybe comment on that.

And then, second, just the cost you're associating with financing this transaction, Henk -- is it just a low amount because it's cash on hand, or are you using the cost of debt you highlighted earlier?

No, we're using for the funding assumption, we're using cash on the balance sheet, Shawn. And on the EBITDA margins, you're correct there. Your assumption on the EBITDA margin is consistent with how we modeled the $0.50 of EPS accretion in 2015.

Okay, so moving from mid-single to low-double.

That's correct.

That's correct.

How much of the R&D platform they have overlaps with your business? And maybe you could also just talk in terms of how they manufacture the product. Is it done internally? Is it done externally?

So the R&D investment that Grass Valley and Miranda make are relatively unique to the product categories that they lead in. And so I think the result of the integration is unlikely to include meaningful reductions in R&D investment. I think that that will remain stable. However, I think there's going to be an opportunity for Miranda to throttle back on some investments where Grass Valley is stronger, and for Grass Valley to throttle back on opportunities where Miranda is stronger.

Manufacturing is a clear opportunity. Today, Grass Valley outsources a lot of their manufacturing. We think there's an opportunity for us to leverage our existing fixed cost structure, absorb that manufacturing. So that's a clear opportunity to create value in the combined business. And there is clearly an opportunity to leverage our global sales force. Both of us, at $200 million and $300 million, respectively, have created a global salesforce calling on the same customers. And we see a clear opportunity to improve our efficiency there.

Okay. Then a follow-up. As I look at 2014, maybe the shape of the year is little bit different than I was expecting, in terms of the starting point for revenue in both EPS. If you could comment on both -- just seasonality now in the business in terms of how things are a little bit different; and then, secondarily, what's changed since the Analyst Day? It seems like maybe Brazil and some of your project business is a little bit weaker -- but if anything else has changed.

The first quarter, Shawn, is typically our weakest. It does vary by platform, of course, but the seasonal pattern in 2014 we're expecting is consistent with what we would typically see. I would say the only thing that's really changed since the Analyst Day, as you correctly mentioned, was the actions taken by the Fed has had an impact -- we feel, anyway -- on demand in certain emerging markets, such as Brazil and Indonesia, where they are seeing price increases in local currency because their currency is weakening against the dollar.

And at a minimum, it's affected timing of demand. In Brazil, for example, we've seen people push projects out. At some point, they're going to have to purchase these projects. So I would say that's really the only meaningful change since what we talked about in December, which we think we can overcome. And that's exactly why we didn't change our full-year guidance.

Okay. Thanks for the insights, and congrats on the Grass Valley transaction.

Steven Fox, Cross Research.

Just following up on that last question -- on demand, in terms of when you talked about the Fed actions hurting some of the emerging markets, are you talking across all your businesses into those markets, or is there more -- is one area more hurt than the other?

No, I would say that to the extent that it's more pronounced in a particular platform, it would only be because that platform has relatively more revenue in the area. So Brazil, for us, tends to be pretty heavy in industrial, so the industrial connectivity business took the brunt of the weakness in Brazil.

Indonesia, probably a little bit of our enterprise business than other businesses, so it probably took the brunt of that. But it's not a business platform phenomena as much as it is a relative currency issue that we see. And our view, anyway, is that's probably something that's going to continue with us throughout 2014, and we're planning accordingly.

Okay. Fair enough. And then, secondly, just broadly speaking, John, could you give us a little more color on enterprise market? I think depending on whose call you've listened to over the last few weeks, it's been a different story. So maybe just a little bit more color, especially as it compares North America versus, say, the rest of the world?

We continue to have a positive bias on enterprise. The growth rate for us in the fourth quarter was good. It was at 7%. I would caution, however, that some of that growth is the fact that a year ago, there was a fairly significant adjustment to channel inventory a year ago, so we did have some benefit from that.

But our enterprise market -- it was strongest in the Americas, up 7.5%. Europe was about flat. Our Asia business was actually up pretty good in enterprise; it was up 12%. That's coming off a relatively small number. And as I mentioned on the call, we actually had a good quarter in China, as we did in Japan and Europe. And actually the weakness we experienced in the fourth quarter was more in the Americas.

So as the Europe played out in 2013, we saw different patterns of demand by geography, by quarter. And I think that it really just sort of emphasizes how important it is to have a diverse set of end markets, and a diverse set of geographies in today's world, because things happen -- things tend to change fairly quickly.

Great. And then just one question on the acquisition. I think Henk mentioned that Grass Valley had turned the corner, when he was going through the financials. I'm not quite sure what you were referencing there. Can you just be more specific, please?

I think what he was referencing was that the business's performance at the exit of the year was substantially better than the full year. So their current ownership has done a nice job of dealing with some of the structural cost issues that that business had at the time of the acquisition. And their business performed substantially better in the fourth quarter than it did for the full year.

In our opinion, though, that as a stand-alone business, there isn't a lot more they can do, and I think the owners agree. And by combining these businesses, there's really an opportunity to create scale that neither of them can do by themselves.

Great, that's very helpful. Congratulations. Thanks.

Brent Thielman, D.A. Davidson.

Looks like Grass Valley sort of fills in some holes for you in broadcast. I'm just curious, what's left in that area that you don't feel you have as much leverage to; and are those remaining areas as interesting to Belden?

So, you're right. Grass Valley is a really unique opportunity, and something that we've been excited about for some time, and is meaningful in terms of gap-filling for our broadcast platform. It's still a fragmented business. There are still other nice, attractive acquisitions that exist. But I would say they tend to be a little bit more nichey, both in terms of size and product emphasis. So I think there's an opportunity for the Grass Valley-Miranda combination to continue to make acquisitions, but I think they would be smaller in nature.

And then within the broader concept of broadcast connectivity, there still remains quite a bit of opportunity in the connector area. That's an area that we've been looking at for some time. And we'd very much love to add a quality company in that area as well.

Okay, great. And then it looks like severance restructuring costs in broadcast stepped up little bit this quarter, just compared to where you were the last couple of quarters. Is that just related to finalizing some things before year-end, or have you identified some new costs in that area?

No, no significant changes. We did take an additional charge relative to a piece of real estate that we're going to sell in Q1. But no significant change in pace.

Got you. And just one last one, if I could. You've upped the loss from discontinued operations. Any clarification around that?

That was a tax adjustment.

Okay. Thank you.

Matt McCall, BB&T Capital Markets.

Industrial connectivity, you talked about -- I think Henk, you may have mentioned it -- or maybe you, John -- the impact of mix in the quarter. You started out the year north of 14%; ended around 13%. Can you give us more detail about the mix impact, and then what's the right starting point and level of expectation for 2014?

So let me start by just pointing out that mix on a year-over-year basis for industrial connectivity was favorable. So on a year-over-year basis, it was up about a little over $1 million. But you are correct that sequentially, it was unfavorable by about $1 million. I would consider this to be natural variation. I don't think there's any special cause associated with this.

The industrial connectivity platform has a wide range of margins, both in terms of product type and customer type. And so I think it's just as simple as the fact that the margins were slightly stronger in Q3 -- maybe the typical slightly weaker in Q4. I think the right starting point for the business is the full-year results for industrial connectivity. So industrial connectivity operating margins were 13.9%, so let's call it 14%. I think that's the right starting point for the business.

Okay, thank you. You mentioned, with Grass Valley, no product overlap. Are there opportunities geographically? Just trying to understand the assumed revenue synergies and how easy they're going to be to achieve.

The assumptions that we have in place include manufacturing cost synergies, as well as the opportunity to leverage the combined sales organization, both in terms of cost and revenue. There is very little product overlap, but there is substantial customer overlap. We view that as positive thing.

There are a number of customer relationships that Grass Valley has that Miranda does not currently have, and vice versa. And so the integration of the customer-facing resources is an extremely important part of this integration. And I'm confident that we've got the right people on it, and we've done it before successfully. So I think the we've got reason for optimism that this is going to go well.

Okay. And Hank, maybe one for you. The buyback activity has kind of picked up over the past few years. Should we assume that buyback moves up to a more -- to the number one-spot in cash usage, given the M&A activity that you've already announced?

No, I thought it would be allocated both to M&A opportunity as well as to our buyback program. Currently, we still have $131 million remaining available under our program, and we continue to execute this on a quarterly basis.

And I think it's fair to say that had we not been in a blackout period in the fourth quarter because of -- now you know why, because of the acquisition of Grass Valley -- we would have been active in the fourth quarter at our typical rate. And it was really a matter of us being appropriately cautious with respect to not being in the open market with material non-public information.

Okay. Thank you, John.

John Quealy, Canaccord Genuity.

Congratulations on the year, and Grass Valley.

Thank you, John.

Thank you.

So if you questions. First with the acquisition, at about a $290 million topline run rate, as we look into 2015, we're assuming that is -- I'm trying to calculate it out -- maybe 4% to 6% grower, 5% grower? How do we think that first full year of ownership should flesh out?

It's about 4.5% to 5% that we expect. So revenue level around $300 million, $305 million.

Okay. And Henk, the step-up in EPS, is that merely the lack of any restructuring investments that you put into it in 2015? Is that right?

Yes, in addition to the typical fall-through on the incremental revenues, it's mainly the impact of the additional restructuring. That's correct.

Yes, just to clarify, the numbers that we shared with you, the $0.20 in 2014 and the $0.50 in 2015, those exclude restructuring costs. And the reason that 2015 is substantially higher than 2014 is our exit range in 2014 will be substantially higher than our full-year 2014.

Okay, that's helpful. In terms of -- just switching gears to the legacy business right now. John, I think at the Analyst Day, one of the areas you at least had hopes for a little bit more sustained health was land. Can you talk about how the last couple of months have evolved for you, and your thoughts about land spending?

So my thoughts, I think, are consistent with what we talked about in December. I mentioned earlier that of the four platforms, the strongest organic growth in the quarter was enterprise. Some of that was the fact that a year ago, there was a depletion of inventory in our channel partners. But our sell-through data was pretty good in our enterprise business as well. Non-residential investment in the back half of 2013 was improving and that gives us reason for optimism in 2014. And I think the team is executing well, so I continue to be reasonably optimistic about that.

The only thing that I'm somewhat cautious about, and this is a macro comment, is the fact that we're -- that that is tapering. The stimulus is a little bit of uncharted water for all of us. And so it's impossible to predict with any accuracy exactly how that's going to affect us and when it's going to affect us. So for that reason, I think we are being a little bit more cautious about how the macro environment is going to play out, because we know now that we're globally connected; and making certain that we continue to be real disciplined around our cost.

Okay, and then lastly, within industrial IT, it continues to be a great performer from a margin standpoint. Can you break down by end market some of the strength? Clearly, I imagine energy continues to power some good demand. But can you just walk us through how that looks in 2014? And I just had one follow-up.

Yes, so by vertical, I would say the ones that we continue to be really optimistic by are -- energy, as you said, particularly in process control. We have a lot of demand out of process control. That's been a good market. PT&D has continued to be a good market, although it's a little bit lumpy. And automation continues to be good.

So it's been pretty broad-based in terms of where the growth has come from. We actually saw pretty good growth in Europe. And that is something that I would like to mention again, that this 2013, we had to deal with quite a bit of headwinds out of Europe, and those really do seem to be subsiding. I'm not calling a massive recovery in Europe, but the fact that we won't have headwinds is going to be good for industrial IT and the Corporation in general.

Perfect. And then lastly, just back to Grass Valley, is that is eligible for a quick overview under HSR? Or how should we think about that DOJ process? Thanks, guys.

Yes, so I think it's going to be a complete review by the officials -- justice officials, to make certain that they understand the situation. But we have confidence that it's going to be approved.

(Operator Instructions). Noelle Dilts, Stifel.

Hello, thanks. Good morning. And again, congratulations.

Thanks, Noelle.

Just a quick question. And I may have missed this, but when you were talking about the restructuring charges associated with Grass Valley, did those completely go away at the end of 2015? Or is there some continuation into 2016?

No. The restructuring charges are predominantly in 2014.

How much do we have in 2015, Henk?

A little bit. Let's say $7 or $8 million. But they will go away -- they are effectively completed the -- in the first year of ownership, so it should be completely done. A little roll into 2015 maybe, but not significant.

Okay, perfect. And then you mentioned that there is a software element of the product offering. Is there any unique accounting there, like the SOE, or is it pretty straightforward?

Yes, so there will be products that will be subject to deferred revenue unless we are able to meet the conditions of vendor-specific objective evidence, in which case we would have the opportunity to recognize that revenue sooner. So we'll work through that as an accounting group, and do whatever we can to try to eliminate that deferred revenue element.

Okay. Thanks. That's helpful.

Gary Farber, CL King.

Yes, thanks. I just want to confirm these numbers right. So is this business sort of running at a high-single-digit, 9% EBITDA margin? You're running sort of at a high-teens margin. I'm just wondering in your 2015 guidance, what will be the assumption for EBITDA margin to get that $0.50?

So I think that, for 2014, in the three quarters that we own the company, the EBITDA margin would be just short of 9%, Gary. I think that's a reasonable assumption. And then in 2015, EBITDA margins are probably going to be in that 14% to 15% range.

You think that's back-half weighted in 2015? Or will that sort of just ramp throughout the year?

I think you would expect that we would want to exit 2015 stronger than we entered. But a lot of the work is going to be done this year, so I think that -- the first quarter, though, I would say, seasonally, is always the weakest quarter in Miranda and Grass Valley. So if you think about the seasonality, you should expect the margin to be stronger in the second half than it would be in the first half of 2015.

Right. And I'm not sure if you touched on this earlier in the call, but could you discuss how you have -- was this a company that was being shopped around, or how you came across this company?

Well, this is a company that we've known about for some time. It's a company where the relationship between the Miranda team and the Grass Valley team is long and deep. And we've had conversations with them for quite some time. And we were able to develop a relationship where we could negotiate with the owners in a fashion that didn't include a lot of other parties. So it's exactly the kind of thing we would prefer to do.

I think it's important to recognize that -- I think the combination is so obvious and makes such sense, to both us and the seller, that it wasn't difficult for us to conclude it made sense.

And just to -- the D&A for this kind of property runs like what?

D&A -- we assume for amortization of intangible purposes, roughly 40% the purchase price, so that will be $90 million. We think that will have an annual impact of roughly $10 million; so $0.15 a share, Gary.

Okay. And just one last question, also on the demand. The way you've -- your guidance in the first quarter, you would expect, if I looked at the sequential growth from last year, how the year sort of built; you would expect sort of a similar sequential build? Or do you expect maybe the back half to be sequentially stronger than it was this year?

No, the thing that would be different this year than last year is the fact that when you include Grass Valley, you're going to have a little bit more back-half weighting then you would typically, so that would be different. We had that in Miranda in 2013. Otherwise, I would expect the businesses to perform very much the same.

On a sequential quarterly revenue basis, basically excluding it, yes. Okay. All right. Thank you.

Shawn Harrison, Longbow Research Investments.

I just wanted to follow up on a few things with Grass Valley. Trying to think of the cash flow impact, that $25 million in charges, how much of that is cash? And then, also, do you kind of have an estimate in terms of just inventory write-ups in terms of how much that would impact cash generation for 2014?

So the $25 million that we called out is all cash. That's cash restructuring, Shawn. And the potential inventory write-ups would be roughly $90 million, or $0.26 impact on a GAAP basis.

Okay. So we're looking at something close to $50 million in terms of just a cash impact, once the deal is closed.

No, no. The inventory write-up is -- yes, that's correct. The inventory write-up is known, this purchase accounting is known cash. $25 million is purely cash.

The $25 million in restructuring, I think you should assume that will all impact our cash flow.

Yes.

And then, two quick follow-ups. As I think about the progression in margin from year to year, how much of that is going to be on the gross basis? And I guess where do gross margins tap out this business? I know there's a lower software component, so it shouldn't be as high as Miranda, but maybe just an idea there?

So I would suggest that the gross margins of the businesses, after combining them in creating the weighted average, I wouldn't see a significant improvement in the gross margins of the combined business. There will be some because of the manufacturing cost reduction that I talked about, but beyond that, I wouldn't see a substantial change.

I think most of the improvement is going to come in leverage on the SG&A line, particularly around the go-to-market function and some of the G&A investments; some of the investments in back-office, for example, that we can combine with two businesses. So little bit of expansion in gross margin because of the manufacturing cost take-out, but I think more of the margin expansion will come in from SG&A leverage.

Got you. And then the final question, just thinking about the pipeline, how is pricing out there for other potential transactions? I know it was a little bit rich due to a few other deals that happened last year, but is that normalized heading into 2014?

I think the environment, Shawn, from pricing, is pretty much the same. I think that there are deals to be done that create value, but I think that they need to be very well thought out. This is an example, I think, of a deal where we can create value because there's just so much inherent value between the two companies being combined, which is obviously very different than -- if you go out and you buy standalone company, there's not an opportunity to create value and synergies. So pricing, I'd say, is still on the richer side, and you have to be thoughtful.

But the pipeline of opportunities has in no way changed.

No, no. Pipeline is in very good shape.

Okay. Thanks a lot, John.

And that does conclude today's question-and-answer session.

At this time, I'll turn it back over to Mr. Tractenberg for any final comments.

Thank you, Audra. Thank you, everyone, for joining today's call. If you have any questions, please reach out to the IR team here at Belden. Our email address, investor.relations@belden.com. We're happy to help. Have a great day, everyone.

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