UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

 

Commission File No. 001-12561

 

BELDEN CDT INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

7701 Forsyth Boulevard

Suite 800 St. Louis, Missouri 63105

(Address of Principal Executive Offices and Zip Code)

 

(314) 854-8000

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

The registrant (1) is a well-known seasoned issuer, (2) is required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Act”), (3) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months, and (4) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

The registrant is a large accelerated filer and is not a shell company.

 

At June 30, 2005, the aggregate market value of Common Stock of Belden CDT Inc. held by non-affiliates was $966,684,045 based on the closing price ($21.20) of such stock on such date.

 

There were 42,633,092 shares of registrant’s Common Stock outstanding on March 1, 2006.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The registrant intends to file a definitive proxy statement for its annual meeting of stockholders within 120 days of the end of the fiscal year ended December 31, 2005 (the “Proxy Statement”). Portions of such proxy statement are incorporated by reference into Part III.

 

TABLE OF CONTENTS

 

 

General

 

Belden CDT designs, manufactures and markets high-speed electronic cables, connectivity products and related items for the specialty electronics and data networking markets. We focus on segments of the worldwide cable and connectivity market that require highly differentiated, high-performance products. We add value through design, engineering, excellence in manufacturing, product quality, and customer service.

 

On July 15, 2004, Belden Inc. (Belden) and Cable Design Technologies Corporation (CDT) completed a merger transaction pursuant to which Belden became a wholly owned subsidiary of CDT and CDT (as the surviving parent) changed its name to Belden CDT Inc. Due in part to Belden’s shareholders as a group having received a larger portion of the voting rights in the combined entity, Belden was considered the acquirer for accounting purposes. As a result, the transaction was accounted for as a reverse acquisition under the purchase method of accounting for business combinations under accounting principles generally accepted in the United States. For financial reporting purposes, the Belden historical financial statements and fiscal year are used for reporting following the merger. For federal securities law purposes, CDT (now Belden CDT) remains the reporting entity following the merger. For more information about the merger, see Note 3, Belden CDT Merger, to Belden CDT’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Belden CDT Inc. is a Delaware corporation incorporated in 1988. Its affiliated company, Intercole Inc., began a series of more than 20 acquisitions in the wire and cable industry in 1985. In 1993, CDT completed an initial public offering of its stock.

 

Belden, started in Chicago in 1902 as Belden Manufacturing Company, began by manufacturing silk insulated wire and insulated magnet wire. In 1980, the business was acquired by Crouse-Hinds Company and, in 1981, by Cooper Industries, Inc. (Cooper) as part of Cooper’s acquisition of Crouse-Hinds Company. In 1993, the business was transferred to Belden Wire & Cable Company, a wholly owned subsidiary of Belden Inc., in connection with the October 6, 1993 initial public offering by Cooper of the common stock of Belden Inc.

 

With the merger of Belden and CDT, the Company began reporting two business segments: Electronics and Networking. Financial information about Belden CDT’s two business segments appears in Note 22, Business Segments and Geographic Information, to Belden CDT’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

As used herein, unless a business segment is identified or the context otherwise requires, “Belden CDT”, the “Company” and “we” refer to Belden CDT Inc. and its subsidiaries as a whole.

 

Products

 

Belden CDT produces and sells cable and wire products, connectivity products, and other products. In each of the last three years, cable and wire products accounted for more than 90 percent of the Company’s revenues.

 

Our various cable and wire configurations are produced and sold by both the Electronics business segment and the Networking business segment. These configurations include:

 

 

 

Our connectivity products are produced and sold primarily by the Networking business segment for data networking applications. Connectivity products include connectors, patch panels, and interconnect hardware and other components. They are typically sold as part of an end-to-end structured cabling solution.

 

Our other products include cabinets, enclosures, racks, raceways and ties for organizing and managing cable; tubing and sleeving products to protect and organize wire and cable; passive components such as Power Over Ethernet modules; and services.

 

Markets and Products, Electronics Segment

 

Our Electronics business segment designs, manufactures and markets metallic and fiber optic cable and wire, with applications in a wide variety of markets. We group these into the following markets: Industrial; Video, Sound and Security; and Transportation and Defense (as described in more detail below). The Electronics business segment contributed approximately 59%, 63%, and 69% of Belden CDT’s consolidated revenues in 2005, 2004 and 2003, respectively.

 

Industrial.   We define the industrial market broadly to include applications ranging from advanced industrial networking and robotics to traditional instrumentation and control systems. Our products are used in discrete manufacturing and process operations involving the connection of computers, programmable controllers, robots, operator interfaces, motor drives, sensors, printers and other devices. Many industrial environments, such as petrochemical and other harsh-environment operations, require cables with exterior armor or jacketing that can endure physical abuse and exposure to chemicals, extreme temperatures and outside elements. Other applications require conductors, insulating, and jacketing materials that can withstand repeated flexing. We offer multiconductor, coaxial, fiber optic and composite cables for all these applications. We provide insulated single-conductor lead and hook-up wire, including heat-resistant PTFE lead wire for electrical leads in motors, internal wiring, and test equipment. We also supply heat-shrinkable tubing and wire management products to protect and organize wire and cable assemblies. We sell our industrial products primarily through wire specialist distributors, industrial distributors and re-distributors, and directly to original equipment manufacturers (OEMs).

 

Video, Sound and Security.   We manufacture a variety of multiconductor and coaxial products which distribute audio and video signals for use in broadcast television (including digital television and high definition television), broadcast radio, pre- and post-production facilities, recording studios and public facilities such as casinos, arenas and stadiums. Our audio/video cables are also used in connection with microphones, musical instruments, audio mixing consoles, effects equipment, speakers, paging systems and consumer audio products. We offer a complete line of composite cables for the emerging market in home networking. Our primary market channels for these broadcast, music and entertainment products are broadcast specialty distributors and audio systems installers. We also sell directly to music OEMs and the major networks including NBC, CBS, ABC, Fox, BBC, RTL and satellite systems such as B-Sky-B. We also provide specialized cables for video surveillance systems, airport baggage screening, building access control, motion detection, public address systems, and advanced fire alarm systems. These products are sold primarily through distributors and also directly to specialty system integrators.

 

Transportation and Defense.  We provide specialized cables for use in commercial and military aircraft, including cables for fly-by-wire systems, fuel systems, and in-flight entertainment systems. Some of these products withstand extreme temperatures (up to 2000º F), are highly flexible, or are highly resistant to abrasion. We work with OEMs to have our products specified on aircraft systems and sell either directly to the OEMs or to specialized distributors or subassemblers. For the automotive market, we supply specialized cables for halogen headlights, for the oxygen sensors in catalytic converters, for air-bag actuators, and for satellite radio receivers. We market a

complete line of marine cables meeting the specialized performance and safety standards of that market. Our cables are used in highway traffic signal control systems and mass-transit systems. These automotive, marine and other transportation cables are sold primarily through distributors.

 

Markets and Products, Networking Segment

 

Our Networking segment provides multiconductor, coaxial, and fiber optic cable products, connectors, and cable management products in two markets: networking and telecommunications. The Networking business segment contributed approximately 41%, 37%, and 31% of Belden CDT’s consolidated revenues in 2005, 2004 and 2003 respectively.

 

Networking.   We design, manufacture and market enabling technologies for the physical communications infrastructure within and between buildings. End-use applications are hospitals, financial institutions, government, service providers, transportation, data centers, manufacturing, industrial and enterprise customers. In the networking market, we supply solutions for the electronic and optical transmission of data, voice, and video over local and wide area networks. Products for this market include high-performance cables (including 10-gigabit Ethernet technologies over copper), connectors, wiring racks, panels, interconnecting hardware, intelligent patching devices, Power over Ethernet panels, and cable management solutions for complete end-to-end network structured wiring systems.

 

We offer two major types of structured cabling solutions: our complete end-to-end integrated solution for customers looking for superior performance, and cable alone for users preferring an open architecture where integrators specify our copper and fiber cables for use with the connectivity components of other suppliers. Our systems are installed through a network of highly trained system integrators and are supplied locally by authorized distributors.

 

Communications.   Within the communications market, we supply multiconductor and coaxial cable products that transmit voice, video, and data signals through the public telephone network. We provide a full range of telecommunications wire and cable products in Europe, primarily selling directly to service providers including British Telecom, Deutsche Telecom and Matav (in Hungary) and, to a lesser extent, through distributors. We supply outside plant cable (also called exchange cable), service distribution wire and central office cable. We also provide cable cutting and inventory management services to certain telecom customers. In 2005 we announced plans to exit the copper telecom cable business in the United Kingdom; see Note 6, European Operations, to Belden CDT’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. We exited the North American telecommunications market in 2004.

 

Also within the communications market, we manufacture flexible, copper-clad coaxial cable for high-speed transmission of voice, data and video (broadband), used for the “drop” section of cable television (CATV) systems and satellite direct broadcast systems (DBS). We sell CATV cable directly to multiple systems operators, who operate CATV systems throughout the world, and through CATV and electronic distributors. In Europe, we manufacture copper-based CATV trunk distribution cables that meet local specifications and are widely used throughout the region. We also sell coaxial cables used in connection with wireless applications, such as cellular, PCS, PCN and GPS. These broadband, CATV and wireless communication cables are sold primarily through distributors.

 

Customers

 

We sell to distributors and directly to OEMs and installers of equipment and systems. Sales to the distributor, Anixter International Inc., represented approximately 16% of our sales in 2005.

 

We have supply agreements with distributors and with OEM customers in the United States, Canada, Europe, and elsewhere. In general, our customers are not contractually obligated to buy our products exclusively, in minimum amounts or for a significant period of time. The loss of one or more large customers or distributors could, at least in the short term, result in lower total sales and profits. However, we believe that our relationships with our customers are satisfactory and that the customers choose Belden CDT products due to, among other reasons, the breadth of our product offering and the quality and performance characteristics of our products.

There are potential risks in our relationships with distributors. For example, adjustments to inventory levels maintained by distributors (which adjustments may be accelerated through consolidation among distributors) may adversely affect sales on a short-term basis. Further, in both segments of our business certain distributors are allowed to return certain inventory, in an amount not to exceed three percent of the prior year’s purchases, in exchange for an order of equal or greater value. We have recorded a liability for the estimated impact of this return policy.

 

In Europe, we sell directly to telecommunications service providers, and in some cases we have long-term supply agreements, generally three years in duration. Due to the size of these contracts, the award or loss of a contract may have a material impact on the operating performance of the Company. In addition, the order pattern for these customers can vary due to their operational priorities, weather, financial condition, budget constraints, maintenance policies and other factors. During 2005, we announced plans to exit the copper telecom cable business in the United Kingdom no later than the end of our contract with British Telecom which expires in October 2006. Please see Note 6, European Operations, to Belden CDT’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

International Operations

 

Both business segments of the Company have manufacturing facilities in Canada and Europe, and both segments have sales in international markets. The Company has sales offices in Europe, Asia, and Latin America. During 2005, approximately 49% of Belden CDT’s sales were for locations outside the United States. Our primary channels to international markets include both distributors and direct sales to end users and OEMs.

 

Changes in the relative value of currencies take place from time to time and their effects on the Company’s results of operations may be favorable or unfavorable. On rare occasions, we engage in foreign currency hedging transactions to mitigate these effects. Much of the material we sell in Europe is made in Europe, reducing our currency risk for that region. For more information about Belden CDT’s foreign currency exposure management, see Note  2, Summary of Significant Accounting Policies, to the Company’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

The past few years have been characterized by consolidation of manufacturing operations in our industry worldwide in response to both changes in demand and improvements in productivity. A risk associated with our European manufacturing operations is the relative expense and length of time required to reduce manufacturing employment in European countries (if needed).

 

The Company’s foreign operations are subject to economic and political risks inherent in maintaining operations abroad such as economic and political destabilization, international conflicts, restrictive actions by foreign governments, and adverse foreign tax laws.

 

Financial information for Belden CDT by geographic area is shown in Note 22, Business Segments and Geographic Information, to the Company’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Competition

 

Belden CDT faces substantial competition in its major markets. The number and size of our competitors varies depending on the product line and business segment.

 

For both our business segments, the market can be generally categorized as highly competitive with many players. Some multinational competitors have greater financial, engineering, manufacturing and marketing resources than we have. Additionally, certain international competitors operate in lower cost regions of the world, which could result in a cost advantage. There are also many regional competitors that have more limited product offerings.

 

The principal competitive factors in all our product markets are product features, availability, price, customer support and distribution coverage. The relative importance of each of these factors varies depending on the customer. Some products are manufactured to meet published industry specifications and cannot be differentiated

on the basis of product characteristics. We believe, however, that Belden CDT stands out in many of its markets on the basis of its customer service, delivery, product quality, and breadth of product line.

 

Although we believe that we have certain technological and other advantages over our competitors, realizing and maintaining such advantages will require continued investment in engineering, research and development, marketing and customer service and support. There can be no assurance that we will continue to make such investments or that we will be successful in maintaining such advantages.

 

Research and Development

 

Belden CDT engages in a continuing research and development program, including new and existing product development, testing and analysis, process and equipment development and testing, and compound materials development and testing. For information about the amount spent on research and development, see Note 2, Summary of Significant Accounting Policies, to the Company’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Patents and Trademarks

 

Belden CDT has a policy of seeking patents when appropriate on inventions concerning new products, product improvements and advances in equipment and processes as part of our ongoing research, development, and manufacturing activities. We own many patents and registered trademarks worldwide, with numerous others for which applications are pending. Although in the aggregate our patents and trademarks are of considerable importance to the manufacturing and marketing of many of our products, we do not consider any single patent or trademark or group of patents or trademarks to be material to the business as a whole, except for the Belden^® trademark. Belden CDT’s patents and trademarks are used by both the Electronics and the Networking business segments.

 

Raw Materials

 

The principal raw material used in many of our products, for both business segments, is copper. Other materials that we purchase in large quantities include Teflon^® FEP and polyvinyl chloride (PVC). We also use polyethylene, color chips, insulating materials such as plastic and rubber, shielding tape, plywood and plastic reels, corrugated cartons, aluminum, steel and optical fiber. With respect to all major raw materials used by the Company, we generally have either alternative sources of supply or access to alternative materials. Supplies of these materials are generally adequate and are expected to remain so for the foreseeable future.

 

In the past two years, the price of copper has risen rapidly. Materials such as PVC and other plastics derived from petrochemical feedstocks have also risen in price. Generally, we have recovered much of the higher cost of raw materials through higher pricing of our finished products. The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists which we update from time to time, with new prices taking effect a few weeks after they are announced. Some OEM and telecom customer contracts have provisions for passing through raw material cost increases, generally with a lag of a few weeks to three months. We have been generally more successful (1) in North America than in Europe and (2) with our electronic products rather than our networking products in increasing our prices to recapture the rising cost of materials.

 

Belden CDT sources a minor percentage of its finished products from a network of manufacturers under private label agreements.

 

For information on price risk related to copper and certain petroleum-based commodities, see Note 2, Summary of Significant Accounting Policies, to the Company’s Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Backlog

 

Our business is characterized generally by short-term order and shipment schedules, and many orders are shipped from inventory. Accordingly, we do not consider backlog at any given date to be indicative of future sales.

Our backlog consists of product orders for which we have received a customer purchase order or purchase commitment and which are scheduled for shipment within six months. Orders are subject to cancellation or rescheduling by the customer, generally with a cancellation charge. At December 31, 2005, the Company’s backlog of orders believed to be firm was $103.6 million (most of which was attributable to the Electronics business segment) compared with $74.9 million at December 31, 2004. The Company believes that all such backlog will be filled in 2006.

 

Environmental Matters

 

The Company is subject to numerous federal, state, provincial, local and foreign laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Clean Water Act, the Clean Air Act, the Emergency Planning and Community Right-To-Know Act and the Resource Conservation and Recovery Act. We believe that our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area.

 

A former Belden CDT facility in Shrewsbury, Massachusetts was sold to a third party in 1992, subject to an indemnification in favor of the buyer for certain preexisting environmental liabilities, principally caused by a former owner. Contaminated soil has been removed, and groundwater remediation has been suspended. Site closure documents have been submitted to the state environmental agency for review and approval. The Company will close the groundwater system upon approval of the closure application by the state agency.

 

The Company’s facility in Venlo, The Netherlands was acquired in 1995 from Philips Electronics N.V. Soil and groundwater contamination was identified on the site as a result of material handling and past storage practices. Various soil and groundwater assessments are being performed, and the government authorities have advised that some form of remediation will be necessary. We have recorded a liability for the estimated costs. In addition, we may need to make capital expenditures to install groundwater treatment equipment. We do not expect the capital expenditures to materially affect our financial condition, operating results or cash flow.

 

We are named as a defendant in the City of Lodi, California’s federal lawsuit along with over 100 other defendants. The complaint, brought under federal, state and local statutory provisions, alleges that property previously owned by our predecessor contributed to groundwater pollution in Lodi. There has been no validation or investigation to demonstrate or deny the City’s claim that the property allegedly owned by our predecessor is a potential pollution site. A trial date is tentatively scheduled for January 2007. We have recorded a liability for the estimated costs related to resolution of this matter.

 

The Company has been identified as a potentially responsible party (PRP) with respect to two sites designated for cleanup under CERCLA or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages without regard to fault or the legality of waste generation or disposal. Persons liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although CERCLA imposes joint and several liability on all PRPs, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Settlements can often be achieved through negotiations with the appropriate environmental agency or the other PRPs. PRPs that contributed less than 1% of the waste are often given the opportunity to settle as “de minimis” parties, resolving their liability for a particular site. The number of sites with respect to which the Company has been identified as a PRP has decreased in part as a result of “de minimis” settlements.

 

Belden CDT does not own or operate either waste site with respect to which it has been identified as a PRP. In each case, Belden CDT is identified as a party that disposed of waste at the site. With respect to one of the sites, Belden CDT’s share of the waste volume is estimated to be less than 1%. At the other site, Belden CDT contributed less than 10% of the waste. Although no estimates of cleanup costs have yet been completed for these sites, we believe, based on our preliminary review and other factors, including Belden CDT’s estimated share of the waste volume at the sites, that the costs relating to these sites will not have a material adverse effect on our results of operations, financial condition or cash flow. We have recorded a liability to the extent such costs are known and estimable for such sites.

We do not currently anticipate any material adverse effect on our results of operations, financial condition, cash flow or competitive position as a result of compliance with federal, state, provincial, local or foreign environmental laws or regulations, or cleanup costs at the facilities and sites discussed above. However, some risk of environmental liability and other costs is inherent in the nature of our business, and there can be no assurance that material environmental costs will not arise. Moreover, it is possible that future developments, such as increasingly strict requirements of environmental laws and enforcement policies thereunder, could lead to material costs of environmental compliance and cleanup by the Company.

 

Employees

 

As of December 31, 2005, we had approximately 5,200 employees worldwide. We also utilized about 900 workers under contract manufacturing arrangements in Mexico. Approximately 2,100 employees are covered by collective bargaining agreements at various locations around the world. The Company believes that its relationship with its employees is good.

 

Importance of New Products and Product Improvements;

Impact of Technological Change; Impact of Acquisitions

 

Many of the markets that we serve are characterized by advances in information processing and communications capabilities, including advances driven by the expansion of digital technology, which require increased transmission speeds and greater bandwidth. These trends require ongoing improvements in the capabilities of cable and connectivity products, and present recurring opportunities for us and others to introduce more sophisticated products. We believe that our future success will depend in part upon our ability to enhance existing products and to develop and manufacture new products that meet or anticipate such changes.

 

Fiber optic technology presents a potential substitute for certain of the copper-based products that comprise the majority of Belden CDT’s sales. Fiber optic cables have significant advantages over copper-based cables in applications where large amounts of information must travel great distances. But due to the high relative cost required to interface electronic and light signals and the high cost of fiber termination and connection, we believe that copper cable is still the solution with the best combination of performance and cost for all but the trunk and riser portions of data networks and similar applications. We produce and market multimode fiber optic cables and many customers specify these products in combination with copper cables. Advances in copper cable technologies and data transmission equipment have increased the relative performance of copper solutions. The final stage of most networks remains almost exclusively copper-based and we expect that it will continue to be copper for the foreseeable future. However, if there were a significant and rapid decrease in the cost of fiber optic systems relative to the cost of copper-based systems, without a further significant increase in copper capabilities, such systems could become superior on a price/performance basis to copper systems. We do not control our own source of optical fiber production and, although we cable optical fiber, we could be at a cost disadvantage to competitors who both produce and cable optical fiber.

 

To date, the development of wireless devices has required the development of new wired platforms and infrastructure. In the future, wireless communications technology may represent a threat to both copper and fiber optic-based systems. We believe that insufficient signal security, susceptibility to interference and jamming, and relatively slow transmission speeds of current systems restrict the use of wireless technology in many data communications markets. However, there are no assurances that future advances in wireless technology will not have an adverse effect on our business.

 

Continued strategic acquisitions are an announced part of Belden CDT’s future strategy. However, there can be no assurance that future acquisitions will occur or that those that do occur will be successful.

 

Available Information

 

Belden CDT Inc. maintains an Internet website at www.beldencdt.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the SEC.

We will provide upon written request and without charge a printed copy of our Annual Report on Form 10-K. To obtain such a copy, please write to the Corporate Secretary, Belden CDT Inc., 7701 Forsyth Boulevard, Suite 800, St. Louis, MO 63105.

 

New York Stock Exchange Matters

 

Pursuant to the New York Stock Exchange (NYSE) listing standards, the Company submitted a Section 12(a) CEO Certification to the NYSE in 2005. Further, the Company is herewith filing with the Securities and Exchange Commission (as exhibits hereto), the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.

 

Executive Officers

 

The following sets forth certain current information with respect to the persons who are Belden CDT’s executive officers as of February 15, 2006. All executive officers are elected to terms that expire at the organizational meeting of the Board of Directors following the Annual Meeting of Shareholders.

 

 

John S. Stroup was appointed President, Chief Executive Officer and member of the Board effective October 31, 2005. From 2000 to the date of his appointment with the Company, he was employed by Danaher Corporation, a manufacturer of professional instrumentation, industrial technologies, and tools and components. At Danaher, he initially served as Vice President, Business Development. He was promoted to President of a division of Danaher’s Motion Group and later to Group Executive of the Motion Group. Earlier, he was Vice President of Marketing and General Manager with Scientific Technologies Inc. He has a B.S. in mechanical engineering from Northwestern University and an M.B.A. from the University of California at Berkeley Haas School of Business.

 

Kevin L. Bloomfield has been Vice President, Secretary and General Counsel of the Company since July 16, 2004. From August 1, 1993 until July 2004, Mr. Bloomfield was Vice President, Secretary and General Counsel of Belden Inc. He was Senior Counsel for Cooper from February 1987 to July 1993, and had been in Cooper’s Law Department from 1981 to 1993. He has a B.A. degree in economics and a J.D. degree from the University of Cincinnati and an M.B.A. from The Ohio State University.

 

Robert Canny has been Vice President, Operations and President, Specialty Products, since July 16, 2004. He previously held the position of Group Vice President, Specialty Products for Cable Design Technologies Corp. and was Vice President and General Manager of CDT’s Thermax operation. Prior to joining Thermax, Mr. Canny held management and technical positions at Rockbestos, Times Fiber and RFS Cablewave Systems. He holds a B.S. in physics from Southern Connecticut State University and a M.S. in industrial engineering from the University of New Haven.

 

Stephen H. Johnson has been Treasurer of the Company since July 2004, and was Treasurer of Belden Inc. from July 2000 to July 2004. In November 2005 he was named Interim Chief Financial Officer of the Company. He was Vice President, Finance of Belden Electronics from September 1998 through June 2000 and Director, Tax and

Assistant Treasurer of Belden from October 1993 through August 1998. He was associated with the public accounting firm of Ernst & Young LLP from 1980 through September 1993 and was a partner with that firm since 1989. Mr. Johnson has a B.A. in history from Austin College and a Ph.D. in philosophy from the University of Texas at Austin. He is a Certified Public Accountant.

 

John S. Norman joined Belden CDT in May 2005 as Controller and was named Chief Accounting Officer in November 2005. He was vice president and controller of Graphic Packaging International Corporation, a paperboard packaging manufacturing company, from 1999 to 2003 and has 17 years experience in public accounting with PricewaterhouseCoopers LLP. Mr. Norman has a B.S. in accounting from the University of Missouri and is a Certified Public Accountant.

 

D. Larrie Rose has been Vice President, Operations and President, Europe, since July 16, 2004. He was Vice President, Operations of Belden and President, Belden Holdings Inc., from April 2002 until July 2004. He served as Vice President, Sales & Marketing for Belden Electronics from 1998 until 2002. From 1981 until 1998, Mr. Rose held various European management positions for Belden including Vice President, International Operations from 1995 until 1998. He has been with Belden since 1972. Mr. Rose has a B.S. in social science and industrial arts from Ball State University.

 

Peter Sheehan has been Vice President, Operations since July 16, 2004 and President, Belden Americas, since February 7, 2006. From July 2004 to February 2006, he was President, Electronic Products. From December 1995 until July 2004 he was Executive Vice President of Cable Design Technologies Corp. From 1990 to 1995 he was Senior Vice President, Sales and Marketing, for Berk-Tek, an Alcatel Company. Mr. Sheehan has a Bachelor of Arts and Science degree from Boston College.

 

Cathy Odom Staples has been Vice President, Human Resources of the Company since July 16, 2004 and held the same position with Belden from May 1997 through July 2004. She was Vice President, Human Resources for Belden’s Electronic Products Division from May 1992 to May 1997. Ms. Staples has a B.S.B.A. degree in human resources from Drake University.

 

We make forward-looking statements in this Annual Report on Form 10-K, in other materials we file with the SEC or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in the “Outlook” section and other portions of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are not historical facts, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. These factors include, among others, those set forth below and in the other documents that we file with the SEC. There also are other factors that we may not describe, generally because we currently do not perceive them to be material, which could cause actual results to differ materially from our expectations.

 

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Following is a discussion of some of the more significant risks that could materially impact our financial condition, results of operations and cash flows.

 

The demand for many of our products is economically sensitive and will vary with general economic activity, trends in nonresidential construction, investment in manufacturing facilities and automation, demand for information technology equipment, and other economic factors.

 

 

Copper is a significant component of the cost of most of our products. During the past two years, the price of copper has risen rapidly. Other materials we use, such as PVC and other plastics derived from petrochemical feedstocks, have also risen in price. Generally, we have recovered much of the higher cost of raw materials through higher pricing of our finished products. The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists which we update from time to time, with new prices taking effect a few weeks after they are announced. Some OEM and telecom customer contracts have provisions for passing through raw material cost increases, generally with a lag of a few weeks to three months. We have been generally more successful (1) in North America than in Europe and (2) in electronic products than in networking products in increasing our prices to recapture the rising cost of materials. If we are unable to raise prices sufficiently to recover our material costs, our earnings will be reduced. If we raise our prices but competitors raise their prices less, we may lose sales, and our earnings will be reduced.

 

We believe the supply of raw materials (copper, plastics, and other materials) is adequate and we do not expect any substantial interruption of supply or shortage of materials. If such a supply interruption or shortage were to occur, however, this could have a negative effect on revenue and earnings.

 

The global wire and cable industry is highly competitive.

 

We compete with other manufacturers of cable, wire, connectivity and related products based in North America, Europe and Asia. These companies compete on price, reputation and quality, product characteristics, and terms. Actions that may be taken by competitors, including pricing, business alliances, new product introductions, and other actions, could have a negative effect on our revenue and profitability.

 

We rely on key suppliers, and we source some of our products from other manufacturers.

 

There are only a few suppliers in the world for FEP, a polymer also known by the DuPont trade name Teflon^®. FEP is an important material in the manufacture of much of our data networking cable sold in North America. We believe the supply of FEP is adequate and will remain adequate in the future. If we were unable to obtain a sufficient supply of FEP, we might not be able to produce enough of certain products to meet demand, and our sales and profitability would be affected negatively. In addition, we might find it necessary to pay higher prices for scarce material and raise our product prices to compensate for higher material cost, a situation in which our price increases might lag our cost increases and depress our gross margins.

 

Belden CDT sources a minor percentage of its finished products from a network of manufacturers under private label agreements. We depend on these manufacturers to supply high quality products in a timely manner. If there were problems with the quality or delivery of these private-label goods, our sales and profits would be negatively affected.

 

We rely on several key distributors in marketing our product.

 

The majority of our sales are through distributors. These distributors carry the products of competitors along with our products. Our largest distributor customer, Anixter International Inc., accounted for 16 percent of our revenue in 2005. If we were to lose a key distributor, our revenue and profits would likely be reduced, at least temporarily.

 

In the past, we have sometimes seen distributors acquired and consolidated. If there were further consolidation of the electronics and cable distributors, this could have an effect on our relationships with these distributors. It

could also result in consolidation of distributor inventory, which would temporarily depress our revenue. We have also experienced financial failure of distributors from time to time, resulting in our inability to collect accounts receivable in full.

 

Because we do business in many countries, our results of operations are affected by changes in currency exchange rates.

 

Other than the United States dollar, the principal currencies to which we are exposed through our manufacturing operations and sales are the euro, the Canadian dollar and the British pound. Most of our products sold in Europe are manufactured there, resulting in a natural hedge, to some degree. Most of our products sold in Asia are priced in U.S. dollars. When the U.S. dollar strengthens against other currencies, the results of our non-U.S. operations are translated at a lower exchange rate and thus into lower reported earnings.

 

Our effective income tax rate may vary from year to year because of the mix of income and losses among various tax jurisdictions in which we do business.

 

Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of income and losses in these jurisdictions determines our effective tax rate. More income in higher tax rate jurisdictions or more losses in lower tax rate jurisdictions would increase our effective tax rate and thus lower our net income. If we generate losses in tax jurisdictions for which no benefits are available, our effective income tax rate will increase.

 

We might be unable to achieve planned cost savings.

 

The plans for our business include both revenue improvement and cost saving initiatives. For example, the Company has announced a restructuring program for its European operations. The restructuring program is expected to reduce manufacturing costs in Europe. If we do not achieve all the planned savings, we might not achieve expected levels of profitability.

 

We may incur costs related to warranty, product liability lawsuits, or other lawsuits or claims that may be brought against us.

 

Some of our products are warranted for 25 years. We have a reserve for expected warranty costs, but if actual costs are higher than expected, the excess costs will be recognized in future periods, reducing our income.

 

Our products could be subject to product liability claims and litigation. If our products are not properly designed and manufactured, personal injuries, death, or property damage could result. The costs associated with defending product liability claims and payment of damages could be substantial.

 

Please see Part I, Item 3 of this Annual Report on Form 10-K, for a discussion of certain legal proceedings in which we are involved.

 

We are subject to current environmental and other laws and regulations.

 

We are subject to the environmental laws and regulations in each jurisdiction where we do business. We are currently, and may in the future be, held responsible for remedial investigations and clean-up costs of certain sites damaged by the discharge of hazardous substances, including sites that have never been owned or operated by us but at which we have been identified as a potentially responsible party under federal and state environmental laws. Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect our operations due to increased costs of compliance and potential liability for noncompliance.

 

If our goodwill or other intangible assets become impaired, we may be required to recognize charges that would reduce our income.

 

Under accounting principles generally accepted in the United States, goodwill and certain other intangible assets are not amortized but must be reviewed for possible impairment annually, or more often in certain circumstances if events indicate that the asset values are not recoverable. We have incurred charges in the past

for the impairment of goodwill and other intangible assets, and we may be required to do so again in future periods. Such a charge would reduce our income without any change to our underlying cash flow.

 

Changes in accounting rules and interpretation of these rules may affect our reported earnings.

 

Accounting principles generally accepted in the United States are complex and require interpretation. These principles change from time to time, and such changes may result in changes to our reported income without any change in our underlying cash flow.

 

Our business is subject to the political and economic uncertainties of making and selling our products abroad.

 

A significant proportion of our sales are outside the United States. We have manufacturing facilities in Canada, Mexico and in several European countries. We rely on suppliers in many countries, including China. The Company’s foreign operations are subject to economic and political risks inherent in maintaining operations abroad such as economic and political destabilization, international conflicts, restrictive actions by foreign governments, and adverse foreign tax laws.

 

Our future success depends on our ability to develop and introduce new products.

 

Our products are used in connection with technologies of many kinds. Our markets are characterized by the introduction of increasingly capable products. We have long been successful in introducing successive generations of more capable products, but if we were to fail to keep pace with technology or with the products of competitors, we might lose market share and harm our reputation and position as a technology leader in our markets.

 

Competing technologies could cause the obsolescence of many of our products.

 

Fiber optic technology presents a potential substitute for certain of the copper-based products that comprise the majority of our sales. Fiber optic cables have significant advantages over copper-based cables in applications where large amounts of information must travel great distances. But due to the high relative cost required to interface electronic and light signals and the high cost of fiber termination and connection, we believe that copper cable is still the solution with the best combination of performance and cost for all but the trunk and riser portions of data networks and similar applications. We produce and market multimode fiber optic cables and many customers specify these products in combination with copper cables.

 

Advances in copper cable technologies and data transmission equipment have increased the relative performance of copper solutions. The final stage of most networks remains almost exclusively copper-based and we expect that it will continue to be copper for the foreseeable future. However, if there were a significant and rapid decrease in the cost of fiber optic systems relative to the cost of copper-based systems, without a further significant increase in copper capabilities, such systems could become superior on a price/performance basis to copper systems. We do not control our own source of optical fiber production and, although we cable optical fiber, we could be at a cost disadvantage to competitors who both produce and cable optical fiber.

 

To date, the development of wireless devices has required the development of new wired platforms and infrastructure. In the future, wireless communications technology may represent a threat to both copper and fiber optic-based systems. We believe that the insufficient signal security, susceptibility to interference and jamming, and relatively slow transmission speeds of current systems restrict the use of wireless technology in many data communications markets. However, there are no assurances that future advances in wireless technology will not have an adverse effect on our business.

 

We have defined benefit pension plans that are not fully funded.

 

We have defined benefit pension plans in the United States, Canada and the United Kingdom. The cash funding requirements for these plans depends on the financial performance of the funds’ assets, actuarial life expectancies, discount rates and other factors. The fair value of the assets in the plans is often less that the projected benefit owed

by the Company. In most years we are required to contribute cash to fund the pension plans and other post-retirement benefit plans, and the amount of funding required may vary significantly.

 

Some of our employees are members of collective bargaining groups, and we might be subject to labor actions that would interrupt our business.

 

Some of our employees, primarily outside the United States, are members of collective bargaining units. We believe that the Company’s relations with employees are generally good. However, if there were a dispute with one of these bargaining units, the affected operations could be interrupted resulting in lost revenues, lost profit contribution, and customer dissatisfaction.

 

We might have difficulty protecting our intellectual property from use by competitors, or competitors might accuse us of violating their intellectual property rights.

 

Disagreements about patents and intellectual property rights occur in our industry. Sometimes these disagreements are settled through an agreement for one party to pay royalties to another. The unfavorable resolution of an intellectual property dispute could preclude us from manufacturing and selling certain products, could require us to pay a royalty on the sale of certain products, or could impair our competitive advantage if a competitor wins the right to sell products we believe we invented. Intellectual property disputes could result in legal fees and other costs.

 

We announced a decision to exit the communications cable market in the United Kingdom, which will reduce our revenue and income.

 

In September 2005 we announced plans to exit the telecommunications cable market in the United Kingdom upon the expiration of our contract with British Telecom plc in October 2006 or sooner, if possible. In connection with this decision, we expect to sell or liquidate a business that had approximately $106 million of revenue in 2005, and we expect to retain little or none of that revenue. The business generated operating profit we will no longer recognize. While we expect that the sale or liquidation of the business will generate cash in excess of the cash required to exit the business, the timing and nature of our exit from this business could negatively impact our earnings.

 

We have in the past closed plants and reduced the size of our workforce, and we might need to do so again in the future.

 

Much of our manufacturing capacity is in North America and Western Europe, which are relatively high-cost regions. Over the past few years, we have closed several plants and have reduced the number of people we employ. We incurred asset impairment charges, severance charges and other costs in relation to these plant closures. If we decide to close additional facilities, we could incur significant cash and non-cash charges in connection with these actions.

 

This list of risk factors is not exhaustive. Other considerations besides those mentioned above might cause our actual results to differ from expectations expressed in any forward-looking statement.

 

None.

 

Belden CDT has an executive office that it leases in St. Louis, Missouri, and various manufacturing facilities, warehouses and sales and administration offices. The significant facilities are as follows:

 

Used by the Electronics business segment:

 

 

Used by the Networking business segment:

 

 

 

 

The total square footage of all Electronics business segment locations and Networking business segment locations in North America are approximately 2.7 million square feet and 1.2 million square feet, respectively. The total square footage of all Electronics business segment locations and Networking business segment locations outside of North America are approximately 1.4 million square feet and .7 million square feet, respectively. The Company believes its physical facilities are suitable for their present and intended purposes and adequate for the Company’s current level of operations.

 

The Company is a party to various legal proceedings and administrative actions that are incidental to its operations. These proceedings include personal injury cases (about 147 of which the Company was aware at February 24, 2006) in which the Company is one of many defendants, 58 of which are scheduled for trial during 2006.

 

Electricians have filed a majority of these cases, primarily in New Jersey and Pennsylvania. Plaintiffs in these cases generally seek compensatory, special and punitive damages. As of February 24, 2006, in 23 of these cases, plaintiffs generally allege only damages in excess of some dollar amount (i.e., in one case, not less than $15 thousand and in the other cases, in excess of $50 thousand in compensatory damages and $50 thousand in punitive damages). In 122 of these cases, plaintiffs generally do not allege a specific monetary damage demand. As to each of the other 2 cases, the plaintiffs generally allege $5 million in compensatory and $5 million in punitive damages. In none of these cases do plaintiffs allege claims for specific dollar amounts as to any defendant. Based on the Company’s experience in such litigation, the amounts pleaded in the complaints are not typically meaningful as an indicator of the Company’s ultimate liability.

 

Typically in these cases, the claimant alleges injury from alleged exposure to heat-resistant asbestos fiber, which was usually encapsulated or embedded and lacquer-coated or covered by another material. Exposure to the fiber generally would have occurred, if at all, while stripping (cutting) the wire or cable that had such fiber. It is alleged by claimants that exposure to the fiber may result in respiratory illness. Generally, stripping was done to repair or to attach a connector to the wire or cable. Alleged predecessors of the Company had a small number of products that contained the fiber, but ceased production of such products more than fifteen years ago.

 

Through February 24, 2006, the Company had been dismissed (or reached agreement to be dismissed) in approximately 156 similar cases without any going to trial, and with only 7 of these involving any payment to the claimant. Some of these cases were dismissed without prejudice primarily because the claimants could not show any injury, or could not show that injury was caused from exposure to products of alleged predecessors of the Company. The Company has insurance that it believes should cover a significant portion of any defense or settlement costs borne by the Company in these types of cases.

 

The Company vigorously defends these cases. As a separate matter, liability for any such injury generally should be allocated among all defendants in such cases in accordance with applicable law. In the opinion of the Company’s management, the proceedings and actions in which the Company is involved should not, individually or in the aggregate, have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

 

See “Item 1. Business — Environmental Matters” regarding certain proceedings arising under environmental laws.

 

During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of security holders of the Company.

 

Our common stock is traded on the New York Stock Exchange under the symbol “BDC.” This ticker symbol was adopted upon the merger of Belden and CDT. The previous ticker symbol of Cable Design Technologies Corporation was CDT. Note that the share prices below reflect the stock price of CDT (not Belden) prior to the merger and reflect the price of Belden CDT Inc. (BDC) for the period since the merger, which occurred after the close of the market on July 15, 2004. Share prices for CDT have been adjusted to reflect the reverse one-for-two stock split that occurred immediately before the merger. The Company changed its fiscal year end from July 31 to

December 31 as of the merger, and the share price information below reflects calendar quarters with the fourth quarter ended December 31.

 

As of March 1, 2006, there were approximately 805 record holders of common stock of Belden CDT Inc.

 

We paid a dividend of $.05 per share in the fourth quarter of 2004 and each quarter of 2005. We anticipate that comparable cash dividends will continue to be paid quarterly in the foreseeable future.

 

Common Stock Prices and Dividends
CDT prior to July 16, 2004 (adjusted for reverse split)
BDC from July 16, 2004 onward

 

 

 

 

 

Issuer Purchases of Equity Securities

 

On May 23, 2005, the Board of Directors authorized the Company to repurchase up to $125.0 million of common stock in the open market. The program was announced via news release on May 23, 2005. Through December 31, 2005, we had repurchased approximately 5.2 million shares of our common stock at a cost of $109.4 million. Shares purchased in the fourth quarter of 2005 are as follows:

 

 

 

In 2005, we recognized asset impairment expense of $12.8 million, severance expense of $8.7 million and accelerated depreciation expense of $3.5 million related to our decisions to exit the United Kingdom communications cable market and to restructure our European manufacturing operations. We also recognized executive succession expense of $7.0 million during 2005.

 

In 2004, Belden merged with and became a wholly owned subsidiary of CDT, which then changed its name to Belden CDT Inc. This merger was treated as a reverse acquisition under the purchase method of accounting. For financial reporting purposes, the results of operations of CDT are included in our operating results from July 16, 2004. We recognized $21.7 million in restructuring and merger-related expenses during 2004. We also recognized asset impairment expense of $8.9 million related to the discontinuance of certain product lines in Europe and excess capacity in the United States resulting from the combined capacity after the merger.

 

In 2002, we recognized asset impairment expense of $18.0 million, severance expense of $8.3 million and inventory obsolescence expense of $3.6 million related to the discontinuance of certain product lines and manufacturing facility closures in Europe and Australia.

 

In 2001, we recognized goodwill amortization expense of $2.1 million.

 

The following discussion and analysis, as well as the accompanying Consolidated Financial Statements and related footnotes, will aid in the understanding of the operating results as well as the financial position, cash flows, indebtedness and other key financial information of the Company. Certain reclassifications have been made to prior year amounts to make them comparable to current year presentation. Preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various

other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily derived from other sources. There can be no assurance that actual amounts will not differ from those estimates. The following discussion will also contain forward-looking statements. In connection therewith, please see the cautionary statements contained herein under Item 1A of this Annual Report on Form 10-K, which identify important factors that could cause actual results to differ materially from those in the forward-looking statements.

 

Overview

 

Belden CDT designs, manufactures and markets high-speed electronic cables, connectivity products and related items for the specialty electronics and data networking markets. We focus on segments of the worldwide cable and connectivity market that require highly differentiated, high-performance products. We add value through design, engineering, excellence in manufacturing, product quality, and customer service.

 

We believe that revenue growth, operating margins and operating working capital management are our key performance indicators.

 

During the five-year period from 2001 through 2005, our total revenues increased by 91% from $708.0 million to $1,352.1 million. This revenue comparison reflects two offsetting trends:

 

 

During the five-year period from 2001 through 2005, our operating income increased 9% from $62.6 million to $68.2 million. This increase is attributable to several factors, including the following:

 

 

We define operating working capital as receivables and inventories less accounts payable and accrued liabilities. During the five-year period from 2001 through 2005, our operating working capital increased 69% from $148.2 million to $251.0 million. This increase is attributable to several factors, including the following:

 

 

Over the past few years, we have closed several manufacturing facilities and have reduced the number of people we employ. We incurred asset impairment charges, severance charges and other costs in relation to these plant closures. If we decide to close additional facilities, we could incur significant cash and non-cash charges in connection with these actions.

 

Belden CDT Merger

 

Belden Inc. (Belden) and Cable Design Technologies Corporation (CDT) entered into an Agreement and Plan of Merger, dated February 4, 2004 (the Merger Agreement) pursuant to which Belden merged with and became a wholly owned subsidiary of CDT (the Merger) on July 15, 2004. Pursuant to the Merger Agreement, 25.6 million shares of Belden common stock, par value $.01 per share, were exchanged for 25.6 million shares of CDT common stock, par value $.01 per share, and CDT changed its name to Belden CDT Inc.

 

Belden and CDT each believed the Merger was in the best interests of its respective stockholders because, as a result of the Merger, the long-term value of an investment in the combined company would likely be superior to the long-term value of an investment in either standalone company. In deciding to consummate the Merger, Belden and CDT considered various factors, some of which are listed in Note 3, Belden CDT Merger, to the Consolidated Financial Statements in this Annual Report on Form 10-K.

 

The Merger included the following significant related transactions:

 

 

As of the Merger consummation date, we had approximately 46.6 million shares of common stock outstanding. On that date, the former CDT stockholders and former Belden stockholders respectively owned approximately 45% and 55% of the Company.

 

The Merger was treated as a reverse acquisition under the purchase method of accounting. Belden was considered the acquiring enterprise for financial reporting purposes because Belden’s owners as a group retained or received the larger portion of the voting rights in the Company and Belden’s senior management represented a majority of the senior management of the Company.

 

The cost to acquire CDT was $490.7 million and consisted of the exchange of common stock discussed above, change of control costs for legacy CDT management and costs incurred by Belden related directly to the acquisition. The purchase price was established primarily through the negotiation of the share exchange ratio. The share exchange ratio was intended to value both Belden and CDT fairly so that neither company paid a premium

over equity market value for the other. We established a new accounting basis for the assets and liabilities of CDT based upon the fair values thereof as of the Merger date. The Company recognized goodwill related to the Merger in the amount of $203.6 million.

 

For financial reporting purposes, the results of operations of CDT are included in our Consolidated Statements of Operations from July 16, 2004.

 

The fair values assigned to each major asset and liability caption of CDT as of the July 15, 2004 effective date of the Merger and unaudited pro forma summary financial results presenting selected operating information for the Company as if the Merger and the one-for-two reverse stock split had been completed as of January 1, 2004 and 2003 are included in Note 3, Belden CDT Merger, to the Consolidated Financial Statements in this Annual Report on Form 10-K.

 

European Operations

 

In the second quarter of 2005, British Telecom plc requested bids from both the Company and several other suppliers on a supply agreement currently awarded to the Company. This business provided reasonably satisfactory profit contribution in the past, but we viewed the communications cable market as extremely mature, with falling demand, excess capacity, and continuing price pressure. On September 29, 2005, we announced our decisions to (1) exit the United Kingdom communications cable market and (2) restructure our European operations in an effort to reduce manufacturing floor space and overhead and streamline administrative processes. We are actively exploring alternatives for disposition of the Manchester, United Kingdom operation. If unable to arrange a sale of the business at an acceptable price, we plan to liquidate the business.

 

As a result of these decisions, we recognized asset impairment expense of $12.8 million and severance expense of $8.7 million during 2005. We expect to recognize additional severance expense of at least $1.2 million and other restructuring costs and associated expenses of $4.8 million during 2006; however, the amount of severance expense recognized could increase should we elect to liquidate the Manchester, United Kingdom business. We may also recognize additional asset impairment expenses or losses on the disposal of assets during both the exit from the United Kingdom communications cable market and the European restructuring.

 

Effects of Inflation

 

The principal raw material we use in many of our products is copper. We also purchase Teflon^® fluoropolymers, PVC, polyethylene, color chips and insulating materials such as plastic and rubber in large quantities. During 2004 and 2005, the price of copper has risen rapidly. Materials such as PVC and other plastics derived from petrochemical feedstocks have also risen in price. Generally, we have recovered much of the higher cost of raw materials through higher pricing of our finished products. The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists which we update from time to time, with new prices taking effect a few weeks after they are announced. Some OEM and telecommunications customer contracts have provisions which allow us to pass on raw material cost increases, generally with a lag of a few weeks to three months. We have been generally more successful (1) in North America than in Europe and (2) with our electronic products rather than our networking products in increasing our prices to recapture the rising cost of materials.

Consolidated Operating Results

 

The following table sets forth information comparing 2005 consolidated operating results with 2004 and 2003.

 

 

Business Segments

 

We conduct our operations through two business segments — the Electronics segment and the Networking segment. The Electronics segment designs, manufactures and markets metallic and fiber optic cable products with primarily industrial, video/sound/security and transportation/defense applications. These products are sold principally through distributors or directly to systems integrators and OEMs. The Networking segment designs, manufactures and markets metallic cable, fiber optic cable, connectivity and other non-cable products primarily with networking/communications applications. These products are sold principally through distributors or directly to systems integrators, OEMs and large telecommunications companies.

 

The following table sets forth information comparing Electronics segment operating results.

 

 

The following table sets forth information comparing Networking segment operating results.

 

Operating Results — 2005 Compared With 2004

 

Continuing Operations

 

Continuing Operations Consolidated Revenues

 

Revenues generated in 2005 increased 39.9% to $1,352.1 million from revenues generated in 2004 of $966.2 million because of the impact of the Merger, increased selling prices, increased sales volume, and favorable currency translation on international revenues.

 

Revenues generated through the addition of the CDT operations during 2005 totaled approximately $302.3 million and contributed 31.3 percentage points of revenue increase.

 

The impact of increased product pricing contributed 4.5 percentage points of revenue increase during 2005. This price improvement resulted primarily from the impact of sales price increases implemented by the Company during 2004 and 2005 across most product lines in response to increases in the costs of copper and commodities derived from petrochemical feedstocks.

 

The impact of increased unit sales generated during 2005 contributed 3.7 percentage points of revenue increase. We experienced higher unit sales of products with networking/communications, industrial, transportation/defense, and video/sound/security applications.

 

Favorable foreign currency translation on international revenues contributed 0.4 percentage points of revenue increase.

 

Revenues generated on sales of product to customers in the United States, representing 51.1% of total revenues generated during 2005, increased by 39.7% compared with revenues generated during 2004. Absent the impact of the Merger, sales of product to customers in the United States increased by 10.9%. This increase resulted primarily from the impact of sales price increases implemented during 2004 and 2005, increased volume sales of networking products, increased demand from Gulf Coast region distributors in anticipation of repairs to the damage resulting from Hurricanes Katrina and Rita, and increased project activity requiring instrumentation/control cable products, in-flight entertainment cable products, fiber optic cable products, central office communications cable products, and products with video/sound/security applications.

 

Revenues generated on sales of product to customers in Canada represented 10.2% of total revenues generated during 2005. Canadian revenues generated in 2005 increased by 68.8% compared with revenues generated in 2004. Absent the impact of the Merger and favorable currency translation on product sold by our international operations to customers in Canada, revenues generated in 2005 increased by 25.8% compared with revenues generated in 2004. This increase resulted primarily from the impact of sales price increases implemented during 2004 and 2005, increased demand for networking products and increased capital project activity within the industrial sector resulting from higher oil prices and increased demand from utilities companies.

 

Revenues generated on sales of product to customers in the United Kingdom, representing 11.8% of total revenues generated during 2005, increased by 21.2% compared with revenues generated during 2004. Absent the impact of the Merger and favorable currency translation on products sold by our international operations to customers in the United Kingdom, revenues generated in 2005 increased by 11.8% compared with revenues generated in 2004. This increase resulted primarily from the impact of sales price increases implemented during 2004 and 2005 and the addition of Belden-branded products to the portfolios of several United Kingdom distributors who historically carried only CDT-branded products.

 

Revenues generated on sales of product to customers in Continental Europe represented 18.7% of total revenues generated during 2005. Continental European revenues generated during 2005 increased by 49.7% compared with revenues generated during 2004. Absent the impact of the Merger and favorable currency translation on products sold by our international operations to customers in Continental Europe, revenues generated during 2005 were unchanged from revenues generated during 2004. This performance resulted primarily from strong communications cable demand and the favorable impact of copper pass-through pricing on these products, increased demand for products with industrial applications primarily in Central Europe, and nonrecurring sales of product for the 2006 Torino Olympic Games offset by our decision to cease production of cord products and

assemblies in Continental Europe during the first quarter of 2004 and nonrecurring sales of product for the 2004 Athens Olympic Games.

 

Revenues generated on sales of product to customers in the rest of the world, representing 8.3% of the Company’s total revenues generated during 2005, increased by 24.2% from 2004. Absent the impact of the Merger and favorable currency translation of products sold by our international operations to customers in the Latin America, Asia/Pacific and Africa/Middle East markets, revenues generated in 2005 increased by 14.3% compared with revenues generated in 2004. This increase represented the impact of sales price increases implemented during 2004 and 2005 and higher demand in all three markets.

 

Continuing Operations Consolidated Costs, Expenses and Earnings

 

The following table sets forth information comparing the components of earnings.

 

 

Gross profit increased 42.5% to $285.1 million in 2005 from $200.1 million in 2004 primarily because of the addition of gross profit generated by CDT operations during the year, the impact of sales price increases implemented during 2004 and 2005, and the favorable impact of currency translation on the gross profit generated by our international operations. Also contributing to the favorable gross profit comparison were the current-year impact of material, labor and overhead cost reduction initiatives, the impact of production outsourcing in Europe during 2004, and the impact of a 2003 production capacity rationalization initiative in Europe that resulted in lower output, higher scrap and increased maintenance costs during 2004, severance and other related benefits costs of $11.4 million recognized during 2004 related to personnel reductions in both North America and Europe and the planned 2005 closure of a manufacturing facility in the United States.

 

These positive factors were partially offset by higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks, severance and other related benefits costs of $8.5 million and accelerated depreciation of $3.5 million recognized during the current year related to our decisions to exit the United Kingdom communications cable market and restructure our European manufacturing operations, and severance and other related benefits costs of $1.3 million recognized in the current year related to the 2005 closure of a manufacturing facility in the United States and other personnel reductions.

 

Gross profit as a percent of revenues increased by 0.4 percentage points from the prior year because of the previously mentioned items and increased manufacturing utilization as a result of plant rationalization and consolidation.

 

Operating income increased 59.4% to $68.2 million in 2005 from $42.8 million in 2004 primarily because of higher gross profit largely attributable to the Merger and asset impairment costs of $8.9 million recognized during 2004 related to product line exits in Europe and the disposal of certain assets in the United States due to excess capacity (particularly as a result of the combined capacity after the Merger).

 

Partially offsetting the positive operating income comparison was an increase in selling, general and administrative (SG&A) expenses to $207.1 million in 2005 from $151.4 million in 2004 primarily because of the addition of SG&A expenses related to the CDT operations, executive succession costs totaling $7.0 million

recognized during the current year, merger integration costs of $3.8 million recognized during 2005, severance and other related benefits costs totaling $1.1 million recognized in the current year related to (1) our decisions to exit the United Kingdom communications cable market and restructure our European manufacturing operations and (2) personnel reductions in North America and the Asia/Pacific region, and the unfavorable impact of currency translation on the SG&A expenses of our international operations. These negative factors were partially offset by severance and other benefits costs of $1.8 million recognized during 2004 related to personnel reductions and both increased incentive compensation costs and increased professional services costs recognized during 2004 because of the Merger. SG&A expenses as a percentage of revenues decreased to 15.3% in 2005 from 15.7% in 2004 primarily because of the nonrecurring incentive compensation and professional services costs related to the Merger.

 

Also partially offsetting the positive operating income comparison were tangible asset and goodwill impairment costs of $3.3 million and $9.5 million, respectively, recognized during 2005 because of our decision to exit the United Kingdom communications cable market. Operating income as a percent of revenues increased to 5.0% in 2005 from 4.4% in 2004 as a result of the previously mentioned items.

 

Income from continuing operations before taxes increased 83.6% to $57.4 million in 2005 from $31.2 million in 2004 because of higher operating income largely attributable to the Merger and lower net interest expense partially offset by nonoperating income of $1.7 million recognized in 2004 on our sale of certain fully impaired equipment and technology which was used for the production of deflection coils. Net interest expense decreased 21.7% to $10.1 million in 2005 from $12.9 million in 2004 because of the repayment of 7.60% medium-term notes totaling $64.0 million in the third quarter of 2004, the repayment of 6.92% medium-term notes totaling $15.0 million in the third quarter of 2005, and higher interest income earned on cash equivalents partially offset by the assumption of 4.00% subordinated convertible debentures totaling $110.0 million from the legacy CDT operations in the third quarter of 2004. Interest income earned on cash equivalents was $4.9 million in 2005 compared to $1.8 million in 2004. Average debt outstanding was $241.2 million and $231.1 million during 2005 and 2004, respectively. The Company’s average interest rate was 6.04% in 2005 and 6.25% in 2004.

 

Our effective tax rate on income from continuing operations was 43.1% and 50.9% in 2005 and 2004, respectively. The decrease in the effective tax rate was primarily attributable to a decrease in deferred tax asset valuation allowances recognized against foreign net operating loss carryforwards from $9.4 million in 2004 to $5.0 million in 2005. The impact of the deferred tax asset valuation allowances was partially offset by favorable resolution of tax contingencies of $3.7 million and $2.4 million in 2005 and 2004, respectively.

 

Income from continuing operations increased 112.6% to $32.6 million in 2005 from $15.4 million in 2004 mainly because of higher income from continuing operations before taxes resulting largely from the Merger partially offset by higher income tax expense.

 

Electronics Segment

 

Revenues generated from sales to external customers increased 32.2% to $799.0 million in 2005 from $604.4 million in 2004 because of the impact of the Merger, increased selling prices, increased sales volume, and favorable currency translation on international revenues.

 

Revenues generated through the addition of the CDT operations during 2005 totaled approximately $148.0 million and contributed 24.5 percentage points of revenue increase.

 

The impact of increased product pricing contributed 5.2 percentage points of revenue increase during 2005. This price improvement resulted primarily from the impact of sales price increases implemented by the segment during 2004 and 2005 across most product lines in response to increases in the costs in copper and commodities derived from petrochemical feedstocks.

 

The impact of increased unit sales generated during the 2005 contributed 2.1 percentage points of revenue increase. The segment experienced higher unit sales of products with industrial, transportation/defense, and video/sound/security applications partially offset by lower unit sales of products with networking/communications applications.

Favorable foreign currency translation on international revenues contributed 0.4 percentage points of revenue increase.

 

Operating income increased to $109.0 million in 2005 from $54.1 million in 2004 mainly because of the addition of operating income generated by the CDT operations, the impact of sales price increases implemented during 2004 and 2005, the current-year impact of manufacturing and SG&A cost reduction initiatives, favorable currency translation on operating income generated by our international operations, and the impact that a European capacity rationalization initiative had on 2004 operating income. The operating income comparison was also favorably affected by severance and other related benefits costs totaling $12.5 million recognized during 2004 related to personnel reductions and the planned 2005 closure of a manufacturing facility in the United States, asset impairment costs of $8.9 million recognized during 2004 related to product line exits in Europe and the disposal of certain assets in the United States due to excess capacity (particularly as a result of the combined capacity after the Merger) and increased incentive compensation costs recognized during 2004 because of the Merger.

 

These positive factors were partially offset by higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks, merger integration costs totaling $2.2 million recognized in the current year, severance and other benefits costs of $1.2 million recognized in 2005 related to the closure of a manufacturing facility in the United States and other personnel reductions, and accelerated depreciation of $1.4 million recognized in the current year related to our decision to restructure our European manufacturing operations.

 

As a percent of total revenues generated by the segment, operating income increased to 12.2% in 2005 from 7.9% in 2004 because of the previously mentioned items and increased manufacturing utilization as a result of plant rationalization and consolidation.

 

Networking Segment

 

Revenues generated on sales to external customers increased 52.9% to $553.1 million in 2005 from $361.8 million in 2004. The revenue increase resulted primarily from the impact of the Merger, increased sales volume, increased selling prices, and favorable currency translation on revenues generated by the Company’s international operations.

 

Revenues generated through the addition of the CDT operations in 2005 totaled approximately $154.3 million and contributed 42.6 percentage points of revenue increase.

 

The impact of increased unit sales generated during 2005 contributed 6.5 percentage points of revenue increase. The segment experienced higher unit sales of products with networking/communications, industrial, video/sound/security, and transportation/defense applications.

 

The impact of increased product pricing contributed 3.2 percentage points of revenue increase during 2005. This price improvement resulted primarily from the impact of sales price increases implemented by the segment during 2004 and 2005 across most product lines in response to increases in the costs of copper and commodities derived from petrochemical feedstocks. Despite significant list price increase, net price increases after discounts were insufficient to fully recover rising material costs.

 

Favorable foreign currency translation on international revenues contributed 0.5 percentage points of revenue increase.

 

Operating income decreased to $13.0 million in 2005 from $24.7 million in 2004 mainly because of asset impairment charges of $10.4 million and accelerated depreciation of $2.3 million recognized in the current year because of our decision to exit the United Kingdom communications cable market, higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks, severance and other related benefits costs of $8.9 million recognized in the current year related to both our decision to exit the United Kingdom communications cable market and personnel reductions in the Asia/Pacific region, and merger integration costs totaling $1.0 million recognized in 2005.

 

These negative factors were partially offset by the addition of operating income generated by the CDT operations, the impact of sales price increases implemented during 2004 and 2005, the current-year impact of

manufacturing and SG&A cost reduction initiatives, favorable currency translation on operating income generated by our international operations, the impact of production outsourcing in Europe during 2004, increased incentive compensation costs recognized during 2004 because of the Merger, and severance and other related benefits costs of $0.7 million recognized during 2004 related to personnel reductions.

 

Operating income as a percent of total revenues generated by the segment decreased to 2.3% in 2005 from 6.8% in 2004 because of the previously mentioned items.

 

Discontinued Operations

 

During 2005 and 2004, we reported four operations — Belden Communications Company (BCC) in Phoenix, Arizona; Raydex/CDT Ltd. (Raydex) in Skelmersdale, United Kingdom; Montrose/CDT (Montrose) in Auburn, Massachusetts; and Admiral/CDT (Admiral) in Wadsworth, Ohio and Barberton, Ohio — as discontinued operations. The Raydex, Montrose and Admiral operations were acquired through the Merger. As of the effective date of the Merger, management had formulated a plan to dispose of these operations. In regard to all discontinued operations, the remaining assets of these operations were held for sale during the years ended December 31, 2005 and 2004.

 

Loss from discontinued operations in 2005 includes:

 

 

We recognized a gain on the disposal of discontinued operations in the amount of $23.7 million before tax ($15.2 million after tax) during 2005.

 

Loss from discontinued operations for 2004 includes:

 

 

We recognized a gain on the disposal of discontinued operations in the amount of $0.4 million before tax ($0.2 million after tax) during 2004.

 

Operating Results — 2004 Compared With 2003

 

Continuing Operations

 

Continuing Operations Consolidated Revenues

 

Revenues generated in 2004 increased 54.8% to $966.2 million from revenues generated in 2003 of $624.1 million due to the Merger, increased selling prices, increased sales volume, and favorable currency translation on international revenues.

 

Revenues generated through the addition of the CDT operations during 2004 totaled $247.0 million and contributed 39.6 percentage points of revenue increase.

 

The impact of increased product pricing contributed 6.0 percentage points of revenue increase during 2004. This price improvement resulted primarily from the impact of sales price increases implemented by the Company during 2004 across most product lines in response to increases in the costs of copper and commodities derived from petrochemical feedstocks.

 

Increased unit sales generated during 2004 contributed 5.1 percentage points of revenue increase. We experienced volume increases in its sales of products with networking/communications applications and industrial

applications. Higher unit sales of products with networking/communications, industrial and transportation/defense applications partially offset by a volume decrease in sales of products with video/sound/security applications.

 

Favorable foreign currency translation on international revenues contributed 4.1 percentage points of revenue increase during 2004.

 

Revenues generated on sales of product to customers in the United States, representing 51.1% of our total revenues generated during 2004, increased by 57.0% compared with revenues generated during 2003. Absent the impact of both the Merger and favorable currency translation on product sold by our international operations to customers in the United States, revenues generated for 2004 increased by 18.8% from revenues generated during 2003. This increase resulted primarily from improvement in general economic conditions in the United States, increased project activity requiring products with video/sound/security and industrial applications, increased distributor-restocking activity for products with industrial applications and the impact of sales price increases implemented in 2004.

 

Revenues generated on sales of product to customers in Canada represented 8.4% of our total revenues for 2004. Canadian revenues for 2004 increased by 57.2% compared with revenues for 2003. Absent the impact of the Merger and favorable currency translation on product sold by our international operations to customers in Canada, revenues generated for the 2004 decreased by 3.5% compared with revenues generated for 2003. This decrease resulted primarily from lower sales volume due to our decision not to reduce sales prices on certain of its lower-margin product offerings to meet the prices offered by its competitors and a decrease in demand for certain products with industrial and networking/communications applications.

 

Revenues generated on sales of product to customers in the United Kingdom, representing 13.6% of the Company’s total revenues generated during 2004, increased by 59.6% compared with revenues generated during 2003. Absent the impact of the Merger and favorable currency translation on product sold by our international operations to customers in the United Kingdom, revenues generated for 2004 increased by 34.7% compared with revenues generated for 2003. This increase resulted primarily from increased unit purchasing of products with networking/communications applications by a large telecommunications customer in the United Kingdom and increased contractual copper pass-through pricing on most products.

 

Revenues generated on sales of product to customers in Continental Europe represented 17.5% of our total revenues for 2004. Continental European revenues generated during 2004 increased by 64.8% compared with revenues generated during 2003. Absent the impact of the Merger and favorable currency translation on product sold by our international operations to customers in Continental Europe, revenues generated during 2004 decreased by 5.6% compared with revenues generated during 2003. The majority of this decrease resulted from our decision to cease, in the second quarter of 2003, the production of certain products with industrial and video/sound/security applications. The negative impact of this decision on revenue comparisons was partially offset by increased project activity requiring products with video/sound/security applications.

 

Revenues generated on sales of product to customers in the rest of the world, representing 9.4% of the Company’s total revenues generated during 2004, increased by 24.1% from revenues generated during 2003. Absent the impact of the Merger and favorable currency translation on product sold by our international operations to customers in the rest of the world, revenues generated during 2004 increased by 3.6% compared with revenues generated during 2003. The increase represented higher demand in the Asia, Latin America and Africa/Middle East markets partially offset by lower demand and the impact of our decision to cease, in the second quarter of 2003, the production of certain products with networking/communications applications in the Australia market.

Continuing Operations Costs, Expenses and Earnings

 

The following table sets forth information comparing the 2004 components of earnings with 2003.

 

 

Gross profit increased 67.7% to $200.1 million in 2004 from $119.3 million in 2003 due primarily to the Merger, higher sales volume, an increase in product sales prices, and the favorable impact of currency translation on gross profit. Also contributing to the favorable gross profit comparison were the current-period impact of material, labor and overhead cost reduction initiatives, increased unabsorbed production costs recognized during 2003 resulting from actions taken to reduce inventory levels, severance and related benefits costs of $3.6 million recognized in 2003 related to manufacturing facility closures in Australia and Germany and other personnel reductions. These positive factors were partially offset by higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks. Also partially offsetting the favorable comparisons were severance and other benefits costs of $11.4 million recognized in 2004 related to personnel reductions in North America and Europe and the planned 2005 closure of a manufacturing facility in the United States, the impact of the step-up in the carrying values of CDT inventories that resulted from the Merger, the impact of production outsourcing in Europe, increased transportation costs (especially in Europe) and the impact of production capacity rationalization in Europe initiated during 2003 that resulted in lower output, higher scrap and increased maintenance costs in 2004. Gross profit as a percent of revenues increased 1.6 percentage points from the prior year due to the previously mentioned items.

 

Operating income increased 57.0% to $42.8 million for 2004 from $27.2 million for 2003 due primarily to higher gross profit, the current-period impact of SG&A cost reduction initiatives, severance and asset impairment costs totaling $1.1 million recognized during 2003 related to manufacturing facility closures in Australia and Germany, severance and other related benefits costs of $2.4 million recognized in 2003 related to personnel reductions within the Electronics segment and bad debt expense of $0.6 million recognized in 2003 related to the failure of a distribution customer in Asia. Partially offsetting these positive factors was an increase in SG&A expenses to $151.4 million in 2004 from $94.7 million for 2003. This increase was due primarily to the addition of the CDT operations, the unfavorable impact of currency translation on international expenses, severance and other benefits costs of $1.8 million recognized in 2004 related to personnel reductions in North America, Europe and Australia, increased incentive compensation costs related to the Merger, and increased professional services costs related to the Merger and implementation of Section 404 of the Sarbanes-Oxley Act of 2002. Also partially offsetting the favorable operating income comparison were asset impairment costs totaling $8.9 million recognized in 2004 related to product line exits in Europe and the disposal of certain assets in the United States due to excess capacity (particularly as a result of the combined capacity after the Merger). SG&A expenses as a percentage of revenues increased to 15.7% in 2004 from 15.2% in 2003. Operating income as a percent of revenues were 4.4% in both 2004 and 2003.

 

Income from continuing operations before taxes increased 113.3% to $31.2 million in 2004 from $14.7 million in 2003 due to higher operating income, nonoperating income of $1.7 million recognized in 2004 on our sale of certain fully impaired equipment and technology which was used for the production of deflection coils partially offset by the minority interest in certain CDT operations and higher net interest expense. Net interest expense increased 2.5% to $12.9 million in 2004 from $12.6 million in 2003 due to higher average debt outstanding, albeit at

lower interest rates, partially offset by increased interest income. Average debt outstanding was $231.1 million and $200.1 million during 2004 and 2003, respectively. The Company’s average interest rate was 6.25% in 2004 and 6.48% in 2003. Interest income for 2004 and 2003 was $1.8 million and $0.5 million, respectively.

 

Our effective tax rate on income from continuing operations was 50.9% and 30.7% in 2004 and 2003, respectively. Absent the impact of an additional deferred tax asset valuation allowance, our effective tax rate was 20.8% for 2004. The tax rate increase was due primarily to a deferred tax asset valuation allowance of $9.4 million recorded against foreign net operating loss carryforwards in 2004 partially offset by the 2004 resolution of a $2.4 million prior period tax contingency.

 

Income from continuing operations increased 51.2% to $15.4 million in 2004 from $10.2 million in 2003 due mainly to higher income from continuing operations before taxes partially offset by higher income tax expense.

 

Electronics Segment

 

Revenues generated from sales to external customers increased 41.2% to $604.4 million for 2004 from $428.1 million for 2003 due to the Merger, increased selling prices, higher sales volume and favorable currency translation on international revenues.

 

Revenues generated through the addition of the CDT operations totaled $122.2 million and contributed 28.5 percentage points of the revenue increase.

 

The impact of increased product pricing contributed 6.6 percentage points of revenue increase during 2004. This price improvement resulted from the impact of sales price increases implemented by the Company across all products lines in 2004 in response to copper cost escalation and increasing costs for commodities derived from petrochemical feedstocks.

 

Increased unit sales generated during 2004 contributed 3.0 percentage points of revenue increase. The segment experienced volume increases in its sales of products with industrial and networking/communications, and transportation/defense applications partially offset by a volume decrease in sales of products with video/sound/security applications.

 

Favorable foreign currency translation on international revenues contributed 3.1 percentage points of revenue increase.

 

Operating income increased 82.4% to $54.1 million for 2004 from $30.0 million for 2003 due mainly to the Merger, higher sales volumes, increased product sales prices, the favorable impact of currency translation on the operating income of international operations, and the current-year impact of both manufacturing and SG&A cost reduction initiatives. Also contributing to the favorable operating income comparison were increased unabsorbed production costs recognized in 2003 resulting from actions taken to reduce inventory levels, severance and asset impairment costs of $0.9 million and $0.4 million, respectively, recognized in 2003 related to a manufacturing facility closure in Germany, severance costs of $3.6 million recognized in 2003 related to personnel reductions, and the realignment of the Ft. Mill, South Carolina manufacturing facility (Ft. Mill) from this segment to the Networking segment effective July 1, 2003.

 

These positive factors were partially offset by higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks. Also partially offsetting the favorable operating income comparison were asset impairment costs totaling $8.9 million recognized in 2004 related to the exit of certain product lines in Europe and the disposal of certain assets in the United States due to excess capacity (particularly as a result of the combined capacity after the Merger), the impact of the step-up in the carrying values of CDT inventories that resulted from the Merger, severance and other benefits costs of $12.5 million recognized in 2004 related personnel reductions and a planned 2005 closure of a manufacturing facility in the United States, increased transportation costs (especially in Europe), the impact of production capacity rationalization in Europe, and increased incentive compensation costs related to the Merger.

 

As a percent of total revenues generated by the segment, operating income increased to 7.9% in 2004 from 6.5% in 2003 due to the previously mentioned items.

Networking Segment

 

Revenues generated on sales to external customers increased 84.6% to $361.8 million for 2004 from $196.0 million for 2003. The revenue increase was due primarily to the Merger, increased sales volume, favorable currency translation on international revenues and increased sales prices.

 

Revenues generated through the addition of the CDT operations totaled $124.9 million and contributed 63.7 percentage points of the revenue increase.

 

Increased unit sales and increased contractual copper pass-through pricing during 2004 contributed 9.6 percentage points of revenue increase. The unit sales increase resulted primarily from increased unit sales of products with networking/communications applications to a large telecommunications customer and by increased unit sales of products with industrial and video/sound/security applications by our Asia/Pacific operations.

 

Favorable foreign currency translation on revenues contributed 6.3 percentage points of revenue increase.

 

The impact of increased product pricing contributed 5.0 percentage points of revenue increase during 2004. This price improvement resulted from the impact of sales price increases implemented by the Company across all products lines in 2004 in response to copper cost escalation and increasing costs for commodities derived from petrochemical feedstocks.

 

Operating income increased 142.0% to $24.7 million for 2004 from $10.2 million for 2003 due primarily to the Merger, higher sales volumes, increased product sales prices, the favorable impact of currency translation on the operating income of international operations and the current-period impact of both manufacturing and SG&A cost reduction initiatives. Also contributing to the favorable operating income comparison were increased unabsorbed production costs recognized in 2003 resulting from actions taken to reduce inventory levels, severance and other related benefits costs of $2.2 million recognized in 2003 related to a manufacturing facility closure in Australia and personnel reductions in the United Kingdom, and bad debt expense of $0.6 million recognized in 2003 related to the failure of a distribution customer in Asia.

 

The positive impact that these factors had on the operating income comparison was partially offset by the realignment of Ft. Mill from the Electronics segment to this segment effective July 1, 2003. The positive impact that these favorable factors had on the operating income comparison was also partially offset by the impact of production outsourcing, higher product costs resulting from increased purchase prices for copper and commodities derived from petrochemical feedstocks. Also partially offsetting the favorable comparisons were severance and other benefits costs of $0.7 million recognized in 2004 related to personnel reductions, the impact of the step-up in the carrying values of CDT inventories that resulted from the Merger, and increased incentive compensation costs related to the Merger.

 

Operating income as a percent of total revenues generated by the segment increased to 6.8% in 2004 from 5.2% in 2003 due to the previously mentioned items.

 

Discontinued Operations

 

During 2004, we reported four operations — BCC, Raydex, Montrose and Admiral — as discontinued operations. During 2003, we reported only BCC as a discontinued operation.

 

Loss from discontinued operations for 2004 includes:

 

 

We recognized a gain on the disposal of discontinued operations in the amount of $0.4 million before tax ($0.2 million after tax) during 2004.

Loss from discontinued operations for 2003 includes $202.4 million of revenues and $112.1 million of loss before income tax benefits related to the discontinued operations of our Networking segment.

 

Financial Condition

 

Liquidity and Capital Resources

 

Our sources of cash liquidity included cash and cash equivalents, cash from operations and amounts available under credit facilities. Generally, our primary source of cash has been from business operations. Cash sourced from credit facilities and other borrowing arrangements has historically been used to fund business acquisitions. We believe that these sources are sufficient to fund the current requirements of working capital, to make scheduled pension contributions for our retirement plans, to fund scheduled debt maturity payments, to fund quarterly dividend payments and to support its short-term and long-term operating strategies.

 

Our net operating loss carryforwards as of December 31, 2005 in Australia, Germany, the Netherlands and the United States will continue to reduce our cash tax payments in 2006 when compared to tax expense. These carryforwards arise from lowered operating earnings during the recent economic downturns in the United States and Europe, costs associated with divestiture or closure of manufacturing plants in the United States, Germany and Australia, and transaction and other costs associated with the Merger.

 

Planned capital expenditures for 2006 are approximately $30.0 million, of which over $20.0 million relates to capacity maintenance and enhancement. We have the ability to revise and reschedule the anticipated capital expenditure program should our financial position require it.

 

Customer demand, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of our product mix or economic conditions worldwide could affect our ability to continue to fund our needs from business operations.

 

Net cash outflow during 2005 totaled $54.2 million. The disposal of discontinued operations provided $40.0 million of cash during the year.

 

Net cash inflow during 2004 totaled $42.9 million. The disposal of discontinued operations provided $78.3 million of cash during the year.

 

Net cash inflow during 2003 totaled $77.4 million. There were no disposals of discontinued operations during the year.

 

Cash Flows from Operating Activities

 

Net cash provided by operating activities in 2005 totaled $49.1 million. Changes in operating assets and liabilities used cash of $45.0 million. This use resulted primarily from increased inventories and receivables. Inventories increased from December 31, 2004 because of cost increases for copper and commodities derived from petrochemical feedstocks and the Company’s need for higher inventory levels to support increased sales during 2005. Receivables increased from December 31, 2004 because of greater sales volume in 2005 and increased sales prices in response to higher raw material costs partially offset by increases in the allowances recognized for both unissued credits and incentive rebates.

 

Noncash asset impairment costs totaling $12.8 million were recognized in 2005 related to our decision to exit the United Kingdom communications cable market.

 

Also in 2005, we elected to partially compensate our nonemployee directors and certain key employees with common stock held in treasury rather than with cash. Treasury stock issued to the nonemployee directors had a FIFO cost basis of zero and a market value of $0.2 million. Treasury stock issued to the key employees had a FIFO cost basis of zero and a market value of $2.0 million. During 2005, we also amortized $2.0 million of unearned deferred compensation related to nonvested restricted stock we awarded to certain key employees in lieu of cash compensation during 2002 through 2004.

 

Net cash provided by operating activities in 2004 totaled $41.0 million. Changes in operating assets and liabilities used cash of $18.3 million. This use resulted primarily from increased inventories and a decrease in

accounts payable and accrued liabilities. Inventories increased from December 31, 2003 due to our need for higher inventory levels to support increased sales during 2004. Accounts payable and accrued liabilities decreased from December 31, 2003 due primarily to the liquidation of liabilities of the discontinued operations.

 

Noncash asset impairment costs totaling $8.9 million were recognized in 2004 related to product line exits in Europe and the disposal of certain assets in the United States due to excess capacity (particularly as a result of the combined capacity after the Merger).

 

In 2004, we elected to fund certain contributions to one of our retirement savings plans with common stock held in treasury rather than with cash. Treasury stock issued had a FIFO cost basis of $1.8 million and a market value of $2.3 million.

 

Also in 2004, we elected to partially compensate our nonemployee directors and certain key employees with common stock held in treasury rather than with cash. Treasury stock issued to the nonemployee directors had a FIFO cost basis of zero and a market value of $0.3 million. Treasury stock issued to the key employees had a FIFO cost basis of zero and a market value of $0.6 million. During 2004, we also amortized $2.9 million of unearned deferred compensation related to nonvested restricted stock we awarded to certain key employees in lieu of cash compensation during 2001 through 2004.

 

We issued common stock held in treasury rather than paying cash for compensation on the settlement of employee stock purchase plan rights granted under our various share-based payment plans during 2004. Treasury stock issued had a FIFO cost basis of $0.1 million and a market value of $0.1 million.

 

We recognized a gain of $1.7 million during 2004 on the sale of fully-impaired equipment and technology used for the production of deflection coils.

 

Net cash provided by operating activities in 2003 totaled $96.4 million. Changes in operating assets and liabilities provided cash of $56.2 million. This contribution resulted from decreases in both inventories and receivables partially offset by decreased accounts payable and accrued liabilities. In 2003, we focused on reducing inventory levels in an effort to accumulate cash for pension contribution payments estimated at $10.3 million and debt maturity payments estimated at $64.0 million to be made in 2004. We accumulated cash rather than prepaying debt due to the onerous penalties that would apply on a debt prepayment. Receivables decreased primarily due to lower revenues. Accounts payable and accrued liabilities decreased from December 31, 2002 due primarily to the payout of severance and other related benefits throughout 2003.

 

Asset impairment costs of $92.8 million were recognized in 2003 related to the manufacturing facility closure in Germany and our inability to recover our investment in both the tangible and intangible assets of BCC’s discontinued operation in Phoenix, Arizona.

 

In 2003, we elected to fund certain contributions to one of our retirement savings plans with common stock held in treasury rather than with cash. Treasury stock had a FIFO cost basis of $4.5 million and a market value of $3.7 million.

 

Also in 2003, we elected to partially compensate our nonemployee Directors with common stock held in treasury rather than with cash. Treasury stock had a FIFO cost basis of $0.2 million and a market value of $0.1 million. During 2003, we also amortized $1.6 million of unearned deferred compensation related to nonvested common stock we awarded to certain key employees in lieu of cash compensation during 2001 through 2003.

 

We issued common stock held in treasury rather than paying cash for compensation on the settlement of employee stock purchase plan rights granted under our various share-based payment plans during 2003. Treasury stock had a FIFO cost basis of $2.8 million and a market value of $2.1 million.

 

Cash Flows from Investing Activities

 

In 2005, we received $51.5 million related to the sale of real estate and certain tangible assets of BCC’s discontinued Phoenix operations, Raydex’s discontinued Skelmersdale, United Kingdom operation, the discontinued Montrose operation, Admiral’s discontinued Barberton, Ohio operation, the Fort Lauderdale, Florida operation, the Villingen, Germany operation, and the Kingston, Canada operation.

In 2004, we received $82.1 million related to the sale of certain assets of BCC’s discontinued Phoenix operations to Superior Essex Communications LLC.

 

Also in 2004, we incurred $6.2 million in transaction costs associated with the Merger.

 

Capital Expenditures

 

 

Capital expenditures for continuing operations during 2005, 2004 and 2003 represented approximately 1.8%, 1.2%, and 1.6% of total revenues, respectively. Approximately 48%, 67%, and 76% of capital expenditures for continuing operations were utilized for maintaining and enhancing existing production capabilities in 2005, 2004 and 2003, respectively.

 

Cash Flows from Financing Activities

 

On May 23, 2005, the Board of Directors authorized the Company to repurchase up to $125.0 million of common stock in the open market. From that date through December 31, 2005, we repurchased approximately 5.2 million shares of our common stock at an aggregate cost of $109.4 million.

 

We repaid approximately $17.5 million and $66.7 million of debt during 2005 and 2004, respectively. There were no repayments of debt during 2003. These repayments were funded primarily by cash flow from operating activities.

 

Dividends of $0.20 per share per annum were paid to stockholders during 2005, 2004, and 2003, resulting in cash outflows of $9.1 million, $7.3 million, and $5.1 million, respectively.

 

We received approximately $6.9 million, $4.4 million, and $0.2 million in proceeds during 2005, 2004 and 2003, respectively, on the exercise of stock options granted under our various share-based payment plans.

 

Borrowings and Contractual Obligations

 

Borrowings and other contractual obligations have the following scheduled maturities:

 

We anticipate making increased contributions to our pension plans during 2006. Our contributions to these plans during 2005 were $26.1 million. The anticipated increase results primarily from funding required for the United Kingdom and terminated Netherlands plans. We anticipate contributing $33.7 million to our pension plans during 2006, $10.4 million and $6.0 million of which is attributable to the United Kingdom and Netherlands pension plans, respectively. While the amount of contributions to our pension plans for the years after 2006 is affected by the investment results from the plans’ assets, we currently anticipate contributions to our pension plans for 2007 and 2008 of $6.1 million and $6.0 million, respectively.

 

Other Commercial Commitments

 

Other commercial commitments have the following scheduled maturities:

 

 

 

 

Working Capital

 

Current assets decreased $7.0 million, or 1.1%, from $637.8 million at December 31, 2004 to $630.8 million at December 31, 2005. This decrease resulted primarily from a reduction in cash and cash equivalents and current assets of discontinued operations partially offset by increases in receivables, inventories, and current deferred income tax assets.

 

 

 

Current liabilities increased $50.1 million, or 23.0%, from $218.3 million at December 31, 2004 to $268.4 million at December 31, 2005. This increase in current liabilities was primarily the result of increases in both current maturities of long-term debt and accounts payable and accrued liabilities partially offset by a decrease in current liabilities of discontinued operations.

 

 

Long-Lived Assets

 

Long-lived assets decreased $78.2 million, or 10.7%, from $733.5 million at December 31, 2004 to $655.3 million at December 31, 2005 primarily because of decreases in property, plant and equipment, long-lived assets of discontinued operations, and goodwill.

 

 

Capital Structure

 

 

Our capital structure consists primarily of long-term debt and stockholders’ equity. The capital structure decreased $114.0 million primarily because of a decrease in stockholders’ equity that resulted mainly from the impact of shares purchased during the year under our share repurchase program. Also contributing to the decrease in our capital structure were the negative effect of currency exchange rates on financial statement translation and payment of the first tranche of 6.92% medium-term notes in the amount of $15.0 million in 2005.

 

In 1997, we completed a private placement of $75.0 million of unsecured medium-term notes. The notes bear interest at 6.92% and mature in $15.0 million annual increments in August 2005 through August 2009. We repaid a $15.0 million tranche of the 1997 placement in August 2005. In 1999, we completed a private placement of $64.0, $44.0 and $17.0 million in unsecured debt. The notes bear interest at the contractual rates of 7.60%, 7.74%, and 7.95%, respectively, and mature in September 2004, September 2006, and September 2009, respectively. The agreements for these notes contain various customary affirmative and negative covenants and other provisions, including restrictions on the incurrence of debt, maintenance of a maximum leverage ratio and minimum net worth. We were in compliance with these covenants at December 31, 2005. We repaid the $64.0 million tranche of the 1999 placement in September 2004.

 

At December 31, 2005, we had outstanding $110.0 million of unsecured subordinated debentures. The debentures are convertible into shares of common stock, at a conversion price of $17.859 per share, upon the occurrence of certain events. The conversion price is subject to adjustment for dividends and other equity transactions. Holders may surrender their debentures for conversion upon satisfaction of any of the following conditions: (1) the closing sale price of our common stock is at least 110% of the conversion price for a minimum of 20 days in the 30 trading-day period ending on the trading day prior to surrender; (2) the senior implied rating assigned to the Company by Moody’s Investors Service, Inc. is downgraded to B2 or below and the corporate credit rating assigned to the Company by Standard & Poor’s is downgraded to B or below; (3) we have called the debentures for redemption; or (4) upon the occurrence of certain corporate transactions as specified in the indenture. As of December 31, 2005, condition (1) had been met, but condition (2) had not been met as the senior implied rating was Ba2 and the corporate credit rating was BB-. Interest of 4.0% is payable semiannually in arrears, on January 15 and July 15. The debentures mature on July 15, 2023, if not previously redeemed. We may redeem some or all of the debentures on or after July 21, 2008, at a price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest up to the redemption date. Holders may require us to purchase all or part of their debentures on July 15, 2008, July 15, 2013, or July 15, 2018, at a price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest up to the redemption date, in which case the purchase price may be paid in cash, shares of our common stock or a combination of cash and our common stock, at our option.

 

We entered into a credit agreement with a group of six banks on October 9, 2003 (Credit Agreement). The Credit Agreement provided for a secured, variable-rate and revolving credit facility not to exceed $75.0 million expiring in June 2006. In general, a portion of our assets in the United States, other than real property, secured any borrowing under the Credit Agreement. The amount of any such borrowing was subject to a borrowing base comprised of a portion of our receivables and inventories located in the United States. A fixed charge coverage ratio covenant became applicable if the sum of our excess borrowing availability and unrestricted cash fell below

$25.0 million. There were no outstanding borrowings at December 31, 2005 under the Credit Agreement. We had $18.9 million in borrowing capacity available at December 31, 2005.

 

On January 24, 2006, we entered into a new $165.0 million credit facility with a group of eight banks, expandable to $200.0 million and secured by our overall cash flow and our assets in the United States. The new facility replaces the $75.0 million facility discussed above.

 

We also had unsecured, uncommitted arrangements with nine banks under which we may borrow up to $4.4 million at prevailing interest rates. At December 31, 2005, we had no outstanding borrowings under these arrangements.

 

We will sometimes manage our debt portfolio by using interest rate swap agreements to achieve an overall desired position of fixed and floating rates. During 2004, we were party to interest rate swap agreements relating to our 7.60% medium-term notes that matured in September 2004. The swaps converted a notional amount of $64.0 million from fixed rates to floating rates and also matured in September 2004. These agreements were designated and qualified as fair value hedges of the associated medium-term notes. Credit and market risk exposures on these agreements were limited to the net interest differentials. Net interest differentials earned from the interest rate swaps of $1.3 million pretax, or $.02 per diluted share, were recorded as a reduction to interest expense for 2004. Net interest differentials earned from the interest rate swaps reduced our average interest rate on long-term debt by 0.57 percentage points for 2004. We had no interest rate swap agreements outstanding at December 31, 2005 or during the year then ended.

 

Stockholders’ equity decreased by $96.4 million, or 11.9%, from 2004 to 2005 because of an increase in treasury stock as well as deterioration in accumulated other comprehensive income. These decreases were partially offset by increases in retained earnings and additional paid in capital as well as a decrease in unearned deferred compensation.

 

Treasury stock increased by $111.1 million because of shares purchased during the year under our share repurchase program and the forfeiture of stock by our incentive plan participants in lieu of cash payment of individual tax liabilities related to share-based compensation. Accumulated other comprehensive income decreased by $34.7 million primarily because of the negative effect of currency exchange rates on financial statement translation. Retained earnings increased $38.8 million primarily because of net income of $47.6 million partially offset by dividends of $9.1 million. Additional paid-in capital increased by $8.4 million primarily as the result of stock option exercises. Unearned deferred compensation decreased $2.1 million primarily because of current-year amortization of compensation related to restricted stock awards.

 

Off-Balance Sheet Arrangements

 

We were not a party to any of the following types of off-balance sheet arrangements at December 31, 2005:

 

 

 

Environmental Remediation

 

We are subject to numerous federal, state, provincial, local and foreign laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Clean Water Act, the Clean Air Act, the Emergency Planning and Community Right-To-Know Act and the Resource Conservation and Recovery Act. We believe our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area.

 

A former Belden CDT facility in Shrewsbury, Massachusetts was sold to a third party in 1992, subject to an indemnification in favor of the buyer for certain preexisting environmental liabilities, principally caused by a former owner. Contaminated soil has been removed, and groundwater remediation has been suspended. Site closure documents have been submitted to the state environmental agency for review and approval. We will close the groundwater system upon approval of the closure application by the state agency.

 

Our facility in Venlo, The Netherlands was acquired in 1995 from Philips Electronics N.V. Soil and groundwater contamination was identified on the site as a result of material handling and past storage practices. Various soil and groundwater assessments are being performed, and the government authorities have advised that some form of remediation will be necessary. We have recorded a liability for the estimated costs. In addition, we may need to make capital expenditures to install groundwater treatment equipment; however, we do not expect such capital expenditures to materially affect our financial position, operating results or cash flows.

 

We are named as a defendant in the City of Lodi, California’s federal lawsuit along with over 100 other defendants. The complaint, brought under federal, state and local statutory provisions, alleges that property previously owned by our predecessor contributed to groundwater pollution in Lodi. There has been no validation or investigation to demonstrate or deny the City’s claim that the property allegedly owned by our predecessor is a potential pollution site. An investigation in the area is currently being planned, with a trial date tentatively scheduled to begin in January 2007. We have recorded a liability for the estimated costs related to resolution of the matter.

 

We have been identified as a potentially responsible party (PRP) with respect to two sites designated for cleanup under CERCLA or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages without regard to fault or the legality of waste generation or disposal. Persons liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although CERCLA imposes joint and several liability on all PRPs, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Settlements can often be achieved through negotiations with the appropriate environmental agency or the other PRPs. PRPs that contributed less than 1% of the waste are often given the opportunity to settle as “de minimis” parties, resolving their liability for a particular site. The number of sites with respect to which we have been identified as a PRP has decreased in part as a result of “de minimis” settlements.

 

Belden CDT does not own or operate either waste site with respect to which it has been identified as a PRP. In each case, we are identified as a party that disposed of waste at the site. With respect to one of the sites, our share of the waste volume is estimated to be less than 1%. At the other site, we contributed less than 10% of the waste. Although no estimates of cleanup costs have yet been completed for these sites, we believe, based on our preliminary review and other factors, including our estimated share of the waste volume at the sites, that the costs relating to these sites will not have a material adverse effect on our results of operations, financial condition or cash flow. We have recorded a liability to the extent such costs are known and estimable for such sites.

 

We do not currently anticipate any material adverse effect on our results of operations, financial condition, cash flows or competitive position as a result of compliance with federal, state, provincial, local or foreign environmental laws or regulations, or cleanup costs at the facilities and sites discussed above. However, some risk of environmental liability and other costs is inherent in the nature of our business, and there can be no assurance that

material environmental costs will not arise. Moreover, it is possible that future developments, such as increasingly strict requirements of environmental laws and enforcement policies thereunder, could lead to material costs of environmental compliance and cleanup by the Company.

 

Impact of Newly Issued Accounting Standards

 

Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, becomes effective for the Company on January 1, 2006. Based on the unvested stock option awards outstanding as of December 31, 2005, the Company expects to record incremental stock-based compensation pretax expense of approximately $1.9 million in 2006 as a result of adopting this standard.

 

We adopted Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, for the year ended December 31, 2005. This Interpretation did not have a materially adverse effect on our results of operations or financial position in 2005; however, there can be no assurance that application of this Interpretation to future conditional asset retirement obligations would not have a materially adverse effect on our results of operations and financial position.

 

The potential effect of these newly issued standards on our financial position, results of operations and cash flows is discussed in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in this Annual Report on Form 10-K.

 

Critical Accounting Policies

 

The preparation of financial statement and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in this Annual Report on Form 10-K describes the significant accounting policies and methods used in preparing the Consolidated Financial Statements. We consider the accounting policies described below to be our most critical accounting policies. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Consolidated Financial Statements. We base our estimates on historical experience or various assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. We believe these judgments have been materially accurate in the past and the basis for these judgments should not change significantly in the future. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ materially from these estimates under different assumptions or conditions.

 

Revenue Recognition

 

Revenue is recognized in the period title to product passes to customers and collectibility of the resulting accounts receivable is reasonably assured. As part of the revenue recognition process, we determine whether the resulting accounts receivable are reasonably assured of collection based on a variety of factors, including an evaluation of whether there has been deterioration in the credit quality of our customers, which could result in us being unable to collect the accounts receivable. In situations where it is unclear as to whether we will be able to sell or collect the accounts receivable, we will request alternative financing arrangements, such as prepayment or commercial letters of credit, from the customer.

 

Sales Incentive, Product Price Protection and Returned Material Allowances

 

We grant incentive allowances to selected customers as part of our sales programs. The incentives are determined based on certain targeted sales volumes. In certain instances, we also grant selected product price protection allowances. Certain distribution customers are also allowed to return inventory at the customer’s original

cost, in an amount not to exceed three percent of the prior year’s purchases, in exchange for an order of equal or greater value.

 

Sales revenues are reduced when incentives, allowances or returns are anticipated or projected. We reduce revenues by recording a separate deduction to gross revenues. Future market conditions and product transitions might require us to take actions to increase customer incentive and product price protection offerings, possibly resulting in an incremental reduction of revenue at the time the incentive or allowance is offered. Additionally, certain incentive programs require us to estimate, based on historical experience, the number of customers who will actually redeem the incentive.

 

We recognized incentive, price, and returned material allowances totaling $87.4 million, $70.2 million and $34.6 million as deductions to gross revenues in 2005, 2004 and 2003, respectively.

 

The allowances for incentive rebates, price adjustments and returned material at December 31, 2005 and 2004 totaled $37.2 million and $23.2 million, respectively.

 

Allowance for Doubtful Accounts

 

We evaluate the collectibility of accounts receivable based on the specific identification method. A considerable amount of judgment is required in assessing the realization of accounts receivable, including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectibility of the accounts receivable, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. In circumstances where we are aware of a customer’s inability or unwillingness to pay outstanding amounts, we record a specific reserve for bad debts against amounts due to reduce the receivable to its estimated collectible balance. There have been occasions over the past decade where we recognized an expense associated with the rapid collapse of a distributor for which no specific reserve had been previously established. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received.

 

We recognized bad debt expense of $0.7 million, $0.7 million and $0.8 million as a component of SG&A expenses in 2005, 2004 and 2003, respectively.

 

The allowance for doubtful accounts at December 31, 2005 and 2004 was $3.9 million and $5.6 million, respectively.

 

Inventory Allowances

 

We evaluate the realizability of our inventory on a product-by-product basis in light of anticipated sales demand, technological changes, product life cycle, component cost trends, product pricing and inventory condition. In circumstances where inventory levels are in excess of anticipated market demand, where inventory is deemed technologically obsolete or not saleable due to condition or where inventory cost exceeds net realizable value, we record a charge to cost of goods sold and reduce the inventory to its net realizable value. Revisions to these inventory adjustments would be required if any of the factors mentioned above differed from our estimates.

 

At December 31, 2005 and 2004, we had inventory allowances of $16.4 million and $22.7 million, respectively.

 

Deferred Tax Assets

 

We recognize deferred tax assets resulting from tax credit carryforwards, net operating loss carryforwards and deductible temporary differences between taxable income on our income tax returns and income before taxes under accounting principles generally accepted in the United States. Deferred tax assets generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our Consolidated Financial Statements become deductible for income tax purposes. A deferred tax asset valuation allowance is required when it is more likely than not that some portion or all of the deferred tax assets will not be realized. We are required to estimate taxable income in future years or develop tax

strategies that would enable tax asset realization in each taxing jurisdiction and use judgment to determine whether or not to record a deferred tax asset valuation allowance for part or all of a deferred tax asset.

 

We recorded an additional $5.0 million deferred tax asset valuation allowance during 2005 with respect to net operating losses generated primarily in the Netherlands. As of December 31, 2005, we had approximately $20.0 million of deferred tax assets related in part to domestic and foreign loss carryforwards, net of valuation allowances totaling $27.8 million. The realization of these assets is partially based upon estimates of future taxable income. Based on these estimates, we believe the deferred tax assets net of valuation allowances will be realized. This determination was based on current projections of future taxable income when taking into consideration the potential limitations on the utilization of net operating loss carryforwards imposed by Section 382 of the Internal Revenue Code (Section 382). Section 382 imposed limitations on a corporation’s ability to utilize its net operating loss carryforwards if it experiences an ownership change. In general terms, an ownership change results from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. We believe the ownership change in connection with the July 15, 2004 Belden CDT merger will have little, if any, impact upon the utilization of our net operating loss carryforwards.

 

As of December 31, 2005, we had $300.7 million of net operating loss carryforwards (as adjusted by the Tax Agreement between us and our former parent, Cooper Industries Ltd.). Unless otherwise utilized, net operating loss carryforwards will expire as follows: $11.7 million in 2006, $13.8 million in 2007, $27.4 million between 2008 and 2010, and $155.8 million between 2011 and 2025. Net operating loss carryforwards with an indefinite carryforward period total $92.0 million. The net operating loss carryforwards expiring in 2006 through 2008 will have an immaterial impact on the effective tax rate because of deferred tax asset valuation allowances attached to those losses.

 

Income Tax Contingencies

 

Our effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish accruals for certain tax contingencies when, despite the belief that our tax return positions are fully supported, we believe that certain positions are likely to be challenged and that our position may not be fully sustained. To the extent we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, there could be a material effect on our income tax provisions in the period in which such determination is made.

 

Valuation of Long-Lived Tangible Assets and Amortizable Intangible Assets

 

We review long-lived tangible assets and amortizable intangible assets to determine whether an event or change in circumstances indicates the carrying value of the asset may not be recoverable. We base our evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets and any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flows analysis at the lowest level for which identifiable cash flows exist. If impairment has occurred, we recognize a loss for the difference between the carrying amount and the fair value of the asset. Fair value is the amount at which the asset could be bought or sold in a current transaction between a willing buyer and seller other than in a forced or liquidation sale and can be measured as the asset’s quoted market price in an active market or, where an active market for the asset does not exist, our best estimate of fair value based on either discounted cash flow analysis or present value analysis.

 

The discounted cash flow analyses and present value analyses that we use to estimate the fair value of our long-lived tangible assets and amortizable intangible assets are dependent on a number of factors including long-term forecasts of the amounts and timing of overall market growth and our percentage of that market, groupings of assets, discount rates, terminal growth rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are not predictable with precision and therefore are inherently uncertain. Actual future results could differ from these estimates.

During 2005, we determined that certain asset groups within the European operations of our Networking segment were impaired. The applicable assets of the segment’s European operations were impaired due to our decision to exit the United Kingdom communications cable market. We estimated the fair value of the equipment based on anticipated net proceeds from its sale and recognized an impairment loss of $3.3 million based on the difference between the carrying value of the equipment and its fair value. This loss was reflected as a component of operating income in the Consolidated Statement of Operations for 2005.

 

During 2004, we determined that certain asset groups within both the European operations and the United States operations of our Electronics segment were impaired. The applicable assets of the segment’s European operations were impaired due to the exit from certain product lines within those operations. The applicable assets of the segment’s United States operations were impaired due to excess capacity (primarily as a result of the combined capacity after the Merger). We estimated the fair value of the equipment based upon anticipated net proceeds from its sale and recognized an impairment loss of $8.9 million based on the difference between the carrying value of the equipment and its fair value. This loss was reflected as a component of operating income in the Consolidated Statement of Operations for 2004.

 

During 2003, we determined that asset groups within the North American operations of our former Communications segment were impaired. We then estimated fair values using a variety of techniques including discounted cash flows and comparable market data. Assumptions utilized in estimating fair values under continued asset use included long-term forecasts of revenue growth, gross margins and capital expenditures. Comparable market data was obtained from appraisals and other third party valuation estimates. We determined that fair values of asset groups within the North American operations of our former Communications segment were less than carrying amounts by $92.4 million. We included this impairment charge in loss from discontinued operations in the Consolidated Statement of Operations for 2003.

 

During 2003, we identified certain equipment in a German manufacturing facility within our Electronics segment that would not be transferred to our other manufacturing facilities after the closure of that facility late in 2003. We estimated the fair value of the equipment based upon anticipated net proceeds from its sale and recognized an impairment loss of $0.4 million based on the difference between the carrying value of the equipment and its fair value. This loss was reflected as a component of operating income in the Consolidated Statement of Operations for 2003.

 

Valuation of Goodwill and Indefinite-Lived Intangible Assets Not Subject to Amortization

 

In accordance with SFAS No. 142, we evaluate goodwill and indefinite-lived intangible assets not subject to amortization for impairment annually or at other times if events have occurred or circumstances exist that indicate the carrying values of these assets may no longer be recoverable.

 

SFAS No. 142 requires that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. We determine the fair value using the income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the reporting unit’s net assets exceeds the fair value of the reporting unit, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment of goodwill has occurred and we recognize an impairment loss for the difference between the carrying amount and the implied fair value of goodwill as a component of operating expenses.

 

The income approach, which we use to estimate the fair value of our reporting units, is dependent on a number of factors including estimates of future market growth and trends, forecasted revenue and costs, expected periods the assets will be utilized, appropriate discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results could differ from these estimates.

SFAS No. 142 requires that an impairment test for an indefinite-lived intangible asset not subject to amortization consist of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of the asset exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess.

 

During 2005, we determined that the carrying value of goodwill related to the European reporting unit within our Networking segment was impaired due to our decision to exit the United Kingdom communications cable market. We estimated the implied fair value of the goodwill and recognized an impairment loss of $9.5 million based on the difference between the carrying value of the goodwill and its implied fair value. This loss was reflected as a component of operating income in the Consolidated Statement of Operations for 2005.

 

During 2005 and 2004, we evaluated the recoverability of the carrying value of our goodwill using discounted cash flow projections. Based on the discounted cash flow projections, we determined that the carrying value of our goodwill was recoverable at both December 31, 2005 and 2004.

 

We believe that if there is little to no improvement during 2006 and beyond from the revenues and profitability achieved by the European reporting unit within our Electronics segment, future operating results would adversely affect the discounted future cash flows of those operations and, accordingly, could negatively affect the assessment of the reporting unit’s goodwill. The carrying value of goodwill, net of accumulated amortization, for the European reporting unit within our Electronics segment totaled $30.3 million at December 31, 2005.

 

During 2005 and 2004, we also evaluated the recoverability of the carrying values of our indefinite-lived intangible assets not subject to amortization. Based on a comparison of the fair values of these assets with their respective carrying values, we determined that the carrying values of our indefinite-lived intangible assets not subject to amortization were recoverable at December 31, 2005 and 2004.

 

Pension and Other Postretirement Benefits

 

Our pension and other postretirement benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets, health care cost trend rates and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook. Long-term return on plan assets is determined based on historical portfolio results and management’s expectation of the future economic environment. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Our key assumptions are described in further detail in Note 15, Pension and Other Postretirement Benefits, to the Consolidated Financial Statements in this Annual Report on Form 10-K. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the project benefit obligation or the fair market value of plan assets, amortized over the estimated future working life of the plan participants. While the actual rate of return on plan assets over the past five years has been less than the assumed rate of return on plan assets, we believe the assumed rate is a reasonable assumption for the long-term performance of our plan assets.

 

Business Combination Accounting

 

The Merger was accounted for using the purchase method of accounting. The purchase method requires management to make significant estimates. First, management must determine the cost of the acquired entity based on the fair value of the consideration paid or the fair value of the net assets acquired, whichever is more clearly evident. This cost is then allocated to the assets acquired and liabilities assumed based on their estimated fair values at the Merger consummation date. In addition, management must identify and estimate the fair values of intangible assets that should be recognized as assets apart from goodwill. Management utilized third party appraisals to assist in estimating the fair value of tangible PP&E and intangible assets acquired. Our estimations are described in further detail in Note 3, Belden CDT Merger, to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Outlook

 

We announced in 2005 our decision to exit the United Kingdom communications market when our contract with British Telecom plc expires in October 2006 or sooner if the customer can arrange another source. We are actively exploring alternatives for disposition of our Manchester, United Kingdom operation. If unable to arrange a sale of the operation at an acceptable price, we plan to liquidate the assets and liabilities of the operation. In 2005, the Manchester, United Kingdom operation generated revenues of $106.5 million and operating income of $7.4 million. Our 2006 outlook excludes the projected operating results for the Manchester, United Kingdom operation and, therefore, takes as its baseline 2005 revenues of $1,245.6 million, 2005 operating income of $97.3 million, and 2005 net income of $53.0 million.

 

We anticipate relatively strong end markets in both North America and Asia in 2006; however, we expect somewhat slower growth in Europe. We estimate that our 2006 revenues will increase between 5% and 10% compared with 2005 baseline revenues due primarily to both sales price increases implemented to offset rising raw material costs and improved volume.

 

Management expects improvement in operating income from all parts of the Company — particularly, from Europe and the North American operations within our Networking segment. Restructuring in Europe is well under way, and management believes its recent reorganization in North America will help leverage the Company’s strengths and improve the contribution made to operating income by the North American operations within our Networking segment. We anticipate operating margins will reflect continued product mix enrichment in the networking market and will include further migration to higher bandwidth cables, more 10-gigabit projects, and an increasing proportion of connectivity sales. We will also benefit from the full-year realization of the merger synergies in 2006. Management expects operating income as a percent of revenues will be between 9.0% and 9.5% in 2006. This outlook, along with the outlook for diluted income per share, excludes the impact of our adoption of SFAS No. 123(R) effective January 1, 2006.

 

Management anticipates the Company will generate diluted income from continuing operations per share, excluding any further restructuring charges, between $1.50 and $1.60 in 2006.

 

We anticipate funding $33.7 million in pension contributions and $2.7 million in contributions for other postretirement benefit plans in the upcoming year. We also plan to pay off tranches of both our 1997 and 1999 medium-term notes totaling $59.0 million during 2006. We anticipate we will have sufficient funds to satisfy these cash requirements.

 

Management expects that the Company’s effective tax rate for continuing operations in 2006 will be 37.0%. Because of net operating loss carryforwards and deductible temporary differences, we anticipate that cash payments of United States income taxes during 2006 will be significantly less than tax expense. Cash payments of income taxes for foreign jurisdictions will approximate tax expense.

 

Depreciation and amortization for 2006 are expected to total approximately $37.0 million. Capital expenditures for Belden CDT during 2006 are expected to be approximately $30.0 million.

 

We have incurred severance charges related to the discontinuation of certain operations and with other actions intended to reduce costs. The amount of the charges recognized but not funded as of December 31, 2005 is $12.0 million. Management expects that that all of these charges will be funded in 2006. This will have a negative effect on cash flow. Management expects that there may be additional restructuring charges (severance and asset impairment) in future periods that would have a negative effect on both operating results and cash flow.

 

We anticipate that annual dividends in the aggregate of $.20 per common share ($.05 per common share each quarter) will be paid to all common stockholders.

 

On February 7, 2006, we announced organizational changes that we expect will change the segmentation of the business. We announced that our North American operations will be organized in two groups, Belden Americas Division and the Specialty Products Division. The heads of these two divisions will report to the Chief Executive Officer, as will the President of European Operations and the General Manager, Asia/Pacific.

 

Market risks relating to our operations result primarily from foreign currency exchange rates, certain commodity prices, interest rates and credit extended to customers. To manage the volatility relating to exposures, we net the exposures on a consolidated basis to take advantage of natural offsets. For residual exposures, we sometimes enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. We do not hold or issue derivative instruments for trading purposes. The terms of such instruments and the transactions to which they relate generally do not exceed twelve months. Each of these risks is discussed below.

 

Foreign Currency Exchange Rate Risk

 

We manufacture and sell our products in a number of countries throughout the world, and, as a result, are exposed to movements in foreign currency exchange rates. The primary purpose of our foreign currency exchange rate management activities is to manage the volatility associated with foreign currency purchases of materials or sales of finished product and other assets and liabilities created in the normal course of business. Our foreign currency exchange rate management strategy involves the use of natural techniques, where possible, such as the offsetting or netting of like-currency cash flows. Where natural techniques are not possible, we will sometimes use foreign currency derivatives, typically foreign currency forward contracts, with durations of generally 12 months or less.

 

CDT executed a foreign currency swap derivative contract that was assumed by us on the effective date of the Merger. The contract converted a notional amount of 2.6 million euros into 82.4 million Czech koruny in April 2005. We did not consider the contract to be an effective hedge of its cash flow exposure and, therefore, recorded all currency gains or losses in the Consolidated Statement of Operations as they occurred. We had no other foreign currency derivatives outstanding at December 31, 2005 and did not employ any other foreign currency derivatives during the year then ended.

 

We generally view as long-term our investments in international subsidiaries with functional currencies other than the United States dollar. As a result, we do not generally use derivatives to manage these net investments. In terms of foreign currency translation risk, we are exposed primarily to the euro, the British pound and the Canadian dollar.

 

Our net foreign currency investment in foreign subsidiaries and affiliates translated into United States dollars using year-end exchange rates was $294.0 million and $308.8 million at December 31, 2005 and 2004, respectively.

 

Commodity Price Risk

 

Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility associated with purchases of commodities in the normal course of business. We do not speculate on commodity prices.

 

We are exposed to price risk related to our purchase of copper used in the manufacture of our products. Our copper price management strategy involves the use of natural techniques, where possible, such as purchasing copper for future delivery at fixed prices. Where natural techniques are not possible, we will sometimes use commodity price derivatives, typically exchange-traded forward contracts, with durations of generally twelve months or less. We did not have any commodity price derivatives outstanding at December 31, 2005 and did not employ any commodity price derivatives during the year then ended. The following table presents the physical inventory of

copper at December 31, 2005 by the amount of pounds held at average cost. The fair value of this inventory as of December 31, 2005 is also presented.

 

 

We are also exposed to price risk related to our purchase of selected commodities derived from petrochemical feedstocks used in the manufacture of our products. We generally purchase these commodities based upon market prices established with the vendors as part of the purchase process. Recent trends indicate that pricing of these commodities may become more volatile due to the increased prices of petrochemical feedstocks as well as the current threat of terrorist activities. Historically, we have not used commodity financial instruments to hedge prices for commodities derived from petrochemical feedstocks. There is a modest correlation, primarily in our Networking segment, between costs for commodities derived from petrochemical feedstocks and the ultimate selling price of the product. Exposures to most changes in costs for commodities derived from petrochemical feedstocks remain unprotected.

 

Interest Rate Risk

 

We have occasionally managed our debt portfolio by using interest rate swap agreements to achieve an overall desired position of fixed and floating rates; however we were not a party to any interest rate swap agreements at December 31, 2005 or during the year then ended. The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and average interest rates by expected maturity dates. The table also presents fair values as of December 31, 2005.

 

 

 

 

The fair value of our fixed-rate financial instruments at December 31, 2005 represented 100.0% of the carrying value of our fixed-rate financial instruments. The aggregate fair value of these same financial instruments was $135.9 million, or 99.9% of their aggregate carrying value, at December 31, 2004.

 

Credit Risk

 

We sell our products to many customers in several markets across multiple geographic areas. The ten largest customers, primarily the larger distributors and communications companies, constitute in aggregate approximately 42%, 52% and 50% of revenues in 2005, 2004 and 2003, respectively.

The following table reflects the receivables that represent the only significant concentrations of credit to which we were exposed at December 31, 2005 and 2004. Historically, these customers generally pay all outstanding receivables within thirty to sixty days of invoice receipt.

 

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Shareholders

Belden CDT Inc.

 

We have audited the accompanying consolidated balance sheets of Belden CDT Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Belden CDT Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Belden CDT Inc.’s internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion thereon.

 

/s/  Ernst & Young LLP

 

St. Louis, Missouri

March 8, 2006

Belden CDT Inc.

 

Consolidated Balance Sheets

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements

 

Belden CDT Inc.

 

Consolidated Statements of Operations

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements

Belden CDT Inc.