UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, | |
or | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________ |
Commission File No. 0-11676
BEL FUSE INC.
206 Van Vorst Street
Jersey City, NJ 07302
(201) 432-0463
(Address of principal executive offices and zip code)
(Registrant'sRegistrant’s telephone number, including area code)
NEW JERSEY | 22-1463699 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes [X] | No [ ] |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes [X] | No [ ] |
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act. |
Large accelerated filer [ ] | Accelerated filer [X] | Non-accelerated filer [ ] | Smaller reporting company [X] | Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | [ ] |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Exchange on Which Registered | ||
Class A Common Stock ($0.10 par value) | BELFA | Nasdaq Global Select Market | ||
Class B Common Stock ($0.10 par value) | BELFB | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes [ ] | No [X] |
Number of Shares of Common Stock Outstanding as of November 1, | ||
Class A Common Stock ($0.10 par value) | 2,144,912 | |
Class B Common Stock ($0.10 par value) | 10,128,602 |
Page | |||
Part I | Financial Information | ||
Item 1. | 2 | ||
2 | |||
3 | |||
4 | |||
5 | |||
Condensed Consolidated Statements of Cash Flows for the Nine | |||
7 | |||
8 - | |||
Item 2. | 19 - 25 | ||
Item 3. | 25 | ||
Item 4. | 25 | ||
Part II | Other Information | ||
Item 1. | 25 | ||
Item 1A. | 25 | ||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 5. | Other Information | ||
Item 6. | 26 | ||
27 |
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION
The terms the "Company," "Bel," "we," "us,"“Company,” “Bel,” “we,” “us,” and "our"“our” as used in this report refer to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.
The Company'sCompany’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in Item 1A of our 20172018 Annual Report on Form 10-K. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, operating results, and common stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission ("SEC"(“SEC”) contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 ("(“Forward-Looking Statements"Statements”) with respect to the business of the Company. Forward-Looking Statements are necessarily subject to risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from these statements. Forward-Looking Statements can be identified by such words as "anticipates," "believes," "plan," "assumes," "could," "should," "estimates," "expects," "intends," "potential," "seek," "predict," "may," "will"“anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 20172018 Annual Report on Form 10-K, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Any Forward-Looking Statement made by the Company is based only on information currently available to us and speaks only as of the date on which it is made.
Item 1. Financial Statements (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share data) |
(unaudited) |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 64,816 | $ | 53,911 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,975 and $1,638, respectively | 79,110 | 91,939 | ||||||
Inventories | 110,209 | 120,068 | ||||||
Unbilled receivables | 14,868 | 15,799 | ||||||
Other current assets | 9,058 | 8,792 | ||||||
Total current assets | 278,061 | 290,509 | ||||||
Property, plant and equipment, net | 42,470 | 43,932 | ||||||
Right-of-use assets | 16,296 | - | ||||||
Intangible assets, net | 57,509 | 62,689 | ||||||
Goodwill | 10,778 | 19,817 | ||||||
Deferred income taxes | 2,283 | 496 | ||||||
Other assets | 26,948 | 26,081 | ||||||
Total assets | $ | 434,345 | $ | 443,524 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 38,890 | $ | 56,171 | ||||
Accrued expenses | 31,069 | 32,290 | ||||||
Current portion of long-term debt | 4,743 | 2,508 | ||||||
Operating lease liability, current | 6,039 | - | ||||||
Other current liabilities | 5,785 | 15,061 | ||||||
Total current liabilities | 86,526 | 106,030 | ||||||
Long-term Liabilities: | ||||||||
Long-term debt | 107,588 | 111,705 | ||||||
Operating lease liability, long-term | 10,713 | - | ||||||
Liability for uncertain tax positions | 26,464 | 27,553 | ||||||
Minimum pension obligation and unfunded pension liability | 19,346 | 18,683 | ||||||
Deferred income taxes | 1,319 | 1,161 | ||||||
Other liabilities | 11,749 | 1,922 | ||||||
Total liabilities | 263,705 | 267,054 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, no par value, 1,000,000 shares authorized; none issued | - | - | ||||||
Class A common stock, par value $.10 per share, 10,000,000 shares authorized; shares outstanding: 2,144,912 in 2019 and 2,174,912 in 2018 (net of 1,072,769 treasury shares) | 214 | 217 | ||||||
Class B common stock, par value $.10 per share, 30,000,000 shares authorized; shares outstanding: 10,132,102 in 2019 and 10,092,352 in 2018 (net of 3,218,307 treasury shares) | 1,013 | 1,009 | ||||||
Additional paid-in capital | 33,206 | 31,387 | ||||||
Retained earnings | 164,252 | 168,695 | ||||||
Accumulated other comprehensive loss | (28,045 | ) | (24,838 | ) | ||||
Total stockholders' equity | 170,640 | 176,470 | ||||||
Total liabilities and stockholders' equity | $ | 434,345 | $ | 443,524 |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||
(in thousands, except share and per share data) | ||||||||
(unaudited) | ||||||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 54,296 | $ | 69,354 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,191 | ||||||||
in 2018 and $1,745 in 2017 | 97,577 | 78,808 | ||||||
Unbilled receivables | 16,553 | - | ||||||
Inventories | 114,434 | 107,719 | ||||||
Other current assets | 9,626 | 10,218 | ||||||
Total current assets | 292,486 | 266,099 | ||||||
Property, plant and equipment, net | 42,994 | 43,495 | ||||||
Intangible assets, net | 64,161 | 69,366 | ||||||
Goodwill | 19,135 | 20,177 | ||||||
Deferred income taxes | 2,083 | 4,155 | ||||||
Other assets | 27,044 | 27,973 | ||||||
Total assets | $ | 447,903 | $ | 431,265 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 62,415 | $ | 47,947 | ||||
Accrued expenses | 32,533 | 30,508 | ||||||
Current portion of long-term debt | 2,507 | 2,641 | ||||||
Other current liabilities | 3,836 | 6,204 | ||||||
Total current liabilities | 101,291 | 87,300 | ||||||
Long-term Liabilities: | ||||||||
Long-term debt | 112,331 | 120,053 | ||||||
Liability for uncertain tax positions | 27,180 | 27,948 | ||||||
Minimum pension obligation and unfunded pension liability | 19,943 | 19,134 | ||||||
Deferred income taxes | 1,472 | 1,567 | ||||||
Other liabilities | 12,375 | 17,303 | ||||||
Total liabilities | 274,592 | 273,305 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, no par value, 1,000,000 shares authorized; none issued | - | - | ||||||
Class A common stock, par value $.10 per share, 10,000,000 shares | ||||||||
authorized; 2,174,912 shares outstanding at each date (net of | ||||||||
1,072,769 treasury shares) | 217 | 217 | ||||||
Class B common stock, par value $.10 per share, 30,000,000 shares | ||||||||
authorized; shares outstanding: 10,072,352 in 2018 and 9,859,352 | ||||||||
in 2017 (net of 3,218,307 treasury shares) | 1,007 | 986 | ||||||
Additional paid-in capital | 30,602 | 28,575 | ||||||
Retained earnings | 165,518 | 147,807 | ||||||
Accumulated other comprehensive loss | (24,033 | ) | (19,625 | ) | ||||
Total stockholders' equity | 173,311 | 157,960 | ||||||
Total liabilities and stockholders' equity | $ | 447,903 | $ | 431,265 | ||||
See accompanying notes to unaudited condensed consolidated financial statements. |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales | $ | 146,489 | $ | 126,386 | $ | 405,451 | $ | 371,671 | ||||||||
Cost of sales | 117,282 | 98,686 | 326,096 | 291,481 | ||||||||||||
Gross profit | 29,207 | 27,700 | 79,355 | 80,190 | ||||||||||||
Selling, general and administrative expenses | 18,691 | 20,906 | 57,690 | 63,604 | ||||||||||||
Restructuring charges | 17 | - | 62 | 171 | ||||||||||||
Income from operations | 10,499 | 6,794 | 21,603 | 16,415 | ||||||||||||
Interest expense | (1,391 | ) | (1,466 | ) | (3,917 | ) | (4,476 | ) | ||||||||
Interest income and other, net | 43 | (244 | ) | (479 | ) | (720 | ) | |||||||||
Earnings before provision for income taxes | 9,151 | 5,084 | 17,207 | 11,219 | ||||||||||||
(Benefit from) provision for income taxes | (2,201 | ) | 60 | 523 | 2,329 | |||||||||||
Net earnings available to common stockholders | $ | 11,352 | $ | 5,024 | $ | 16,684 | $ | 8,890 | ||||||||
Net earnings per common share: | ||||||||||||||||
Class A common share - basic and diluted | $ | 0.89 | $ | 0.40 | $ | 1.31 | $ | 0.69 | ||||||||
Class B common share - basic and diluted | $ | 0.94 | $ | 0.42 | $ | 1.40 | $ | 0.75 | ||||||||
Weighted-average number of shares outstanding: | ||||||||||||||||
Class A common share - basic and diluted | 2,175 | 2,175 | 2,175 | 2,175 | ||||||||||||
Class B common share - basic and diluted | 9,972 | 9,864 | 9,891 | 9,856 | ||||||||||||
Dividends paid per common share: | ||||||||||||||||
Class A common share | $ | 0.06 | $ | 0.06 | $ | 0.18 | $ | 0.18 | ||||||||
Class B common share | $ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share data) |
(unaudited) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 124,479 | $ | 146,489 | $ | 377,284 | $ | 405,451 | ||||||||
Cost of sales | 102,021 | 117,282 | 311,382 | 326,096 | ||||||||||||
Gross profit | 22,458 | 29,207 | 65,902 | 79,355 | ||||||||||||
Selling, general and administrative expenses | 17,909 | 18,691 | 56,472 | 57,690 | ||||||||||||
Impairment of Goodwill | 8,891 | - | 8,891 | - | ||||||||||||
Restructuring charges | 281 | 17 | 1,651 | 62 | ||||||||||||
Gain on sale of property | - | - | (4,257 | ) | - | |||||||||||
(Loss) Income from operations | (4,623 | ) | 10,499 | 3,145 | 21,603 | |||||||||||
Interest expense | (1,305 | ) | (1,391 | ) | (4,126 | ) | (3,917 | ) | ||||||||
Other income (expense), net | 28 | 43 | (361 | ) | (479 | ) | ||||||||||
(Loss) Earnings before provision for (benefit from) income taxes | (5,900 | ) | 9,151 | (1,342 | ) | 17,207 | ||||||||||
Provision for (benefit from) income taxes | 590 | (2,201 | ) | 1,049 | 523 | |||||||||||
Net (loss) earnings available to common stockholders | $ | (6,490 | ) | $ | 11,352 | $ | (2,391 | ) | $ | 16,684 | ||||||
Net (loss) earnings per common share: | ||||||||||||||||
Class A common share - basic and diluted | $ | (0.51 | ) | $ | 0.89 | $ | (0.20 | ) | $ | 1.31 | ||||||
Class B common share - basic and diluted | $ | (0.53 | ) | $ | 0.94 | $ | (0.19 | ) | $ | 1.40 | ||||||
Weighted-average number of shares outstanding: | ||||||||||||||||
Class A common share - basic and diluted | 2,173 | 2,175 | 2,174 | 2,175 | ||||||||||||
Class B common share - basic and diluted | 10,139 | 9,972 | 10,113 | 9,891 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net earnings available to common stockholders | $ | 11,352 | $ | 5,024 | $ | 16,684 | $ | 8,890 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Currency translation adjustment, net of taxes of ($1) in the three months | ||||||||||||||||
ended September 30, 2018, $101 in the three months ended September 30, 2017, $11 in | ||||||||||||||||
the nine months ended September 30, 2018 and $285 in the nine months ended | ||||||||||||||||
September 30, 2017 | (1,032 | ) | 3,476 | (4,463 | ) | 11,047 | ||||||||||
Unrealized losses on marketable securities arising during the period, | ||||||||||||||||
net of taxes of $3 in the three months ended September 30, 2018, ($21) in the | ||||||||||||||||
three months ended September 30, 2017, ($17) in the nine months ended September 30, | ||||||||||||||||
2018 and ($191) in the nine months ended September 30, 2017 | (170 | ) | (33 | ) | (201 | ) | (300 | ) | ||||||||
Change in unfunded SERP liability, net of taxes of $25 in the three months | ||||||||||||||||
ended September 30, 2018, $32 in the three months ended September 30, 2017, $76 in | ||||||||||||||||
the nine months ended September 30, 2018 and $97 in the nine months ended | ||||||||||||||||
September 30, 2017 | 85 | 61 | 256 | 184 | ||||||||||||
Other comprehensive income (loss) | (1,117 | ) | 3,504 | (4,408 | ) | 10,931 | ||||||||||
Comprehensive income | $ | 10,235 | $ | 8,528 | $ | 12,276 | $ | 19,821 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME |
(in thousands) |
(unaudited) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net (loss) earnings available to common stockholders | $ | (6,490 | ) | $ | 11,352 | $ | (2,391 | ) | $ | 16,684 | ||||||
Other comprehensive (loss) income: | ||||||||||||||||
Currency translation adjustment, net of taxes of ($13) in the three months ended September 30, 2019, $1 in the three months ended September 30, 2018, ($12) in the nine months ended September 30, 2019 and ($11) in the nine months ended September 30, 2018 | (2,561 | ) | (1,032 | ) | (2,854 | ) | (4,463 | ) | ||||||||
Unrealized losses on marketable securities arising during the period, net of taxes of $0 in the three months ended September 30, 2019, ($3) in the three months ended September 30, 2018, $0 in the nine months ended September 30, 2019 and $17 in the nine months ended September 30, 2018 | - | (170 | ) | - | (201 | ) | ||||||||||
Change in unfunded SERP liability, net of taxes of ($11) in the three months ended September 30, 2019, ($25) in the three months ended September 30, 2018, ($33) in the nine months ended September 30, 2019 and ($76) in the nine months ended September 30, 2018 | 37 | 85 | 111 | 256 | ||||||||||||
Other comprehensive loss | (2,524 | ) | (1,117 | ) | (2,743 | ) | (4,408 | ) | ||||||||
Comprehensive (loss) income | $ | (9,014 | ) | $ | 10,235 | $ | (5,134 | ) | $ | 12,276 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||
(dollars in thousands) | ||||||||
(unaudited) | ||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 16,684 | $ | 8,890 | ||||
Adjustments to reconcile net earnings to net | ||||||||
cash provided by operating activities: | ||||||||
Depreciation and amortization | 13,738 | 15,712 | ||||||
Stock-based compensation | 2,046 | 2,310 | ||||||
Amortization of deferred financing costs | 413 | 993 | ||||||
Deferred income taxes | 1,740 | (3,072 | ) | |||||
Net unrealized (gains) losses on foreign currency revaluation | (2,396 | ) | 2,679 | |||||
Other, net | 963 | 1,548 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (18,985 | ) | (7,913 | ) | ||||
Unbilled receivables | (2,017 | ) | - | |||||
Inventories | (18,844 | ) | (3,306 | ) | ||||
Account payable | 15,545 | (3,563 | ) | |||||
Accrued expenses | 1,969 | (2,031 | ) | |||||
Other operating assets/liabilities, net | (6,687 | ) | 1,949 | |||||
Net cash provided by operating activities | 4,169 | 14,196 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (8,770 | ) | (3,756 | ) | ||||
Proceeds from disposal/sale of property, plant and equipment | 53 | 10 | ||||||
Proceeds from sale of marketable securities within rabbi trust | 1,348 | - | ||||||
Purchase of marketable securities within rabbi trust | (1,348 | ) | - | |||||
Net cash used in investing activities | (8,717 | ) | (3,746 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments of long-term debt | (8,268 | ) | (25,208 | ) | ||||
Dividends paid to common stockholders | (2,376 | ) | (2,347 | ) | ||||
Borrowings under revolving credit line | 7,500 | 6,000 | ||||||
Repayments of revolving credit line | (7,500 | ) | (2,000 | ) | ||||
Reduction in notes payable | - | (55 | ) | |||||
Net cash used in financing activities | (10,644 | ) | (23,610 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 134 | 1,855 | ||||||
Net decrease in cash and cash equivalents | (15,058 | ) | (11,305 | ) | ||||
Cash and cash equivalents - beginning of period | 69,354 | 73,411 | ||||||
Cash and cash equivalents - end of period | $ | 54,296 | $ | 62,106 | ||||
Supplementary information: | ||||||||
Cash paid during the period for: | ||||||||
Income tax payments, net of refunds received | $ | 6,291 | $ | 1,688 | ||||
Interest payments | $ | 3,485 | $ | 3,471 | ||||
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
(in thousands, except per share data) |
(unaudited) |
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Total | Earnings | (Loss) Income | Stock | Stock | Capital | |||||||||||||||||||
Balance at December 31, 2018 | $ | 176,470 | $ | 168,695 | $ | (24,838 | ) | $ | 217 | $ | 1,009 | $ | 31,387 | |||||||||||
Net earnings | 1,131 | 1,131 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (130 | ) | (130 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (708 | ) | (708 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of $17 | 540 | - | 540 | - | - | - | ||||||||||||||||||
Stock-based compensation expense | 813 | - | - | - | - | 813 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($11) | 37 | - | 37 | - | - | - | ||||||||||||||||||
Effect of adoption of ASU 2018-02 (Topic 220) | - | 463 | (463 | ) | - | - | - | |||||||||||||||||
Balance at March 31, 2019 | 178,153 | 169,451 | (24,724 | ) | 217 | 1,008 | 32,201 | |||||||||||||||||
Net earnings | 2,967 | 2,967 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (131 | ) | (131 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (704 | ) | (704 | ) | - | - | - | - | ||||||||||||||||
Issuance of restricted common stock | - | - | - | - | 7 | (7 | ) | |||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of ($16) | (834 | ) | - | (834 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 788 | - | - | - | - | 788 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($11) | 37 | - | 37 | - | - | - | ||||||||||||||||||
Balance at June 30, 2019 | 180,276 | 171,583 | (25,521 | ) | 217 | 1,014 | 32,983 | |||||||||||||||||
Net loss | (6,490 | ) | (6,490 | ) | - | - | - | - | ||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (131 | ) | (131 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (710 | ) | (710 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Repurchase of Class A common stock | (448 | ) | - | - | (3 | ) | - | (445 | ) | |||||||||||||||
Foreign currency translation adjustment, net of taxes of ($13) | (2,561 | ) | - | (2,561 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 667 | - | - | - | - | 667 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($11) | 37 | - | 37 | - | - | - | ||||||||||||||||||
Balance at September 30, 2019 | $ | 170,640 | $ | 164,252 | $ | (28,045 | ) | $ | 214 | $ | 1,013 | $ | 33,206 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
(in thousands, except per share data) |
(unaudited) |
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Total | Earnings | (Loss) Income | Stock | Stock | Capital | |||||||||||||||||||
Balance at December 31, 2017 | $ | 157,960 | $ | 147,807 | $ | (19,625 | ) | $ | 217 | $ | 986 | $ | 28,575 | |||||||||||
Net loss | (1,303 | ) | (1,303 | ) | - | - | - | - | ||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (130 | ) | (130 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (700 | ) | (700 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of $25 | 4,017 | - | 4,017 | - | - | - | ||||||||||||||||||
Unrealized holding losses on marketable securities | ||||||||||||||||||||||||
arising during the year, net of taxes of $20 | (31 | ) | - | (31 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 779 | - | - | - | - | 779 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($25) | 86 | - | 86 | - | - | - | ||||||||||||||||||
Effect of adoption of ASU 2014-09 (Topic 606) | 3,497 | 3,497 | - | - | - | - | ||||||||||||||||||
Balance at March 31, 2018 | 164,175 | 149,171 | (15,553 | ) | 217 | 985 | 29,355 | |||||||||||||||||
Net earnings | 6,634 | 6,634 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (131 | ) | (131 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (689 | ) | (689 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of ($37) | (7,448 | ) | - | (7,448 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 671 | - | - | - | - | 671 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($25) | 85 | - | 85 | - | - | - | ||||||||||||||||||
Balance at June 30, 2018 | 163,297 | 154,985 | (22,916 | ) | 217 | 984 | 30,027 | |||||||||||||||||
Net earnings | 11,352 | 11,352 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (130 | ) | (130 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (689 | ) | (689 | ) | - | - | - | - | ||||||||||||||||
Issuance of restricted common stock | - | - | - | - | 24 | (24 | ) | |||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of $1 | (1,032 | ) | - | (1,032 | ) | - | - | - | ||||||||||||||||
Unrealized holding losses on marketable securities | ||||||||||||||||||||||||
arising during the year, net of taxes of ($3) | (170 | ) | - | (170 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 598 | - | - | - | - | 598 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($25) | 85 | - | 85 | - | - | - | ||||||||||||||||||
Balance at September 30, 2018 | $ | 173,311 | $ | 165,518 | $ | (24,033 | ) | $ | 217 | $ | 1,007 | $ | 30,602 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
(dollars in thousands) |
(unaudited) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) earnings | $ | (2,391 | ) | $ | 16,684 | |||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | ||||||||
Impairment of goodwill | 8,891 | - | ||||||
Depreciation and amortization | 12,265 | 13,738 | ||||||
Stock-based compensation | 2,268 | 2,046 | ||||||
Amortization of deferred financing costs | 349 | 413 | ||||||
Deferred income taxes | (1,765 | ) | 1,740 | |||||
Net unrealized gains on foreign currency revaluation | (478 | ) | (2,396 | ) | ||||
Gain on sale of property | (4,257 | ) | - | |||||
Other, net | 1,172 | 963 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 12,395 | (18,985 | ) | |||||
Unbilled receivables | 931 | (2,017 | ) | |||||
Inventories | 8,383 | (18,844 | ) | |||||
Account payable | (16,249 | ) | 15,545 | |||||
Accrued expenses | (874 | ) | 1,969 | |||||
Other operating assets/liabilities, net | (1,712 | ) | (6,687 | ) | ||||
Net cash provided by operating activities | 18,928 | 4,169 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (8,188 | ) | (8,770 | ) | ||||
Proceeds from sale of marketable securities within rabbi trust | - | 1,348 | ||||||
Purchase of marketable securities within rabbi trust | - | (1,348 | ) | |||||
Proceeds from disposal/sale of property, plant and equipment | 5,787 | 53 | ||||||
Net cash used in investing activities | (2,401 | ) | (8,717 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends paid to common stockholders | (2,403 | ) | (2,376 | ) | ||||
Borrowings under revolving credit line | 12,000 | 7,500 | ||||||
Repayments of revolving credit line | (12,000 | ) | (7,500 | ) | ||||
Repayments of long-term debt | (2,231 | ) | (8,268 | ) | ||||
Purchase and retirement of Class A common stock | (448 | ) | - | |||||
Net cash used in financing activities | (5,082 | ) | (10,644 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (540 | ) | 134 | |||||
Net increase (decrease) in cash and cash equivalents | 10,905 | (15,058 | ) | |||||
Cash and cash equivalents - beginning of period | 53,911 | 69,354 | ||||||
Cash and cash equivalents - end of period | $ | 64,816 | $ | 54,296 | ||||
Supplementary information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes, net of refunds received | $ | 3,497 | $ | 6,291 | ||||
Interest payment | $ | 3,815 | $ | 3,485 |
See accompanying notes to unaudited condensed consolidated financial statements. |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | BASIS OF PRESENTATION AND ACCOUNTING POLICIES |
The condensed consolidated balance sheets, statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented have been made. The results for the three and nine months ended September 30, 20182019 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Bel Fuse Annual Report on Form 10-K for the year ended December 31, 2017.
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) have been condensed or omitted from the followingthese condensed consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements, of the SEC.U.S. Securities and Exchange Commission (“SEC”). The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
The Company'sCompany’s significant accounting policies are summarized in Note 1 of the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. There were no significant changes to these accounting policies during the nine months ended September 30, 2018,2019, except as discussed in Note 2, Revenue, related to the adoption of the new revenue standards.
All amounts included in the tables to these notes to condensed consolidated financial statements, except per share amounts, are in thousands.
Recently Adopted Accounting Standards
In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2016-02,
The updated guidance requires aCompany adopted ASU 2016-02, as amended, effective January 1, 2019 using the modified retrospective adoption. We planapproach. In connection with the adoption, we elected to adoptutilize the Comparatives Under 840 Option whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, we elected the transition package of three practical expedients permitted within the standard, on January 1, 2019.which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. We are currently assessingimplemented a new lease system to facilitate the impact thatrequirements of the new standard will have onand completed the necessary changes to our consolidatedaccounting policies, processes, disclosures and internal control over financial statements, which will consist primarilyreporting.
Adoption of the new standard resulted in the recording of right-of-use assets in the amount of $20.7 million and lease liabilities related to our operating leases in the amount of $21.0 million on our consolidated balance sheet.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act, which was enacted on December 22, 2017. This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is recognized. EarlyThis guidance was adopted by the Company effective January 1, 2019. In accordance with this guidance, the Company reclassified $0.5 million of stranded tax effects from accumulated other comprehensive income to retained earnings within the equity section of the condensed consolidated balance sheet as of January 1, 2019. The adoption is permitted. We are currently inof this guidance did not have a material impact on the processCompany’s condensed consolidated financial statements.
In May 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. This guidance will better align the treatment of share-based payments to nonemployees with the requirements for such share-based payments granted to employees. This guidance is effective for all public entities for fiscal years beginning after December 15, 2018, including interim periods within that year. We areThis guidance was adopted by the Company effective January 1, 2019 and did not have a material impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt ASU 2017-04 effective July 1, 2019, and accounted for the goodwill impairment charge discussed in Note 4 under this guidance.
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new guidance will broaden the information that an entity must consider in developing its expected credit loss estimates related to its financial instruments and adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. The amendment is currently ineffective for public entities for annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management is currently assessing the processimpact of evaluating this new standard update.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). This guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and addedadds additional disclosures. The standard is effective for fiscal years ending after December 15, 2020. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. We areThe Company is currently assessing the impact the new guidance will have on ourits disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer'sCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Cost. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impacts that adoption of this ASU will have on its consolidated financial statements.
2. | REVENUE |
The following table provides information about disaggregated revenue by product group and sales channel, and includes a reconciliation of the disaggregated revenue to our reportable segments:
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||||||||||||||||||||||||||
North | North | |||||||||||||||||||||||||||||||
America | Asia | Europe | Consolidated | America | Asia | Europe | Consolidated | |||||||||||||||||||||||||
By Product Group: | ||||||||||||||||||||||||||||||||
Connectivity solutions | $ | 33,929 | $ | 2,510 | $ | 8,092 | $ | 44,531 | $ | 97,273 | $ | 9,012 | $ | 25,069 | $ | 131,354 | ||||||||||||||||
Magnetic solutions | 8,241 | 29,576 | 1,842 | 39,659 | 26,662 | 85,834 | 6,109 | 118,605 | ||||||||||||||||||||||||
Power solutions and protection | 23,608 | 7,868 | 8,813 | 40,289 | 73,495 | 21,709 | 32,121 | 127,325 | ||||||||||||||||||||||||
$ | 65,778 | $ | 39,954 | $ | 18,747 | $ | 124,479 | $ | 197,430 | $ | 116,555 | $ | 63,299 | $ | 377,284 | |||||||||||||||||
By Sales Channel: | ||||||||||||||||||||||||||||||||
Direct to customer | $ | 44,110 | $ | 34,837 | $ | 12,397 | $ | 91,344 | $ | 133,432 | $ | 98,672 | $ | 41,903 | $ | 274,007 | ||||||||||||||||
Through distribution | 21,668 | 5,117 | 6,350 | 33,135 | 63,998 | 17,883 | 21,396 | 103,277 | ||||||||||||||||||||||||
$ | 65,778 | $ | 39,954 | $ | 18,747 | $ | 124,479 | $ | 197,430 | $ | 116,555 | $ | 63,299 | $ | 377,284 |
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||||||||||
North | North | |||||||||||||||||||||||||||||||
America | Asia | Europe | Consolidated | America | Asia | Europe | Consolidated | |||||||||||||||||||||||||
By Product Group: | ||||||||||||||||||||||||||||||||
Connectivity solutions | $ | 34,919 | $ | 5,293 | $ | 8,314 | $ | 48,526 | $ | 100,797 | $ | 13,533 | $ | 26,043 | $ | 140,373 | ||||||||||||||||
Magnetic solutions | 10,586 | 40,100 | 2,286 | 52,972 | 28,795 | 100,769 | 7,184 | 136,748 | ||||||||||||||||||||||||
Power solutions and protection | 25,149 | 8,135 | 11,707 | 44,991 | 71,759 | 23,760 | 32,811 | 128,330 | ||||||||||||||||||||||||
$ | 70,654 | $ | 53,528 | $ | 22,307 | $ | 146,489 | $ | 201,351 | $ | 138,062 | $ | 66,038 | $ | 405,451 | |||||||||||||||||
By Sales Channel: | ||||||||||||||||||||||||||||||||
Direct to customer | $ | 46,802 | $ | 46,965 | $ | 15,184 | $ | 108,951 | $ | 128,754 | $ | 119,294 | $ | 45,368 | $ | 293,416 | ||||||||||||||||
Through distribution | 23,852 | 6,563 | 7,123 | 37,538 | 72,597 | 18,768 | 20,670 | 112,035 | ||||||||||||||||||||||||
$ | 70,654 | $ | 53,528 | $ | 22,307 | $ | 146,489 | $ | 201,351 | $ | 138,062 | $ | 66,038 | $ | 405,451 |
Three Months Ended September 30, 2018 | ||||||||||||||||
North | ||||||||||||||||
America | Asia | Europe | Consolidated | |||||||||||||
By Product Group: | ||||||||||||||||
Connectivity solutions | $ | 34,919 | $ | 5,293 | $ | 8,314 | $ | 48,526 | ||||||||
Magnetic solutions | 10,586 | 40,100 | 2,286 | 52,972 | ||||||||||||
Power solutions and protection | 25,149 | 8,135 | 11,707 | 44,991 | ||||||||||||
$ | 70,654 | $ | 53,528 | $ | 22,307 | $ | 146,489 | |||||||||
By Sales Channel: | ||||||||||||||||
Direct to customer | $ | 46,802 | $ | 46,965 | $ | 15,184 | $ | 108,951 | ||||||||
Through distribution | 23,852 | 6,563 | 7,123 | 37,538 | ||||||||||||
$ | 70,654 | $ | 53,528 | $ | 22,307 | $ | 146,489 |
Nine Months Ended September 30, 2018 | ||||||||||||||||
North | ||||||||||||||||
America | Asia | Europe | Consolidated | |||||||||||||
By Product Group: | ||||||||||||||||
Connectivity solutions | $ | 100,797 | $ | 13,533 | $ | 26,043 | $ | 140,373 | ||||||||
Magnetic solutions | 28,795 | 100,769 | 7,184 | 136,748 | ||||||||||||
Power solutions and protection | 71,759 | 23,760 | 32,811 | 128,330 | ||||||||||||
$ | 201,351 | $ | 138,062 | $ | 66,038 | $ | 405,451 | |||||||||
By Sales Channel: | ||||||||||||||||
Direct to customer | $ | 128,754 | $ | 119,294 | $ | 45,368 | $ | 293,416 | ||||||||
Through distribution | 72,597 | 18,768 | 20,670 | 112,035 | ||||||||||||
$ | 201,351 | $ | 138,062 | $ | 66,038 | $ | 405,451 |
Balance at | Adjustments | Balance at | ||||||||||
December 31, | Due to | January 1, | ||||||||||
2017 | ASC 606 | 2018 | ||||||||||
Balance Sheet | ||||||||||||
Unbilled receivables | $ | - | $ | 14,536 | $ | 14,536 | ||||||
Inventory | 107,719 | (11,044 | ) | 96,675 | ||||||||
Other current liabilities | 6,204 | 43 | 6,247 | |||||||||
Retained earnings | 147,807 | 3,449 | 151,256 |
As of September 30, 2018 | ||||||||||||
Balances | Effect of | |||||||||||
As | Without Adoption | Change | ||||||||||
Reported | of ASC 606 | Higher/(Lower) | ||||||||||
Balance Sheet | ||||||||||||
Assets | ||||||||||||
Unbilled receivables | $ | 16,553 | $ | - | $ | 16,553 | ||||||
Inventories | 114,434 | 126,737 | (12,303 | ) | ||||||||
Liabilities | ||||||||||||
Other current liabilities | 3,836 | 3,715 | 121 | |||||||||
Equity | ||||||||||||
Retained earnings | 165,518 | 161,389 | 4,129 | |||||||||
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
Balances | Effect of | Balances | Effect of | |||||||||||||||||||||
As | Without Adoption | Change | As | Without Adoption | Change | |||||||||||||||||||
Reported | of ASC 606 | Higher/(Lower) | Reported | of ASC 606 | Higher/(Lower) | |||||||||||||||||||
Statement of Operations | ||||||||||||||||||||||||
Net sales | $ | 146,489 | $ | 145,523 | $ | 966 | $ | 405,451 | $ | 403,434 | $ | 2,017 | ||||||||||||
Cost of sales | 117,282 | 116,312 | 970 | 326,096 | 324,837 | 1,259 | ||||||||||||||||||
Operating income | 10,499 | 10,503 | (4 | ) | 21,603 | 20,845 | 758 | |||||||||||||||||
(Benefit from) Provision for income taxes | (2,201 | ) | (2,163 | ) | (38 | ) | 523 | 445 | 78 | |||||||||||||||
Net earnings | 11,352 | 11,318 | 34 | 16,684 | 16,004 | 680 |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Contract assets - current (unbilled receivable) | $ | 14,868 | $ | 15,799 | ||||
Contract liabilities - current (deferred revenue) | $ | 1,004 | $ | 1,036 |
September 30, | January 1, | |||||||
2018 | 2018 | |||||||
Contract assets - current (unbilled receivable) | $ | 16,553 | $ | 14,536 | ||||
Contract liabilities - current (deferred revenue) | $ | 776 | $ | 855 |
The change in balance of our unbilled receivables from January 1,December 31, 2018 to September 30, 20182019 primarily relates to a timing difference between the Company'sCompany’s performance (i.e. when our product is shipped to a customer-controlled hub) and the point at which the Company can invoice the customer per the terms of the customer contract (i.e. when the customer pulls our product from the customer-controlled hub).
Nine Months Ended | ||||
September 30, 2018 | ||||
Balance, January 1 | $ | 855 | ||
New advance payments received | 6,180 | |||
Recognized as revenue during period | (6,251 | ) | ||
Currency translation | (8 | ) | ||
Balance, September 30 | $ | 776 |
The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of September 30, 20182019 related to contracts that exceed one year in duration amounted to $17.6$15.7 million, with expected contract expiration dates that range from 20192020 - 2024.2025. It is expected that 14%20% of this aggregate amount will be recognized in the fourth quarter of 2019, 52%2020, 57% will be recognized in 20202021 and the remainder will be recognized in years beyond 2020. The majority2021.
3. |
(LOSS) EARNINGS PER SHARE |
The following table sets forth the calculation of basic and diluted net (loss) earnings per common share under the two-class method for the three and nine months ended September 30, 20182019 and 2017:2018:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net (loss) earnings | $ | (6,490 | ) | $ | 11,352 | $ | (2,391 | ) | $ | 16,684 | ||||||
Less dividends declared: | ||||||||||||||||
Class A | 131 | 130 | 392 | 391 | ||||||||||||
Class B | 710 | 689 | 2,124 | 2,079 | ||||||||||||
Undistributed (loss) earnings | $ | (7,331 | ) | $ | 10,533 | $ | (4,907 | ) | $ | 14,214 | ||||||
Undistributed (loss) earnings allocation - basic and diluted: | ||||||||||||||||
Class A undistributed (loss) earnings | $ | (1,243 | ) | $ | 1,812 | $ | (834 | ) | $ | 2,461 | ||||||
Class B undistributed (loss) earnings | (6,088 | ) | 8,721 | (4,073 | ) | 11,753 | ||||||||||
Total undistributed (loss) earnings | $ | (7,331 | ) | $ | 10,533 | $ | (4,907 | ) | $ | 14,214 | ||||||
Net (loss) earnings allocation - basic and diluted: | ||||||||||||||||
Class A net (loss) earnings | $ | (1,112 | ) | $ | 1,942 | $ | (442 | ) | $ | 2,852 | ||||||
Class B net (loss) earnings | (5,378 | ) | 9,410 | (1,949 | ) | 13,832 | ||||||||||
Net (loss) earnings | $ | (6,490 | ) | $ | 11,352 | $ | (2,391 | ) | $ | 16,684 | ||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Class A - basic and diluted | 2,173 | 2,175 | 2,174 | 2,175 | ||||||||||||
Class B - basic and diluted | 10,139 | 9,972 | 10,113 | 9,891 | ||||||||||||
Net (loss) earnings per share: | ||||||||||||||||
Class A - basic and diluted | $ | (0.51 | ) | $ | 0.89 | $ | (0.20 | ) | $ | 1.31 | ||||||
Class B - basic and diluted | $ | (0.53 | ) | $ | 0.94 | $ | (0.19 | ) | $ | 1.40 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net earnings | $ | 11,352 | $ | 5,024 | $ | 16,684 | $ | 8,890 | ||||||||
Less dividends declared: | ||||||||||||||||
Class A | 130 | 131 | 391 | 392 | ||||||||||||
Class B | 689 | 691 | 2,079 | 2,079 | ||||||||||||
Undistributed earnings | $ | 10,533 | $ | 4,202 | $ | 14,214 | $ | 6,419 | ||||||||
Undistributed earnings allocation - basic and diluted: | ||||||||||||||||
Class A undistributed earnings | $ | 1,812 | $ | 729 | $ | 2,461 | $ | 1,115 | ||||||||
Class B undistributed earnings | 8,721 | 3,473 | 11,753 | 5,304 | ||||||||||||
Total undistributed earnings | $ | 10,533 | $ | 4,202 | $ | 14,214 | $ | 6,419 | ||||||||
Net earnings allocation - basic and diluted: | ||||||||||||||||
Class A net earnings | $ | 1,942 | $ | 860 | $ | 2,852 | $ | 1,507 | ||||||||
Class B net earnings | 9,410 | 4,164 | 13,832 | 7,383 | ||||||||||||
Net earnings | $ | 11,352 | $ | 5,024 | $ | 16,684 | $ | 8,890 | ||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Class A - basic and diluted | 2,175 | 2,175 | 2,175 | 2,175 | ||||||||||||
Class B - basic and diluted | 9,972 | 9,864 | 9,891 | 9,856 | ||||||||||||
Net earnings per share: | ||||||||||||||||
Class A - basic and diluted | $ | 0.89 | $ | 0.40 | $ | 1.31 | $ | 0.69 | ||||||||
Class B - basic and diluted | $ | 0.94 | $ | 0.42 | $ | 1.40 | $ | 0.75 |
4. | FAIR VALUE MEASUREMENTS |
Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1
– Observable inputs such as quoted market prices in active markets;Level 2
– Inputs other than quoted prices in active markets that are either directly or indirectly observable; andLevel 3
– Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.As of September 30, 2019 and December 31, 2017, the Company held certain financial assets that are measured at fair value on a recurring basis. These2018, our available-for-sale securities primarily consisted of securities that are among the Company's investments held in a rabbi trust which are intended to fund the Company'sCompany’s Supplemental Executive Retirement Plan ("SERP"(“SERP”) obligations. The gross unrealized gains associated with the investmentThese securities held in the rabbi trust were $0.2 million at December 31, 2017. Such unrealized gains are included, net of tax, in accumulated other comprehensive loss. During the nine months ended September 30, 2018, the Company sold its securities and realized a gain on sale of $0.2 million. The proceeds of $1.3 million were reinvested in other securities within the rabbi trust.
There were no financial assets accounted for at fair value on a nonrecurring basis as of September 30, 20182019 or December 31, 2017.2018.
The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, and notes payable, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The fair value of the Company'sCompany’s long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities. At September 30, 20182019 and December 31, 2017,2018, the estimated fair value of total debt was $116.9$116.8 million and $124.8$117.9 million, respectively, compared to a carrying amount of $114.8$112.3 million and $122.7$114.2 million, respectively. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of September 30, 2018.
Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering eventevent. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. As weakened market conditions from earlier in 2019 continued into the third quarter without a visible rebound in incoming orders, the Company’s actual revenue and margin levels in 2019 were significantly lower than the financial projections utilized in the caseannual goodwill impairment analysis (performed as of October 1, 2018), and were not projected to rebound to those levels in 2019. The Company determined that current business conditions, and the resulting decrease in the Company’s projected undiscounted and discounted cash flows, together with the accompanying stock price decline, constituted a triggering event, which required the Company to perform interim impairment tests related to its long-lived assets and goodwill during the third quarter of 2019. The Company’s interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the July 31, 2019 testing date.
The Company’s Level 3 fair value analysis related to the interim test for goodwill impairment was supported by a weighting of two generally accepted valuation approaches, the income approach and the market approach, as further described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These approaches include numerous assumptions with respect to future circumstances, such as industry and/or local market conditions, which might directly impact each of the reporting units’ operations in the future, and are therefore uncertain. These approaches are utilized to develop a range of fair values and a weighted average of these approaches is utilized to determine the best fair value estimate within that range.
The July 31, 2019 interim impairment test related to the Company's goodwill was performed by reporting unit (North America and Europe). The valuation test, which heavily weights future discounted cash flow projections, indicated impairment of the goodwill associated with the Company’s North America reporting unit. As a result, the Company recorded a non-cash goodwill impairment charge of $8.9 million ($8.5 million after-tax) during the third quarter of 2019. The Company’s goodwill associated with its North America reporting unit originated from several of Bel’s prior acquisitions, primarily Power Solutions and Connectivity Solutions. The carrying value of the Company's goodwill was $19.8 million at December 31, 2018. The remaining goodwill as of September 30, 2019 has a carrying value of $10.8 million related solely to the Company's Europe reporting unit. See Note 5, Goodwill.
Detailed below is a table of key underlying assumptions utilized in the fair value estimate calculation for the interim test performed as of July 31, 2019 as compared to those assumptions utilized during the annual valuation performed as of October 1, 2018. The table below shows the assumptions utilized for the North America reporting unit.
Goodwill Impairment Analysis | ||||||||
Key Assumptions | ||||||||
2019 - Interim | 2018 - Annual | |||||||
Income Approach - Discounted Cash Flows: | ||||||||
Revenue 5-year compound annual growth rate (CAGR) | 1.5 | % | 2.6 | % | ||||
2019 EBITDA margins | 3.9 | % | 7.6 | % | ||||
Cost of equity capital | 15.4 | % | 14.2 | % | ||||
Cost of debt capital | 4.0 | % | 3.7 | % | ||||
Weighted average cost of capital | 14.0 | % | 13.0 | % | ||||
Market Approach - Multiples of Guideline Companies: | ||||||||
Net operating revenue multiples used | 0.3 | 0.4 | ||||||
Operating EBITDA multiples used | 7.0 - 8.0 | 5.1 - 5.7 | ||||||
Invested capital control premium | 25 | % | 25 | % | ||||
Weighting of Valuation Methods: | ||||||||
Income Approach - Discounted Cash Flows | 75 | % | 75 | % | ||||
Market Approach - Multiples of Guideline Companies | 25 | % | 25 | % |
The Company had also performed an interim impairment analysis of its indefinite-lived intangible assets as of July 31, 2019. The Company tests indefinite-lived intangible assets for impairment using a fair value approach, the relief-from-royalty method (a form of the income approach). At December 31, 2018, the Company’s indefinite-lived intangible assets related to the trademarks acquired in the Power Solutions, Connectivity Solutions, Cinch and Fibreco acquisitions. The Company's interim test on its indefinite-lived intangible assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the July 31, 2019 testing date.
5. | GOODWILL |
The changes in the carrying value of goodwill on at least an annual basis. There were no triggering events that occurred duringclassified by reportable operating segment for the nine months ended September 30, 2018 that would warrant interim impairment testing.2019 are as follows:
Total | North America | Asia | Europe | |||||||||||||
Balance at January 1, 2019 | ||||||||||||||||
Goodwill, gross | $ | 148,408 | $ | 63,364 | $ | 54,508 | $ | 30,536 | ||||||||
Accumulated impairment charges | (128,591 | ) | (54,473 | ) | (54,508 | ) | (19,610 | ) | ||||||||
Goodwill, net | 19,817 | 8,891 | - | 10,926 | ||||||||||||
Impairment charge (see Note 4) | (8,891 | ) | (8,891 | ) | - | - | ||||||||||
Foreign currency translation | (122 | ) | - | - | (122 | ) | ||||||||||
Measurement period adjustment | (26 | ) | - | - | (26 | ) | ||||||||||
Balance at September 30, 2019: | ||||||||||||||||
Goodwill, gross | 148,260 | 63,364 | 54,508 | 30,388 | ||||||||||||
Accumulated impairment charges | (137,482 | ) | (63,364 | ) | (54,508 | ) | (19,610 | ) | ||||||||
Goodwill, net | $ | 10,778 | $ | - | $ | - | $ | 10,778 |
6. | INVENTORIES |
The components of inventories are as follows:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Raw materials | $ | 50,431 | $ | 63,348 | ||||
Work in progress | 28,514 | 21,441 | ||||||
Finished goods | 31,264 | 35,279 | ||||||
Inventories | $ | 110,209 | $ | 120,068 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Raw materials | $ | 62,373 | $ | 46,712 | ||||
Work in progress | 21,602 | 17,688 | ||||||
Finished goods | 30,459 | 43,319 | ||||||
Inventories | $ | 114,434 | $ | 107,719 |
7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consist of the following:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Land | $ | 1,426 | $ | 2,251 | ||||
Buildings and improvements | 29,341 | 30,119 | ||||||
Machinery and equipment | 128,766 | 126,747 | ||||||
Construction in progress | 6,363 | 4,687 | ||||||
165,896 | 163,804 | |||||||
Accumulated depreciation | (123,426 | ) | (119,872 | ) | ||||
Property, plant and equipment, net | $ | 42,470 | $ | 43,932 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Land | $ | 2,256 | $ | 2,259 | ||||
Buildings and improvements | 30,572 | 30,761 | ||||||
Machinery and equipment | 124,160 | 122,773 | ||||||
Construction in progress | 4,133 | 1,511 | ||||||
161,121 | 157,304 | |||||||
Accumulated depreciation | (118,127 | ) | (113,809 | ) | ||||
Property, plant and equipment, net | $ | 42,994 | $ | 43,495 |
Depreciation expense for the three months ended September 30, 20182019 and 20172018 was $2.8$2.5 million and $3.6$2.8 million, respectively. Depreciation expense for the nine months ended September 30, 2019 and 2018 was $7.5 million and $8.9 million, respectively. Depreciation expense related to our manufacturing facilities and equipment is included in cost of sales and depreciation expense associated with administrative facilities and office equipment is included in selling, general and administrative expense within the accompanying condensed consolidated statements of operations.
During the second quarter of 2019, the Company transitioned its manufacturing and warehousing operations from its Inwood, New York facility to Bel’s existing facilities in Glen Rock, Pennsylvania and the Dominican Republic. In connection with this transition, the Company sold its Inwood, New York property during the second quarter of 2019, which resulted in net proceeds of $5.8 million. The accompanying condensed consolidated statements of operations for the nine months ended September 30, 2018 and 2017 was $8.92019 includes a related gain on sale of $4.3 million and $10.6 million, respectively.(pre-tax).
8. | ACCRUED EXPENSES |
Accrued expenses consist of the following:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Sales commissions | $ | 2,503 | $ | 2,609 | ||||
Subcontracting labor | 914 | 1,550 | ||||||
Salaries, bonuses and related benefits | 15,808 | 18,275 | ||||||
Warranty accrual | 1,577 | 1,078 | ||||||
Other | 10,267 | 8,778 | ||||||
$ | 31,069 | $ | 32,290 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Sales commissions | $ | 2,685 | $ | 2,461 | ||||
Subcontracting labor | 1,542 | 1,408 | ||||||
Salaries, bonuses and related benefits | 19,177 | 16,531 | ||||||
Warranty accrual | 1,104 | 1,769 | ||||||
Other | 8,025 | 8,339 | ||||||
$ | 32,533 | $ | 30,508 |
The change in warranty accrual account forduring the nine months ended September 30, 20182019 primarily related to repair costs incurred and 2017 is presented below:adjustments to pre-existing warranties. There were no new material warranty charges incurred during the nine months ended September 30, 2019.
Restructuring Activities
Included within other accrued expenses in the table above are costs accrued related to the Company’s restructuring activities. Activity and liability balances related to restructuring costs for the nine months ended September 30, 2019 are as follows:
Nine Months Ended | ||||||||||||||||
September 30, 2019 | ||||||||||||||||
Liability at | Cash Payments | Liability at | ||||||||||||||
December 31, | New | and Other | September 30, | |||||||||||||
2018 | Charges | Settlements | 2019 | |||||||||||||
Severance costs | $ | - | $ | 663 | $ | (663 | ) | $ | - | |||||||
Other restructuring costs | - | 988 | (943 | ) | 45 | |||||||||||
Total | $ | - | $ | 1,651 | $ | (1,606 | ) | $ | 45 |
During the nine months ended September 30, 2019, the Company’s restructuring charges included $1.1 million of costs associated with the Company’s decision to transition manufacturing and warehousing operations from our Inwood, New York facility to other existing Bel facilities. The balance of the restructuring charges related to the realignment of our R&D resources dedicated to our Power Solutions and Protection group and other restructuring activities in Asia.
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Balance, January 1 | $ | 1,769 | $ | 2,718 | ||||
Charges and costs accrued | - | 211 | ||||||
Adjustments related to pre-existing warranties | ||||||||
(including changes in estimates) | (494 | ) | (779 | ) | ||||
Less repair costs incurred | (181 | ) | (173 | ) | ||||
Currency translation | 10 | 66 | ||||||
Balance, September 30 | $ | 1,104 | $ | 2,043 |
9. | DEBT |
The Company has a Credit and Security Agreement with KeyBank National Association (as amended, the "CSA"“CSA”). The CSA consists of (i) a term loan, with outstanding borrowings of $116.7$113.8 million and $125.0$116.0 million at September 30, 20182019 and December 31, 2017,2018, respectively and (ii) a $75 million revolving credit facility ("Revolver"(“Revolver”), with no outstanding borrowings at September 30, 20182019 or December 31, 2017.2018. The CSA has a maturity date of December 11, 2022. At September 30, 20182019 and December 31, 2017,2018, the carrying value of the debt on the condensed consolidated balance sheet is reflected net of $1.9$1.4 million and $2.3$1.8 million, respectively, of deferred financing costs. During the nine months ended September 30, 2018,2019, the Company made voluntary prepaymentsborrowed $12.0 million from its revolver, all of $6.0 million. Per the terms of the CSA, such voluntary prepayments reduce the amount of future scheduled payments on a pro rata basis.
The weighted-average interest rate in effect was 4.25%3.81% at September 30, 20182019 and 3.38%4.31% at December 31, 20172018 and consisted of LIBOR plus the Company'sCompany’s credit spread, as determined per the terms of the CSA. The Company incurred $1.4$1.3 million and $1.5$1.4 million of interest expense during the three months ended September 30, 2019 and September 30, 2018 and September 30, 2017,, respectively, and $3.9$4.1 million and $4.5$3.9 million of interest expense during the nine months ended September 30, 20182019 and September 30, 2017,2018, respectively.
The CSA contains customary representations and warranties, covenants and events of default and financial covenants that measure (i) the ratio of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company'sCompany’s consolidated EBITDA, as defined, ("(“Leverage Ratio"Ratio”) and (ii) the ratio of the amount of the Company'sCompany’s consolidated EBITDA to the Company'sCompany’s consolidated fixed charges. If an event of default occurs, the lenders under the CSA would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At September 30, 2018,2019, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Fixed Charge Coverage Ratio.
10. | INCOME TAXES |
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 20152016 and for state examinations before 2012.2013. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2008 in Asia and generally 20102011 in Europe.
As a result of the expiration of the statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company'sCompany’s consolidated financial statements at September 30, 2018.2019. The Company'sCompany’s liabilities for uncertain tax positions totaled $28.2$28.6 million and $30.4$28.9 million at September 30, 20182019 and December 31, 2017,2018, respectively, of which $1.1$2.1 million and $2.5$1.4 million is included in other current liabilities at September 30, 20182019 and December 31, 2017,2018, respectively. These amounts, if recognized, would reduce the Company'sCompany’s effective tax rate. As of September 30, 2018,2019, approximately $2.5$2.1 million of the Company'sCompany’s liabilities for uncertain tax positions wereare expected to be resolved during 20182019 by way of expiration of the related statute of limitations.
The Company'sCompany’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the nine months ended September 30, 20182019 and 2017,2018, the Company recognized $0.7$0.5 million and $0.6$0.7 million, respectively, in interest and penalties in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2019 and 2018, the Company recognized
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reducesCompany continues to monitor the impacts of the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferredreform and creates new taxes on certain foreign sourced earnings.supplementary guidance as it becomes available. At December 31, 2017, we had not completed our accounting for2018, the tax effects of enactment of the Act; however, we had made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax in which we recognized a provisional amount of $18.1 million, which was included as a component of income tax expense from continuing operations. During the nine months ended September 30, 2018, the Company has made measurement-period adjustments related to foreign earnings and profits computations and foreign income tax calculations for the Company's non-U.S. subsidiaries. The Company's measurement-period adjustment reduced its estimateremaining balance of the deemed repatriation tax by $2.6 million, resultingwas included in other current liabilities on the reductionCompany’s condensed consolidated balance sheet. At September 30, 2019, the majority of the Company's provisional estimate from $18.1 million to $15.5 million. The Company plans to pay the tax in installments in accordance with the Act.
11. | RETIREMENT FUND AND PROFIT SHARING PLAN |
The Company maintains the Bel Fuse Inc. Employees'Employees’ Savings Plan, a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended (the "Code"“Code”). The expense for the three months ended September 30, 20182019 and 20172018 amounted to $0.3 million in both periods. The expense for the nine months ended September 30, 20182019 and 20172018 amounted to $0.8 million and $0.9 million, respectively.in both periods. The Company'sCompany’s matching contribution is made in the form of Bel Fuse Inc. Class A common stock. As of September 30, 2018,2019, the plan owned 111,393153,352 and 137,700109,442 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company's subsidiaries in Asia have a retirement fund covering substantially all of their Hong Kong based full-time employees. The expense for the three months ended September 30, 20182019 and 20172018 amounted to $0.1 million in both periods. The expense for the nine months ended September 30, 20182019 and 20172018 amounted to $0.3 million in both periods. As of September 30, 2018,2019, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company maintains a SERP, which is designed to provide a limited group of key management and other key employees of the Company
with supplemental retirement and death benefits. As discussed in Note 4 above, the Company has investments in a rabbi trust which are intended to fund the obligations of the SERP.The components of SERP expense are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Service cost | $ | 144 | $ | 183 | $ | 432 | $ | 549 | ||||||||
Interest cost | 185 | 166 | 555 | 498 | ||||||||||||
Net amortization | 48 | 111 | 144 | 332 | ||||||||||||
Net periodic benefit cost | $ | 377 | $ | 460 | $ | 1,131 | $ | 1,379 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Service cost | $ | 183 | $ | 175 | $ | 549 | $ | 525 | ||||||||
Interest cost | 166 | 168 | 498 | 505 | ||||||||||||
Net amortization | 111 | 94 | 332 | 281 | ||||||||||||
Net periodic benefit cost | $ | 460 | $ | 437 | $ | 1,379 | $ | 1,311 |
The service cost component of net benefit cost is presented within cost of sales or selling, general and administrative expense on the accompanying condensed consolidated statements of operations, in accordance with where compensation cost for the related associate is reported. All other components of net benefit cost, including interest cost and net amortization noted above, are presented within other income/expense, net in the accompanying condensed consolidated statements of operations.
The following amounts are recognized net of tax in accumulated other comprehensive loss:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Prior service cost | $ | 783 | $ | 918 | ||||
Net loss | 1,968 | 1,977 | ||||||
$ | 2,751 | $ | 2,895 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Prior service cost | $ | 943 | $ | 1,135 | ||||
Net loss | 3,591 | 3,732 | ||||||
$ | 4,534 | $ | 4,867 |
12. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulated other comprehensive loss at September 30, 20182019 and December 31, 20172018 are summarized below:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Foreign currency translation adjustment, net of taxes of ($739) at September 30, 2019 and ($751) at December 31, 2018 | $ | (25,489 | ) | $ | (22,635 | ) | ||
Unrealized holding gains on available-for-sale securities, net of taxes of $0 at September 30, 2019 and $0 at December 31, 2018 | 12 | 12 | ||||||
Unfunded SERP liability, net of taxes of ($184) at September 30, 2019 and ($680) at December 31, 2018 | (2,568 | ) | (2,215 | ) | ||||
Accumulated other comprehensive loss | $ | (28,045 | ) | $ | (24,838 | ) |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Foreign currency translation adjustment, net of taxes of ($790) at | ||||||||
September 30, 2018 and ($801) at December 31, 2017 | $ | (21,000 | ) | $ | (16,537 | ) | ||
Unrealized holding (losses) gains on available-for-sale securities, net of taxes of | ||||||||
$67 at September 30, 2018 and $85 at December 31, 2017 | (56 | ) | 145 | |||||
Unfunded SERP liability, net of taxes of ($1,558) at September 30, 2018 | ||||||||
and ($1,635) at December 31, 2017 | (2,977 | ) | (3,233 | ) | ||||
Accumulated other comprehensive loss | $ | (24,033 | ) | $ | (19,625 | ) |
Changes in accumulated other comprehensive loss by component during the nine months ended September 30, 20182019 are as follows. All amounts are net of tax.
Unrealized Holding | |||||||||||||||||
Foreign Currency | Gains on | ||||||||||||||||
Translation | Available-for- | Unfunded | |||||||||||||||
Adjustment | Sale Securities | SERP Liability | Total | ||||||||||||||
Balance at January 1, 2019 | $ | (22,635 | ) | $ | 12 | $ | (2,215 | ) | $ | (24,838 | ) | ||||||
Other comprehensive (loss) income before reclassifications | (2,854 | ) | - | 16 | (2,838 | ) | |||||||||||
Amount reclassified from accumulated other comprehensive loss | - | - | 94 | (a) | 94 | ||||||||||||
Net current period other comprehensive (loss) income | (2,854 | ) | - | 110 | (2,744 | ) | |||||||||||
Effect of adoption of ASU 2018-02 (Topic 220) | - | - | (463 | ) | (463 | ) | |||||||||||
Balance at September 30, 2019 | $ | (25,489 | ) | $ | 12 | $ | (2,568 | ) | $ | (28,045 | ) |
(a) This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP Plan. This expense is allocated between cost of sales and selling, general and administrative expense based upon the employment classification of the plan participants. |
13. | LEASES |
The Company has operating leases for its facilities used for manufacturing, research and development, sales and administration. There are also operating and finance leases related to manufacturing equipment, office equipment and vehicles. These leases have remaining lease terms ranging from 1 year to 8 years. Certain of the leases contain options to extend the term of the lease and certain of the leases contain options to terminate the lease within a specified period of time. These options to extend or terminate a lease are included in the lease term only when it is reasonably likely that the Company will elect that option. The Company is not a party to any material sublease arrangements.
Unrealized Holding | |||||||||||||||||
Foreign Currency | Gains (Losses) on | ||||||||||||||||
Translation | Available-for- | Unfunded | |||||||||||||||
Adjustment | Sale Securities | SERP Liability | Total | ||||||||||||||
Balance at January 1, 2018 | $ | (16,537 | ) | $ | 145 | $ | (3,233 | ) | $ | (19,625 | ) | ||||||
Other comprehensive (loss) income before reclassifications | (4,463 | ) | (31 | ) | 39 | (4,455 | ) | ||||||||||
Amount reclassified from accumulated other | |||||||||||||||||
comprehensive loss | - | (170 | ) | 217 | (a) | 47 | |||||||||||
Net current period other comprehensive (loss) income | (4,463 | ) | (201 | ) | 256 | (4,408 | ) | ||||||||||
Balance at September 30, 2018 | $ | (21,000 | ) | $ | (56 | ) | $ | (2,977 | ) | $ | (24,033 | ) | |||||
(a) This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP plan. | |||||||||||||||||
This expense is allocated between cost of sales and selling, general and administrative expense based upon the employment | |||||||||||||||||
classification of the plan participants. |
The components of lease expense, which are included in cost of sales and selling, general and administrative expense, based on the underlying use of the ROU asset, were as follows:
Three Months Ended | Nine Months Ended | |||||||
September 30, 2019 | September 30, 2019 | |||||||
Amortization of ROU assets - finance leases | $ | 33 | $ | 100 | ||||
Interest on lease liabilities - finance leases | 12 | 36 | ||||||
Operating lease cost (cost resulting from lease payments) | 1,950 | 5,931 | ||||||
Short-term lease cost | 1 | 101 | ||||||
Variable lease cost (cost excluded from lease payments) | 64 | 194 | ||||||
Sublease income | - | - | ||||||
Total lease cost | $ | 2,060 | $ | 6,362 |
Supplemental cash flow information related to leases are as follows:
Nine Months Ended | ||||
September 30, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 5,958 | ||
Operating cash flows from finance leases | 36 | |||
Finance cash flows from finance leases | 86 | |||
Right-of-use assets obtained in exchange for lease obligations: | ||||
Operating leases | 21,783 | |||
Finance leases | - |
Supplemental balance sheet information related to leases was as follows:
September 30, 2019 | ||||
Operating Leases: | ||||
Operating lease right-of-use assets | $ | 16,296 | ||
Operating lease liability, current | 6,039 | |||
Operating lease liability, long-term | 10,713 | |||
Total operating lease liabilities | 16,752 | |||
Finance Leases: | ||||
Property, plant and equipment, gross | $ | 860 | ||
Accumulated depreciation | (225 | ) | ||
Property, plant and equipment, net | 635 | |||
Other current liabilities | 97 | |||
Other long-term liabilities | 529 | |||
Total finance lease liabilities | $ | 626 |
September 30, 2019 | |||
Weighted-Average Remaining Lease Term: | |||
Operating leases (in years) | 3.22 | ||
Finance leases (in years) | 5.1 | ||
Weighted-Average Discount Rate: | |||
Operating leases | 6.0 | % | |
Finance leases | 6.5 | % |
Our discount rate is based on our incremental borrowing rate, as adjusted based on the geographic regions in which our leases assets are located.
Maturities of lease liabilities were as follows as of September 30, 2019:
Year Ending | Operating | Finance | ||||||
September 30, | Leases | Leases | ||||||
2020 | $ | 6,712 | $ | 160 | ||||
2021 | 5,310 | 159 | ||||||
2022 | 3,681 | 159 | ||||||
2023 | 2,031 | 159 | ||||||
2024 | 326 | 159 | ||||||
Thereafter | 438 | 26 | ||||||
Total undiscounted cash flows | 18,498 | 822 | ||||||
Less imputed interest | (1,746 | ) | (196 | ) | ||||
Present value of lease liabilities | $ | 16,752 | $ | 626 |
As of September 30, 2019, the Company did not have any additional operating or financing leases that have not yet commenced.
14. | COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
The Company is party to a number of legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Company'sCompany’s consolidated results of operations or financial position.
In connection with the acquisition of Power Solutions, there is an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd, or "BPS China"“BPS China”) for the years 2004 to 2006. In September 2012, the Tax Court of Arezzo ruled in favor of BPS China and cancelled the claim. In February 2013, the Arezzo Revenue Agency filed an appeal of the Tax Court'sCourt’s ruling. The hearing of the appeal was held on October 2, 2014. On October 13, 2014, BPS China was informed of the Regional Tax Commission of Florence ruling which was in favor of the Arezzo Revenue Agency and against BPS China. An appeal was filed on July 18, 2015 before the Regional Tax Commission of Florence and rejected. On December 5, 2016, the Arezzo Revenue Agency filed an appeal with the Supreme Court and BPS China filed a counter-appeal on January 4, 2017. The Supreme Court has yet to render its judgment. The estimated liability related to this matter is approximately $12.0 million and has been included as a liability for uncertain tax positions on the accompanying condensed consolidated balance sheets. As Bel is fully indemnified in this matter per the terms of the stock purchase agreement with ABB, a corresponding other asset for indemnification is also included in other assets on the accompanying condensed consolidated balance sheets at September 30, 20182019 and December 31, 2017.
The Company is not a party to any other legal proceeding, the adverse outcome of which is likely to have a material adverse effect on the Company's consolidated financial condition or results of operations.
15. | SEGMENTS |
The Company operates in one industry with three reportable operating segments, which are geographic in nature. The segments consist of North America, Asia and Europe. The primary criteria by which financial performance is evaluated and resources are allocated are net sales and income from operations. The following is a summary of key financial data:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Sales to External Customers: | ||||||||||||||||
North America | $ | 65,778 | $ | 70,654 | $ | 197,430 | $ | 201,351 | ||||||||
Asia | 39,954 | 53,528 | 116,555 | 138,062 | ||||||||||||
Europe | 18,747 | 22,307 | 63,299 | 66,038 | ||||||||||||
$ | 124,479 | $ | 146,489 | $ | 377,284 | $ | 405,451 | |||||||||
Net Sales: | ||||||||||||||||
North America | $ | 68,190 | $ | 73,932 | $ | 205,113 | $ | 211,105 | ||||||||
Asia | 59,561 | 78,008 | 184,933 | 204,152 | ||||||||||||
Europe | 23,761 | 25,398 | 76,359 | 77,341 | ||||||||||||
Less intercompany net sales | (27,033 | ) | (30,849 | ) | (89,121 | ) | (87,147 | ) | ||||||||
$ | 124,479 | $ | 146,489 | $ | 377,284 | $ | 405,451 | |||||||||
(Loss) Income from Operations: | ||||||||||||||||
North America | $ | (8,406 | ) | $ | 3,360 | $ | (6,526 | ) | $ | 6,021 | ||||||
Asia | 2,463 | 5,753 | 3,746 | 10,987 | ||||||||||||
Europe | 1,320 | 1,386 | 5,925 | 4,595 | ||||||||||||
$ | (4,623 | ) | $ | 10,499 | $ | 3,145 | $ | 21,603 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales to External Customers: | ||||||||||||||||
North America | $ | 70,654 | $ | 59,537 | $ | 201,351 | $ | 184,873 | ||||||||
Asia | 53,528 | 45,919 | 138,062 | 127,801 | ||||||||||||
Europe | 22,307 | 20,930 | 66,038 | 58,997 | ||||||||||||
$ | 146,489 | $ | 126,386 | $ | 405,451 | $ | 371,671 | |||||||||
Net Sales: | ||||||||||||||||
North America | $ | 73,932 | $ | 62,348 | $ | 211,105 | $ | 193,473 | ||||||||
Asia | 78,008 | 66,534 | 204,152 | 193,364 | ||||||||||||
Europe | 25,398 | 23,633 | 77,341 | 67,434 | ||||||||||||
Less intercompany net sales | (30,849 | ) | (26,129 | ) | (87,147 | ) | (82,600 | ) | ||||||||
$ | 146,489 | $ | 126,386 | $ | 405,451 | $ | 371,671 | |||||||||
Income from Operations: | ||||||||||||||||
North America | $ | 3,360 | $ | 366 | $ | 6,021 | $ | 2,566 | ||||||||
Asia | 5,753 | 5,408 | 10,987 | 11,759 | ||||||||||||
Europe | 1,386 | 1,020 | 4,595 | 2,090 | ||||||||||||
$ | 10,499 | $ | 6,794 | $ | 21,603 | $ | 16,415 |
Net Sales
– Segment net sales are attributed to individual segments based on the geographic source of the billing for such customer sales. Intercompany sales include finished products manufactured in foreign countries which are then transferred to the United States and Europe for sale; finished goods manufactured in the United States which are transferred to Europe and Asia for sale; and semi-finished components manufactured in the United States which are sold to Asia for further processing.Goodwill Impairment - As discussed in Note 4, Fair Value Measurements, the Company recorded an $8.9 million non-cash impairment charge related to its North America goodwill in the third quarter of 2019. This charge impacted income from operations for the North America segment in the three- and nine-month periods ended September 30, 2019.
(Loss) income from operations represents net sales less operating costs and expenses and does not include any amounts related to intercompany transactions.
16. | SUBSEQUENT EVENT |
On October 1, 2018,November 11, 2019, the Company completedentered into an Asset Purchase Agreement with CUI Global Inc. (the "Seller") to acquire the acquisitionmajority of BCMZ Precision Engineering Limited, a UK manufacturerthe power supply products business of precision machined components, for approximately $2.6 million in cash. The finalthe Seller ("CUI Power") at an aggregate purchase price remainsof $32.0 million, subject to certain adjustments relatedworking capital adjustments. The acquisition, which is subject to working capital. The transaction wascustomary closing conditions, is expected to close in the fourth quarter of 2019 and will be funded with cash on hand. The purchase price allocation was still in progresshand, some or all of which may be sourced from the Company's revolving credit facility. CUI Power designs and was not available at the time of filing of this Quarterly Report.
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations ("(“MD&A"&A”) should be read in conjunction with the Company'sCompany’s condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this quarterly report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 20172018 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 20172018 Annual Report on Form 10-K. See Part II, Item 1A, "Risk“Risk Factors,"” below and "Cautionary“Cautionary Notice Regarding Forward-Looking Information,"” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars in the text are in millions, except per share amounts or where otherwise noted. When we cross-reference to a "Note,"“Note,” we are referring to our "Notes“Notes to Condensed Consolidated Financial Statements,"” unless the context indicates otherwise. All amounts noted within the tables are in thousands and amounts and percentages are approximate due to rounding.
Overview
Our Company
We design, manufacture and market a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries. Bel'sBel’s portfolio of products also finds application in the automotive, medical and consumer electronics markets.
We operate through three geographic segments: North America, Asia and Europe. In the nine months ended September 30, 2018, 50%2019, 52% of the Company'sCompany’s revenues were derived from North America, 34%31% from Asia and 16%17% from its Europe operating segment. By product group, 34%35% of sales for the nine months ended September 30, 20182019 related to the Company'sCompany’s connectivity solutions products, 34% in magnetic solutions products and 32% in power solutions and protection products and 31% in magnetic solutions products.
Our operating expenses are driven principally by the cost of labor where the factories that Bel uses are located, the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line and region, any significant shift in product mix can have an associated impact on our costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. Our products are manufactured at various facilities in the U.S., Mexico, Dominican Republic, England, Czech Republic, Slovakia and the PRC.
We have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products. Accordingly, we must continually recruit and train new workers to replace those lost to attrition and be able to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet any increase in demand, can add volatility to the labor costs incurred by us.
Key Factors Affecting our Business
The Company believes the key factors affecting Bel'sBel’s results for the three and nine months ended September 30, 20182019 and/or future results include the following:
• | Revenues – The |
• | Backlog – Our backlog |
• | Product Mix – Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the |
• | Pricing and Availability of Materials – |
• | Labor Costs – Labor costs |
• | Restructuring – The Company continues to implement restructuring programs to increase operational |
• | Impact of Foreign Currency – During the first nine months of 2019, labor and overhead costs were $3.9 million lower than the same period of 2018 |
• | Effective Tax Rate – The |
After record bookings reached its highest quarterly amount inthroughout 2018, the last four years, representing a 28% increase fromCompany has experienced slower bookings during the third quarterfirst nine months of last year. This growth in orders received was seen across all of our major product groups,2019 as customers work through their inventory on hand. The Company has also experienced margin pressure throughout 2019 due to lower sales volumes and is an encouraging data point for our top line as we look to 2019. On the cost side, higher labor andhigh material costs have had a more visible impact on our margins this quarter as the cost of finished goods that were sold during the quarter were impacted by both higher raw material costs and increased minimum wage rates associated with production labor in the PRC. Sales growth and price stabilization will help to mitigate these margin pressures. Wefrom 2018 which continue to evaluate opportunitiesrun through the Company’s statement of operations. As a result of these ongoing factors, the Company expects the balance of 2019 to grow our business through acquisitions that would provide access to new marketsremain challenging from both a sales and customers while being accretive to the overall business.
Summary by Operating Segment
Net sales to external customers by operating segment for the three and nine months ended September 30, 20182019 and 20172018 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||
North America | $ | 65,778 | 53 | % | $ | 70,654 | 48 | % | $ | 197,430 | 52 | % | $ | 201,351 | 50 | % | ||||||||||||||||
Asia | 39,954 | 32 | % | 53,528 | 37 | % | 116,555 | 31 | % | 138,062 | 34 | % | ||||||||||||||||||||
Europe | 18,747 | 15 | % | 22,307 | 15 | % | 63,299 | 17 | % | 66,038 | 16 | % | ||||||||||||||||||||
$ | 124,479 | 100 | % | $ | 146,489 | 100 | % | $ | 377,284 | 100 | % | $ | 405,451 | 100 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||
North America | $ | 70,654 | 48 | % | $ | 59,537 | 47 | % | $ | 201,351 | 50 | % | $ | 184,873 | 50 | % | ||||||||||||||||
Asia | 53,528 | 37 | % | 45,919 | 36 | % | 138,062 | 34 | % | 127,801 | 34 | % | ||||||||||||||||||||
Europe | 22,307 | 15 | % | 20,930 | 17 | % | 66,038 | 16 | % | 58,997 | 16 | % | ||||||||||||||||||||
$ | 146,489 | 100 | % | $ | 126,386 | 100 | % | $ | 405,451 | 100 | % | $ | 371,671 | 100 | % |
Sales declines in North America sales in 2018 was largely due to increased demand for our passive connector products from our premise wiring customers, strength in our connectivity products within key military programs, and higher saleseach of our transformer productssegments during the third quarter of 2019 reflected lower sales into medical applications.our distribution channel as our distribution partners continue to work down their level of inventory on hand. Sales of our Power Solutions products have also increased in 2018 with heightened demand for our power supplies for use in various datacenter applications. The increases in Asia sales noted above for the 2018 periods primarily relate to higher sales of our integrated connector modules for next-generation switching platforms. Sales in Europe increased in both 2018 periods presented as a result of higher demand for our Stewart and Cinch connector products in that region, coupled with strong sales of our power products into rail applications. There wasmilitary applications were also a favorable impact on our European sales in generallower during the nine-month period ended September 30, 2018 as a portionthird quarter of those sales are invoiced in Euros or Pounds, which had appreciated against the U.S. Dollar particularly during the first half of 2018 as2019 compared to the same period of 2017.
Net sales and (loss) income from operations by operating segment for the three and nine months ended September 30, 20182019 and 20172018 were as follows. Segment net sales are attributed to individual segments based on the geographic source of the billing for customer sales.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Total segment sales: | ||||||||||||||||
North America | $ | 73,932 | $ | 62,348 | $ | 211,105 | $ | 193,473 | ||||||||
Asia | 78,008 | 66,534 | 204,152 | 193,364 | ||||||||||||
Europe | 25,398 | 23,633 | 77,341 | 67,434 | ||||||||||||
Total segment sales | 177,338 | 152,515 | 492,598 | 454,271 | ||||||||||||
Reconciling item: | ||||||||||||||||
Intersegment sales | (30,849 | ) | (26,129 | ) | (87,147 | ) | (82,600 | ) | ||||||||
Net sales | $ | 146,489 | $ | 126,386 | $ | 405,451 | $ | 371,671 | ||||||||
Income from operations: | ||||||||||||||||
North America | $ | 3,360 | $ | 366 | $ | 6,021 | $ | 2,566 | ||||||||
Asia | 5,753 | 5,408 | 10,987 | 11,759 | ||||||||||||
Europe | 1,386 | 1,020 | 4,595 | 2,090 | ||||||||||||
$ | 10,499 | $ | 6,794 | $ | 21,603 | $ | 16,415 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Total segment sales: | ||||||||||||||||
North America | $ | 68,190 | $ | 73,932 | $ | 205,113 | $ | 211,105 | ||||||||
Asia | 59,561 | 78,008 | 184,933 | 204,152 | ||||||||||||
Europe | 23,761 | 25,398 | 76,359 | 77,341 | ||||||||||||
Total segment sales | 151,512 | 177,338 | 466,405 | 492,598 | ||||||||||||
Reconciling item: | ||||||||||||||||
Intersegment sales | (27,033 | ) | (30,849 | ) | (89,122 | ) | (87,147 | ) | ||||||||
Net sales | $ | 124,479 | $ | 146,489 | $ | 377,283 | $ | 405,451 | ||||||||
(Loss) income from operations: | ||||||||||||||||
North America | $ | (8,406 | ) | $ | 3,360 | $ | (6,526 | ) | $ | 6,021 | ||||||
Asia | 2,463 | 5,753 | 3,746 | 10,987 | ||||||||||||
Europe | 1,320 | 1,386 | 5,925 | 4,595 | ||||||||||||
$ | (4,623 | ) | $ | 10,499 | $ | 3,145 | $ | 21,603 |
Income from operations declined across all segments during the third quarter of 2019 as compared with the same quarter of 2018 primary due to lower sales volume. The improvement inCompany recorded an $8.9 million goodwill impairment charge during the third quarter of 2019 related to its North America operating segment, which impacted (loss) income from operations withinfor the three- and nine-month periods ended September 30, 2019. Our Asia and North America segments were also impacted by $0.1 million and $0.2 million, respectively, of restructuring charges during the third quarter of 2019. During the nine months ended September 30, 2019, (loss) income from operations for our North America segment was largelyunfavorably impacted by $1.1 million of restructuring costs associated with the transition of manufacturing and warehouse operations from our Inwood, New York facility to other existing Bel facilities, and higher labor costs in Mexico due to higher sales volumesan increase in the 2018 periods, partially offset by increased material costsminimum wage rates which went into effect on purchased components. The income from operations atJanuary 1, 2019 and our Asia segment for both 2018 periods presented was impacted by higher labor costs driven by increased minimum wage rates at$0.5 million of restructuring charges related to realignment of our factories in the PRC, higher raw material costs during 2018 and the unfavorable appreciation of the Renminbi particularly during the first half of 2018 compared to the same period of 2017. The increase in income from operations fromR&D resources for our Europe segment are consistent with the increase in sales for that segment.
Net Sales
The Company'sCompany’s net sales by major product line for the three and nine months ended September 30, 20182019 and 20172018 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||
Magnetic solutions | $ | 52,972 | 36 | % | $ | 44,002 | 35 | % | $ | 136,748 | 34 | % | $ | 122,468 | 33 | % | ||||||||||||||||
Connectivity solutions | 48,526 | 33 | % | 42,837 | 34 | % | 140,373 | 34 | % | 128,350 | 35 | % | ||||||||||||||||||||
Power solutions and protection | 44,991 | 31 | % | 39,547 | 31 | % | 128,330 | 32 | % | 120,853 | 32 | % | ||||||||||||||||||||
$ | 146,489 | 100 | % | $ | 126,386 | 100 | % | $ | 405,451 | 100 | % | $ | 371,671 | 100 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||
Connectivity solutions | $ | 44,531 | 36 | % | $ | 48,526 | 33 | % | $ | 131,428 | 35 | % | $ | 140,373 | 34 | % | ||||||||||||||||
Magnetic solutions | 39,659 | 32 | % | 52,972 | 36 | % | 118,767 | 31 | % | 136,748 | 34 | % | ||||||||||||||||||||
Power solutions and protection | 40,289 | 32 | % | 44,991 | 31 | % | 127,089 | 34 | % | 128,330 | 32 | % | ||||||||||||||||||||
$ | 124,479 | 100 | % | $ | 146,489 | 100 | % | $ | 377,284 | 100 | % | $ | 405,451 | 100 | % |
Connectivity Solutions:
Sales of our Connectivity Solutions group continued to benefit from a strong position on next-generation switching products which utilize our integrated connector modules. This accounted for $7.5 million and $11.4 million of the sales growth during the third quarter and nine-month period of 2018 versus 2017. Our Signal Transformer business also contributed with an increase in sales of $1.62019 declined $4.0 million and $3.2 million during theprimarily due to lower demand from military customers as compared to last year's third quarter, and reduced volume of product flowing through our distribution channels as our distribution partners continue to work down inventory levels that had been built up in 2018 ahead of the tariffs. These factors also impacted the nine-month period of 2018, as ordersended September 30, 2019, which declined $8.9 million from new programs within industrial applications remained strong throughout the third quarter.
Magnetic Solutions:
Sales of our CinchMagnetic Solutions products during the three and nine months ended September 30, 2019 were alsodown $13.3 million and $18.0 million, respectively, from the same periods of 2018 while inventory levels built up in advance of a customer's new program launch during 2018 (by $2.1 million for the third quarter and by $5.0 million for the nine-month period) primarily from the military sector for our optical and copper products used in encryption, communications and flight-grade applications and for our micro-miniature copper connectivity products in relation to key defense programs.
Power Solutions and Protection:
Sales of our Power Solutions and Protection group continuedproducts were $4.7 million lower in the third quarter of 2018. Sales of our Power Solutions products increased by $5.7 million and $7.8 million during the third quarter and nine-month period of 2018, respectively,2019 compared to the same periodsquarter of 2017. Excluding the effects2018. Sales of NPS divestiture, sales for theour Bel Power Solutions business increasedproducts into datacenter applications decreased by $7.1$3.8 million for the third quarter and by $12.9 million for the first nine months of 2018 compared to the prior year periods. Our circuit protection products continue to experience top line growth as more of these products are introduced into our distribution channels and our DC/DC product sales were also strong during the 2018 periods. These growth drivers were offset in part by lower sales of our custom moduleCircuit Protection products (which were down$0.9 million lower as compared to last year’s third quarter. These decreases were partially offset by $1.3a $0.5 million and $2.3 millionincrease in sales of our Custom Module products. Sales during the three and nine month periodsnine-month period ended September 30, 2018, respectively). In addition, shipments2019 decreased by $1.2 million from the same period of our AC/DC converter products were strong in 2017 in response to a program which did not recur in 2018. This led to a reduction in2018, as stronger sales for this product lineinto datacenter applications during the first quarter of $1.4 million for2019 lessened the impact of sales declines during the second and third quarter and $2.2 million for the nine-month period.
Cost of Sales
Cost of sales as a percentage of net sales for the three and nine months ended September 30, 20182019 and 20172018 consisted of the following:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Material costs | 43.0 | % | 38.2 | % | 42.0 | % | 39.7 | % | ||||||||
Labor costs | 11.5 | % | 11.0 | % | 11.5 | % | 10.4 | % | ||||||||
Research and development expenses | 4.7 | % | 5.4 | % | 5.3 | % | 5.5 | % | ||||||||
Other expenses | 20.9 | % | 23.5 | % | 21.6 | % | 22.8 | % | ||||||||
Total cost of sales | 80.1 | % | 78.1 | % | 80.4 | % | 78.4 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Material costs | 44.9 | % | 43.0 | % | 44.1 | % | 42.0 | % | ||||||||
Labor costs | 9.2 | % | 11.5 | % | 10.4 | % | 11.5 | % | ||||||||
Research and development expenses | 5.0 | % | 4.7 | % | 5.4 | % | 5.3 | % | ||||||||
Other expenses | 22.9 | % | 20.9 | % | 22.6 | % | 21.6 | % | ||||||||
Total cost of sales | 82.0 | % | 80.1 | % | 82.5 | % | 80.4 | % |
Material costs as a percentage of sales increasedwere higher during the 2018 periods noted abovethree and nine months ended September 30, 2019 compared to the same periods of 20172018 primarily due to the industry-wide supply constraints related to certain of our purchased components throughout 2018. This has had an unfavorable impact induring 2018. The finished goods shipped during the formthird quarter of higher2019 still contained some of the higher-cost raw material costs across most of our product lines.
Labor costs as a percentage of sales also increaseddeclined during the third quarterthree and first nine months of 2018ended September 30, 2019 compared to the same periods of 2017 due primarily2018 as a more favorable exchange rate environment related to two factors. Effective February 1, 2018,the Chinese Renminbi offset the overall impact of minimum wage increases in the PRC issued an increase toand Mexico. The PRC government increased the minimum wage in a regionthe regions where oneBel’s factories are located in February and July of Bel's factories is located, and effective July 1, 2018. The minimum wage increases went into effect at our remaining facilitiesrates in the PRC. This contributed to the higher labor costs in both 2018 periods presented above. The other factor impacting the nine-month period above relates to the appreciation of the Renminbi against the U.S. Dollar, particularly during the first half of 2018. This drove labor costs as a percentage of sales higher during the earlier part of 2018, as the majority of our Asia sales are invoiced in U.S. Dollars, while our manufacturing staff at PRC locations are paid in local currency.
Included in cost of sales is research and development ("(“R&D"&D”) expense of $6.2 million and $6.9 million for each of the three months ended September 30, 20182019 and 2017,2018, respectively, and $20.2 million and $21.6 million and $20.3 million for the nine months ended September 30, 20182019 and 2017,2018, respectively. The majority of the increase during the nine-month period relates to a weaker U.S. Dollar earlierlower R&D expenses in 2018 relative to the local currencies in the countries in which our engineers are located. Approximately 85% of our global engineering staff is located outside of the U.S. and is paid in either Euros, Pounds, Swiss Francs or Renminbi, each of which appreciated against the U.S. Dollar in the first two quarters of 20182019 as compared to the same quartersrespective 2018 periods is largely reflective of 2017.
The other expenses noted in the table above include fixed cost items such as support labor and fringe, depreciation and amortization, and facility costs (rent, utilities, insurance). In total, these other expenses increaseddecreased during the three and nine months ended September 30, 20182019 by $1.1$2.1 million and $3.1$2.6 million, respectively, as compared to the same periods of 2017. This included higher2018, primarily due to lower support labor costs of $1.5 million and $3.0 million, respectively, partially offset by lower depreciation and amortizationfringe expense of $0.4 million and $0.9 million during the three and nine-month periods ending September 30, 2018 as compared to the same periods of 2017.
Selling, General and Administrative Expense (“SG&A”)
SG&A expenses during the third quarter of $1.1 million. These factors2019 were partially offset by an increase$17.9 million, down from $18.7 million in bad debt expensethe third quarter of 2018. Included within SG&A expenses is a foreign exchange gain of $0.6 million higherin the third quarter of 2019 compared to a foreign exchange gain of $1.5 million in the third quarter of 2018. Excluding the effects of foreign exchange gains, SG&A expense was down $1.7 million in the third quarter of 2019 as compared to the same period of 2018, led by lower salaries and fringe benefit expense of $0.6$1.1 million and a $0.4reductions in legal and professional fees of $0.7 million increase in sales commissionsfrom last year’s third quarter.
SG&A expenses during the first nine months of 2018.2019 were $56.5 million, down from $57.7 million in the same period of 2018. Included within SG&A expenses is a foreign exchange gain of $0.5 million in the nine months ended September 30, 2019 compared to a foreign exchange gain of $2.4 million in the same period of 2018. Excluding the effects of foreign exchange gains, SG&A expense was down $3.1 million in the first nine months of 2019 as compared to the same period of 2018. Factors contributing to the lower SG&A expense in the 2019 period were lower salaries and fringe expense of $2.3 million and a reduction in legal and professional fees of $1.4 million.
The Company'sCompany’s effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. and Europe'sEurope’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company'sCompany’s three geographical segments. See Note 9, "Income Taxes"10, “Income Taxes”.
The provision (benefit) provision for income taxes for the three months ended September 30, 20182019 and 20172018 was $0.6 million and ($2.2) million, and less than $0.1 million, respectively. The Company'sCompany’s earnings before income taxes for the three months ended September 30, 2018,2019, were approximately $4.1$15.1 million higherlower than the same period in 2017,2018, primarily attributable to significantly higherthe $8.9 million impairment of goodwill in North America, as well as lower earnings in the North America and Asia segments. The Company'sCompany’s effective tax rate was (24.1%(10.0%) and 1.2%(24.1%) for the three months ended September 30, 20182019 and 2017,2018, respectively. The change in the effective tax rate during the three months ended September 30, 20182019 as compared to the same period in 2017,2018, is primarily attributable to a decrease in U.S. taxes relating to income from foreign subsidiaries taxed in the U.S. as part of the Tax Cuts and Jobs Act. Additionally, the change in the tax rate during the three months ended September 30, 2019 compared to the same period in 2018 is attributable to a decrease in tax expense in the North America segment due to the reduction in the estimated transition tax on post 1986post-1986 untaxed accumulated foreign earnings a reduction in the U.S. tax rate from 35% in 2017 to 21% in 2018, as well as a decrease in the taxes related to uncertain tax positions. This decrease was partially offset by an increase in U.S. taxes relating to income from foreign subsidiaries taxed inpositions during the U.S. as part of the Tax Cuts and Jobs Act.2018 period. See Note 9, "Income10, “Income Taxes."
The provision for income taxes for the nine months ended September 30, 20182019 and 20172018 was $0.5$1.0 million and $2.3$0.5 million, respectively. The Company'sCompany’s earnings before income taxes for the nine months ended September 30, 20182019 were approximately $6.0$18.5 million higherlower than the same period in 2017,2018, primarily attributable to increasesthe $8.9 million impairment of goodwill in incomeNorth America, as well as lower earnings in the Europe and North America and Asia segments. The Company'sCompany’s effective tax rate was 3.0%(78.2%) and 20.8%3.0% for the nine monthnine-month periods ended September 30, 20182019 and 2017,2018, respectively. The change in the effective tax rate during the nine months ended September 30, 20182019 as compared to the same period of 2017,2018, is primarily attributable to a decrease in tax expense in the North America segment duesame factors noted above related to the reduction in the estimated transition tax on post 1986 untaxed accumulated foreign earnings, a reduction in the U.S. tax rate from 35% in 2017 to 21% in 2018,third quarter, as well as a decrease in taxes related to uncertainthe impact from permanent tax positions. This decrease was partially offset by an increase indifferences on U.S. taxes relating to income from foreign subsidiaries taxed in the U.S. as part of the Tax Cuts and Jobs Act. Additionally, the decrease in the effective tax rate for the nine months ended September 30, 2018 as compared to the same period in 2017, is attributable to U.S. and foreign taxes accrued for gains recognized on a Bel Fuse legal entity restructuring transactiontax-exempt activities during the 2017 period.
Liquidity and Capital Resources
Our primary sources of cash are the collection of trade receivables generated from the sales of our products and services to our customers and amounts available under our existing lines of credit, including our credit facility. Our primary uses of cash are payments for operating expenses, investments in working capital, capital expenditures, interest, taxes, dividends, debt obligations and other long-term liabilities. We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, including all of the items mentioned above in the next twelve months.
At September 30, 20182019 and December 31, 2017, $45.92018, $25.2 million and $50.5$46.3 million, respectively (or 85%39% and 73%86%, respectively), of cash and cash equivalents was held by foreign subsidiaries of the Company. During the third quarterfirst nine months of 2018,2019, the Company repatriated $12.2$29.3 million of funds from outside of the U.S., with minimal incremental tax liability. Of this amount, approximately $9 million was utilized to pay down intercompany balances that have been generating foreign exchange gains/losses in our consolidated statement of operations. Management currently intends to repatriate an additional $1.8 million in the fourth quarter of 2018 and an incremental $5 to $8 million in the first quarter of 2019, with minimal incremental tax liability. We continue to analyze our global working capital and cash requirements and the potential tax liabilities attributable to further repatriation, and we have yet to make any further determination regarding repatriation of funds from outside the U.S. to fund the Company'sCompany’s U.S. operations in the future. In the event these funds were needed for Bel'sBel’s U.S. operations, the Company would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds.
Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 33.9%33.1% of the Company'sCompany’s total assets at September 30, 20182019 and 34.4%32.9% of total assets at December 31, 2017.2018. The Company'sCompany’s current ratio (i.e., the ratio of current assets to current liabilities) was 2.93.2 to 1 at September 30, 20182019 and 3.02.7 to 1 at December 31, 2017.
In June 2014, the Company entered into a senior Credit and Security Agreement, which was subsequently amended in March 2016, and further amended and refinanced in December 2017. The Credit and Security Agreement contains customary representations and warranties, covenants and events of default and financial covenants that measure (i) the ratio of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company'sCompany’s consolidated EBITDA, as defined ("(“Leverage Ratio"Ratio”), and (ii) the ratio of the amount of the Company'sCompany’s consolidated EBITDA to the Company'sCompany’s consolidated fixed charges ("(“Fixed Charge Coverage Ratio"Ratio”). If an event of default occurs, the lenders under the Credit and Security Agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At September 30, 2018,2019, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Fixed Charge Coverage Ratio. The unused credit available under the credit facility at September 30, 20182019 was $75.0 million, of which we had the ability to borrow $34.1$40.6 million without violating our Leverage Ratio covenant based on the Company'sCompany’s existing consolidated EBITDA.
We are currently engaged in a multi-year process of conforming the majority of our operations onto one global Enterprise Resource Planning system ("ERP"(“ERP”). The ERP is designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records, and provide information important to the operation of the business to our management team. The implementation of the ERP is being conducted by business unitunits on a three phasethree-phase approach through 2020. We currently estimate total costs over the course of this projectsystem implementation to be approximately $6.0$7.0 million. The preceding sentence represents a Forward-Looking Statement. See “Cautionary Notice Regarding Forward-Looking Information.” Since inception of the project, we have incurred a cumulative amount of $4.4$6.8 million in connection with this implementation, of which $0.3$0.2 million and $1.5$1.6 million in implementation costs was incurred during the three and nine months ended September 30, 2018,2019, respectively. These costs are included in SG&A on the condensed consolidated financial statements. Upon completionThe first phase of the ERP implementation project was completed in the first quarter of2019 with the Power Solutions business going live on the new ERP,system effective January 1, 2019. In relation to this first phase completed, we anticipate lower maintenance and lower external information and technology support fees resulting in annualstarted realizing annualized cost savings of approximately $2 million.$1.3 million in the second quarter of 2019. The preceding sentence represents a Forward-Looking Statement. See "Cautionary“Cautionary Notice Regarding Forward-Looking Statements."Information.”
During the nine months ended September 30, 2019, the Company’s cash and cash equivalents increased by $10.9 million. This increase was primarily due to the following:
• | net cash provided by operating activities of $18.9 million; partially offset by |
• | purchases of property, plant and equipment of $8.2 million; |
• | dividend payments of $2.4 million; and |
• | repayments of long-term debt of $2.2 million |
During the nine months ended September 30, 2019, accounts receivable decreased by $12.4 million primarily due to lower sales during the third quarter of 2019 as compared to the fourth quarter of 2018. Days sales outstanding (DSO) decreased slightly to 58 days at September 30, 2019 from 59 days at December 31, 2018. Inventory decreased by $8.4 million at September 30, 2019 compared to December 31, 2018. Inventory turns were 3.7 at each of September 30, 2019 and December 31, 2018.
Nine Months Ended September 30,2018
During the nine months ended September 30, 2018, the Company'sCompany’s cash and cash equivalents decreased by $15.1 million. This decrease was primarily due to the following:
• | purchases of property, plant and equipment of |
• | repayments of long-term debt of |
• | dividend payments of |
• | net cash provided by operations of |
During the nine months ended September 30, 2018, accounts receivable increased by $19.0 million primarily due to higher sales volume in the third quarter of 2018 as compared to the fourth quarter of 2017. Days sales outstanding (DSO) increased to 61 days at September 30, 2018 from 60 days at December 31, 2017. Effective January 1, 2018, the Company implemented a change in the timing of revenue recognition (and related release of inventory from our books) in connection with the adoption of ASC 606, as described in Note 2.606. Excluding the adoption adjustment related to this accounting change, inventory increased by $20.1 million at September 30, 2018 compared to December 31, 2017, primarily in raw materials. The increased raw materials balance was driven by a higher volume of raw materials purchased to accommodate increased demand for our products, coupled with higher material costs in 2018 resulting from constraints in component availability. Inventory turns increased from 3.6 at December 31, 2017 to 4.0 at September 30, 2018, primarily due to the change in revenue recognition accounting noted above.
Critical Accounting Policies
Management’s discussion and analysis of Bel'sBel’s financial condition and results of operations are based upon the Company'sCompany’s condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, goodwill, intangible assets, investments, warranties, SERP expense, income taxes and contingencies and litigation. The Company bases its 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 apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1 to the Company'sCompany’s Financial Statements, "Basis“Basis of Presentation and Accounting Policies,"” included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The Company is exposed to market risk primarily from changes in foreign currency exchange rates and changes in interest rates associated with its long-term debt. During the first nine months of 2018,2019, the U.S. Dollar was in a weakened position (compared to the first nine months of 2017)stronger against most other currencies in which the Company pays its expenses. In comparing average exchange rates during the first nine months of 20182019 versus those during the first nine monthssame period of 2017,2018, the Euro appreciateddepreciated by 7%6%, the Pound appreciateddepreciated by 6%, the Peso depreciated by 1% and the Renminbi appreciateddepreciated by 4%5% against the U.S. Dollar. The Company estimates that the appreciationdepreciation in these foreign currencies led to $2.5 million in higherlower operating costs for the nine-month periodof $3.9 million, as the majority of our expenses in the PRC, Europe and Mexico are paid in local currency. In additionForeign exchange gains were also recognized in the first nine months of 2019 of $0.5 million on translation of local currency balance sheet accounts to the foreign exchange losses recognized, the Company recorded foreign exchange gains of $1.5 million and $2.4 million during the three and nine months ended September 30, 2018, respectively, on remeasurement ofU.S. Dollar in consolidation, resulting from foreign currency transactions. This compares to foreign exchange losses recorded during the three and nine months ended September 30, 2017 of $0.6 million and $2.7 million, respectively, resulting from remeasurement of foreign currency transactions.fluctuations since December 31, 2018. Refer to Item 7A, "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 20172018 for further discussion of market risks.
Disclosure controls and procedures
: As of the end of the period covered by this report, the Company carried out an evaluation, with the participation of theChanges in internal controls over financial reporting
: ThereThe information called for by this Item is incorporated herein by reference to Note 1214 "Commitments and Contingencies" of the Company'sCompany’s Condensed Consolidated Financial Statements, under "Legal Proceedings"“Legal Proceedings”, as set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q. We are also involved in various other legal actions incidental to our business. We believe, after consulting with counsel, that the disposition of these other legal proceedings and matters will not have a material effect on our condensed consolidated financial condition or results of operations.
See Part I, Item 1A, "Risk“Risk Factors,"” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018. Except as required by the federal securities law, we undertake no obligation to update or revise any risk factor, whether as a result of new information, future events or otherwise.
The following table sets forth certain information regarding the Company's purchase of shares of its Class A Common Stock during each calendar month in the quarter ended September 30, 2018:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan | ||||||||||||
July 1 - July 31, 2018 | 8,873 | $ | 21.32 | 8,873 | $ | - | ||||||||||
August 1 - August 31, 2018 | 1,761 | 24.15 | 1,761 | 607,464 | ||||||||||||
September 1 - September 30, 2018 | 12,052 | 23.29 | 12,052 | 326,727 | ||||||||||||
Total | 22,686 | $ | 22.59 | 22,686 | $ | 326,727 |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan | ||||||||||||
July 1 - July 31, 2019 | - | $ | - | - | $ | - | ||||||||||
August 1 - August 31, 2019 | - | - | - | - | ||||||||||||
September 1 - September 30, 2019 | 30,000 | 14.93 | - | - | ||||||||||||
Total | 30,000 | $ | 14.93 | - | $ | - |
Item 3. Defaults Upon Senior Securities Exchange Act of 1934, as amended, to make open market purchases of shares of Class A Common Stock with such matching contributions. The purchases in the table above were made under the 10b5-1 Plan.
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
(a) Exhibits: | |
31.1* | |
31.2* | |
32.1** | |
32.2** | |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
** Submitted herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BEL FUSE INC. | |
November | |
By: | /s/ Daniel Bernstein |
Daniel Bernstein | |
President and Chief Executive Officer | |
By: | /s/ Craig Brosious |
Craig Brosious | |
Vice President of Finance and Secretary | |
(Principal Financial Officer and Principal Accounting Officer) |
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