UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 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’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 | 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 | 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 | Non-accelerated filer | Smaller reporting company | 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 |
| Number of Shares of Common Stock Outstanding as of August 1, | |
Class A Common Stock ($0.10 par value) | 2,144,912 | |
Class B Common Stock ($0.10 par value) | 10,232,602 |
Page | |||
Part I | Financial Information | ||
Item 1. | 2 | ||
2 | |||
3 | |||
4 | |||
5 | |||
6 | |||
7 - | |||
Item 2. | 16 - 22 | ||
Item 3. | 22 | ||
Item 4. | 22 | ||
Part II | Other Information | ||
Item 1. | 22 | ||
Item 1A. | 22 | ||
Item 2. | |||
Item 3. | |||
Item 4. | |||
23 | |||
Item | |||
Item | 24 | ||
25 |
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION
The terms the “Company,” “Bel,” “we,” “us,” and “our” as used in this report refer to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.
The Company’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 20182019 Annual Report on Form 10-K.10-K and the risk factors described in this quarterly report. 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”) contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 (“Forward-Looking 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” 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 and regarding the anticipated impact of COVID-19 are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 20182019 Annual Report on Form 10-K and in the risk factors described in this quarterly report, 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.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share data) |
(unaudited) |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 75,288 | $ | 72,289 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,218 and $1,171, respectively | 78,346 | 76,092 | ||||||
Inventories | 104,726 | 107,276 | ||||||
Unbilled receivables | 15,334 | 16,318 | ||||||
Assets held for sale | 2,454 | - | ||||||
Other current assets | 9,224 | 11,206 | ||||||
Total current assets | 285,372 | 283,181 | ||||||
Property, plant and equipment, net | 37,334 | 41,943 | ||||||
Right-of-use assets | 16,627 | 18,504 | ||||||
Intangible assets, net | 68,466 | 72,364 | ||||||
Goodwill | 22,252 | 21,993 | ||||||
Deferred income taxes | 4,071 | 3,731 | ||||||
Other assets | 27,021 | 27,201 | ||||||
Total assets | $ | 461,143 | $ | 468,917 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 44,826 | $ | 44,169 | ||||
Accrued expenses | 28,402 | 26,918 | ||||||
Current portion of long-term debt | 2,305 | 5,489 | ||||||
Operating lease liability, current | 6,467 | 7,377 | ||||||
Other current liabilities | 6,179 | 6,265 | ||||||
Total current liabilities | 88,179 | 90,218 | ||||||
Long-term Liabilities: | ||||||||
Long-term debt | 132,937 | 138,215 | ||||||
Operating lease liability, long-term | 10,469 | 11,751 | ||||||
Liability for uncertain tax positions | 27,075 | 26,901 | ||||||
Minimum pension obligation and unfunded pension liability | 21,944 | 21,545 | ||||||
Deferred income taxes | 1,145 | 1,726 | ||||||
Other liabilities | 11,466 | 10,510 | ||||||
Total liabilities | 293,215 | 300,866 | ||||||
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; 2,144,912 and 2,144,912 shares outstanding at June 30, 2020 and December 31, 2019, respectively (net of 1,072,769 treasury shares) | 214 | 214 | ||||||
Class B common stock, par value $.10 per share, 30,000,000 shares authorized; 10,233,602 and 10,127,602 shares outstanding at June 30, 2020 and December 31, 2019, respectively (net of 3,218,307 treasury shares) | 1,023 | 1,013 | ||||||
Additional paid-in capital | 35,036 | 33,826 | ||||||
Retained earnings | 157,157 | 157,063 | ||||||
Accumulated other comprehensive loss | (25,502 | ) | (24,065 | ) | ||||
Total stockholders' equity | 167,928 | 168,051 | ||||||
Total liabilities and stockholders' equity | $ | 461,143 | $ | 468,917 |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||
(in thousands, except share and per share data) | ||||||||
(unaudited) | ||||||||
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 58,395 | $ | 53,911 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,694 | ||||||||
and $1,638, respectively | 84,248 | 91,939 | ||||||
Inventories | 118,209 | 120,068 | ||||||
Unbilled receivables | 11,470 | 15,799 | ||||||
Other current assets | 9,090 | 8,792 | ||||||
Total current assets | 281,412 | 290,509 | ||||||
Property, plant and equipment, net | 42,344 | 43,932 | ||||||
Right-of-use assets | 17,885 | - | ||||||
Intangible assets, net | 59,476 | 62,689 | ||||||
Goodwill | 20,017 | 19,817 | ||||||
Deferred income taxes | 1,194 | 496 | ||||||
Other assets | 27,347 | 26,081 | ||||||
Total assets | $ | 449,675 | $ | 443,524 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 42,764 | $ | 56,171 | ||||
Accrued expenses | 30,092 | 32,290 | ||||||
Current portion of long-term debt | 3,997 | 2,508 | ||||||
Operating lease liability, current | 6,238 | - | ||||||
Other current liabilities | 4,060 | 15,061 | ||||||
Total current liabilities | 87,151 | 106,030 | ||||||
Long-term Liabilities: | ||||||||
Long-term debt | 108,960 | 111,705 | ||||||
Operating lease liability, long-term | 12,121 | - | ||||||
Liability for uncertain tax positions | 28,379 | 27,553 | ||||||
Minimum pension obligation and unfunded pension liability | 19,126 | 18,683 | ||||||
Deferred income taxes | 1,061 | 1,161 | ||||||
Other liabilities | 12,601 | 1,922 | ||||||
Total liabilities | 269,399 | 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; 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: 10,141,602 in 2019 and 10,092,352 | ||||||||
in 2018 (net of 3,218,307 treasury shares) | 1,014 | 1,009 | ||||||
Additional paid-in capital | 32,983 | 31,387 | ||||||
Retained earnings | 171,583 | 168,695 | ||||||
Accumulated other comprehensive loss | (25,521 | ) | (24,838 | ) | ||||
Total stockholders' equity | 180,276 | 176,470 | ||||||
Total liabilities and stockholders' equity | $ | 449,675 | $ | 443,524 | ||||
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 127,416 | $ | 140,710 | $ | 252,805 | $ | 258,961 | ||||||||
Cost of sales | 107,532 | 111,696 | 209,361 | 208,814 | ||||||||||||
Gross profit | 19,884 | 29,014 | 43,444 | 50,147 | ||||||||||||
Selling, general and administrative expenses | 18,764 | 18,306 | 38,564 | 38,998 | ||||||||||||
Gain on sale of property | (4,257 | ) | - | (4,257 | ) | - | ||||||||||
Restructuring charges | 424 | 41 | 1,370 | 45 | ||||||||||||
Income from operations | 4,953 | 10,667 | 7,767 | 11,104 | ||||||||||||
Interest expense | (1,381 | ) | (1,349 | ) | (2,820 | ) | (2,527 | ) | ||||||||
Interest income and other, net | (184 | ) | (285 | ) | (389 | ) | (521 | ) | ||||||||
Earnings before provision for income taxes | 3,388 | 9,033 | 4,558 | 8,056 | ||||||||||||
Provision for income taxes | 421 | 2,399 | 460 | 2,724 | ||||||||||||
Net earnings available to common stockholders | $ | 2,967 | $ | 6,634 | $ | 4,098 | $ | 5,332 | ||||||||
Net earnings per common share: | ||||||||||||||||
Class A common share - basic and diluted | $ | 0.23 | $ | 0.52 | $ | 0.31 | $ | 0.41 | ||||||||
Class B common share - basic and diluted | $ | 0.24 | $ | 0.56 | $ | 0.34 | $ | 0.45 | ||||||||
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 | 10,112 | 9,844 | 10,100 | 9,850 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings available to common stockholders | $ | 2,967 | $ | 6,634 | $ | 4,098 | $ | 5,332 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Currency translation adjustment, net of taxes of $16 in the three months | ||||||||||||||||
ended June 30, 2019, $37 in the three months ended June 30, 2018, ($1) in | ||||||||||||||||
the six months ended June 30, 2019 and $12 in the six months ended | ||||||||||||||||
June 30, 2018 | (834 | ) | (7,448 | ) | (294 | ) | (3,431 | ) | ||||||||
Unrealized losses on marketable securities arising during the period, | ||||||||||||||||
net of taxes of $0 in the three months ended June 30, 2019, $0 in the | ||||||||||||||||
three months ended June 30, 2018, $0 in the six months ended June 30, | ||||||||||||||||
2019 and ($20) in the six months ended June 30, 2018 | - | - | - | (31 | ) | |||||||||||
Change in unfunded SERP liability, net of taxes of $11 in the three months | ||||||||||||||||
ended June 30, 2019, $25 in the three months ended June 30, 2018, $22 in | ||||||||||||||||
the six months ended June 30, 2019 and $51 in the six months ended | ||||||||||||||||
June 30, 2018 | 37 | 85 | 74 | 171 | ||||||||||||
Other comprehensive loss | (797 | ) | (7,363 | ) | (220 | ) | (3,291 | ) | ||||||||
Comprehensive income (loss) | $ | 2,170 | $ | (729 | ) | $ | 3,878 | $ | 2,041 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share data) |
(unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 121,172 | $ | 127,416 | $ | 225,149 | $ | 252,805 | ||||||||
Cost of sales | 89,403 | 100,670 | 168,269 | 195,325 | ||||||||||||
Gross profit | 31,769 | 26,746 | 56,880 | 57,480 | ||||||||||||
Research and development costs | 6,116 | 6,862 | 12,175 | 14,036 | ||||||||||||
Selling, general and administrative expenses | 18,061 | 19,215 | 40,122 | 38,440 | ||||||||||||
Restructuring charges | 44 | 424 | 172 | 1,370 | ||||||||||||
Gain on sale of property | - | (4,257 | ) | - | (4,257 | ) | ||||||||||
Income from operations | 7,548 | 4,502 | 4,411 | 7,891 | ||||||||||||
Interest expense | (1,250 | ) | (1,381 | ) | (2,601 | ) | (2,820 | ) | ||||||||
Other (expense) income, net | (302 | ) | 267 | (390 | ) | (513 | ) | |||||||||
Earnings before provision for (benefit from) income taxes | 5,996 | 3,388 | 1,420 | 4,558 | ||||||||||||
Provision for (benefit from) income taxes | 423 | 421 | (349 | ) | 460 | |||||||||||
Net earnings available to common stockholders | $ | 5,573 | $ | 2,967 | $ | 1,769 | $ | 4,098 | ||||||||
Net earnings per common share: | ||||||||||||||||
Class A common share - basic and diluted | $ | 0.43 | $ | 0.23 | $ | 0.13 | $ | 0.31 | ||||||||
Class B common share - basic and diluted | $ | 0.46 | $ | 0.24 | $ | 0.15 | $ | 0.34 | ||||||||
Weighted-average number of shares outstanding: | ||||||||||||||||
Class A common share - basic and diluted | 2,145 | 2,175 | 2,145 | 2,175 | ||||||||||||
Class B common share - basic and diluted | 10,178 | 10,112 | 10,151 | 10,100 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Three Months Ended June 30, 2019 | Total | Earnings | (Loss) Income | Stock | Stock | Capital | ||||||||||||||||||
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 | |||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Three Months Ended June 30, 2018 | Total | Earnings | (Loss) Income | Stock | Stock | Capital | ||||||||||||||||||
Balance at March 31, 2018 | $ | 164,175 | $ | 149,171 | $ | (15,553 | ) | $ | 217 | $ | 985 | $ | 29,355 | |||||||||||
Net loss | 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 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Six Months Ended June 30, 2019 | 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 | 4,098 | 4,098 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.12/share | (261 | ) | (261 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.14/share | (1,412 | ) | (1,412 | ) | - | - | - | - | ||||||||||||||||
Issuance of restricted common stock | - | - | - | - | 7 | (7 | ) | |||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (2 | ) | 2 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of ($1) | (294 | ) | - | (294 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 1,601 | - | - | - | - | 1,601 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($22) | 74 | - | 74 | - | - | - | ||||||||||||||||||
Effect of adoption of ASU 2018-02 (Topic 220) | - | 463 | (463 | ) | - | - | - | |||||||||||||||||
Balance at June 30, 2019 | 180,276 | 171,583 | (25,521 | ) | 217 | 1,014 | 32,983 | |||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Class A | Class B | Additional | |||||||||||||||||||||
Retained | Comprehensive | Common | Common | Paid-In | ||||||||||||||||||||
Six Months Ended June 30, 2018 | Total | Earnings | (Loss) Income | Stock | Stock | Capital | ||||||||||||||||||
Balance at December 31, 2017 | $ | 157,960 | $ | 147,807 | $ | (19,625 | ) | $ | 217 | $ | 986 | $ | 28,575 | |||||||||||
Net earnings | 5,332 | 5,332 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.12/share | (261 | ) | (261 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.14/share | (1,390 | ) | (1,390 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (2 | ) | 2 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of $12 | (3,431 | ) | - | (3,431 | ) | - | - | - | ||||||||||||||||
Unrealized holding losses on marketable securities | ||||||||||||||||||||||||
arising during the year, net of taxes of $20 | (31 | ) | - | (31 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 1,450 | - | - | - | - | 1,450 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($51) | 171 | - | 171 | - | - | - | ||||||||||||||||||
Effect of adoption of ASU 2014-09 (Topic 606) | 3,497 | 3,497 | - | - | - | - | ||||||||||||||||||
Balance at June 30, 2018 | $ | 163,297 | $ | 154,985 | $ | (22,916 | ) | $ | 217 | $ | 984 | $ | 30,027 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
(in thousands) |
(unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net earnings available to common stockholders | $ | 5,573 | $ | 2,967 | $ | 1,769 | $ | 4,098 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Currency translation adjustment, net of taxes of ($3) in the three months ended June 30, 2020, $16 in the three months ended June 30, 2019, ($30) in the six months ended June 30, 2020 and ($1) in the six months ended June 30, 2019 | 676 | (834 | ) | (1,569 | ) | (294 | ) | |||||||||
Change in unfunded SERP liability, net of taxes of ($20) in the three months ended June 30, 2020, ($11) in the three months ended June 30, 2019, ($40) in the six months ended June 30, 2020 and ($22) in the six months ended June 30, 2019 | 66 | 37 | 132 | 74 | ||||||||||||
Other comprehensive income (loss) | 742 | (797 | ) | (1,437 | ) | (220 | ) | |||||||||
Comprehensive income | $ | 6,315 | $ | 2,170 | $ | 332 | $ | 3,878 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES | ||||||||
(dollars in thousands) | ||||||||
(unaudited) | ||||||||
Six Months Ended | ||||||||
June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 4,098 | $ | 5,332 | ||||
Adjustments to reconcile net earnings to net | ||||||||
cash provided by operating activities: | ||||||||
Depreciation and amortization | 8,216 | 9,320 | ||||||
Stock-based compensation | 1,601 | 1,450 | ||||||
Amortization of deferred financing costs | 232 | 294 | ||||||
Deferred income taxes | (1,002 | ) | 1,780 | |||||
Net unrealized losses on foreign currency revaluation | 123 | (871 | ) | |||||
Gain on sale of property | (4,257 | ) | - | |||||
Other, net | 1,316 | 613 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 7,734 | (10,541 | ) | |||||
Unbilled receivables | 4,329 | (1,051 | ) | |||||
Inventories | 1,799 | (10,629 | ) | |||||
Account payable | (13,350 | ) | 12,082 | |||||
Accrued expenses | (2,052 | ) | (1,251 | ) | ||||
Other operating assets/liabilities, net | (1,032 | ) | (5,286 | ) | ||||
Net cash provided by operating activities | 7,755 | 1,242 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (5,329 | ) | (5,870 | ) | ||||
Proceeds from disposal/sale of property, plant and equipment | 5,784 | 53 | ||||||
Net cash provided by (used in) investing activities | 455 | (5,817 | ) | |||||
Cash flows from financing activities: | ||||||||
Dividends paid to common stockholders | (1,600 | ) | (1,589 | ) | ||||
Borrowings under revolving credit line | 12,000 | - | ||||||
Repayments of revolving credit line | (12,000 | ) | - | |||||
Repayments of long-term debt | (1,487 | ) | (7,525 | ) | ||||
Net cash used in financing activities | (3,087 | ) | (9,114 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (639 | ) | 65 | |||||
Net increase (decrease) in cash and cash equivalents | 4,484 | (13,624 | ) | |||||
Cash and cash equivalents - beginning of period | 53,911 | 69,354 | ||||||
Cash and cash equivalents - end of period | $ | 58,395 | $ | 55,730 | ||||
Supplementary information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes, net of refunds received | $ | 2,805 | $ | 5,073 | ||||
Interest payment | $ | 2,533 | $ | 2,260 | ||||
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, 2019 | $ | 168,051 | $ | 157,063 | $ | (24,065 | ) | $ | 214 | $ | 1,013 | $ | 33,826 | |||||||||||
Net loss | (3,804 | ) | (3,804 | ) | - | - | - | - | ||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (130 | ) | (130 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (709 | ) | (709 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | (1 | ) | 1 | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of ($27) | (2,245 | ) | - | (2,245 | ) | - | - | - | ||||||||||||||||
Stock-based compensation expense | 603 | - | - | - | - | 603 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($20) | 66 | - | 66 | - | - | - | ||||||||||||||||||
Balance at March 31, 2020 | 161,832 | 152,420 | (26,244 | ) | 214 | 1,012 | 34,430 | |||||||||||||||||
Net earnings | 5,573 | 5,573 | - | - | - | - | ||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||
Class A Common Stock, $0.06/share | (129 | ) | (129 | ) | - | - | - | - | ||||||||||||||||
Class B Common Stock, $0.07/share | (707 | ) | (707 | ) | - | - | - | - | ||||||||||||||||
Forfeiture of restricted common stock | - | - | - | - | 11 | (11 | ) | |||||||||||||||||
Foreign currency translation adjustment, net of taxes of ($3) | 676 | - | 676 | - | - | - | ||||||||||||||||||
Stock-based compensation expense | 617 | - | - | - | - | 617 | ||||||||||||||||||
Change in unfunded SERP liability, net of taxes of ($20) | 66 | - | 66 | - | - | - | ||||||||||||||||||
Balance at June 30, 2020 | $ | 167,928 | $ | 157,157 | $ | (25,502 | ) | $ | 214 | $ | 1,023 | $ | 35,036 |
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 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES |
(dollars in thousands) |
(unaudited) |
Six Months Ended | ||||||||
June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 1,769 | $ | 4,098 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 8,234 | 8,216 | ||||||
Stock-based compensation | 1,220 | 1,601 | ||||||
Amortization of deferred financing costs | 316 | 232 | ||||||
Deferred income taxes | (1,030 | ) | (1,002 | ) | ||||
Net unrealized gains/losses on foreign currency revaluation | 58 | 123 | ||||||
Gain on sale of property | - | (4,257 | ) | |||||
Other, net | 105 | 1,316 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (2,463 | ) | 7,734 | |||||
Unbilled receivables | 984 | 4,329 | ||||||
Inventories | 1,906 | 1,799 | ||||||
Accounts payable | 994 | (13,350 | ) | |||||
Accrued expenses | 1,307 | (2,052 | ) | |||||
Other operating assets/liabilities, net | 3,443 | (1,032 | ) | |||||
Net cash provided by operating activities | 16,843 | 7,755 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (2,980 | ) | (5,329 | ) | ||||
Proceeds from disposal/sale of property, plant and equipment | 20 | 5,784 | ||||||
Net cash (used in) provided by investing activities | (2,960 | ) | 455 | |||||
Cash flows from financing activities: | ||||||||
Dividends paid to common stockholders | (1,613 | ) | (1,600 | ) | ||||
Deferred financing costs | (600 | ) | - | |||||
Borrowings under revolving credit line | - | 12,000 | ||||||
Repayments of revolving credit line | - | (12,000 | ) | |||||
Repayments of long-term debt | (8,179 | ) | (1,487 | ) | ||||
Net cash used in financing activities | (10,392 | ) | (3,087 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (492 | ) | (639 | ) | ||||
Net increase in cash and cash equivalents | 2,999 | 4,484 | ||||||
Cash and cash equivalents - beginning of period | 72,289 | 53,911 | ||||||
Cash and cash equivalents - end of period | $ | 75,288 | $ | 58,395 | ||||
Supplementary information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes, net of refunds received | $ | 1,473 | $ | 2,805 | ||||
Interest payments | $ | 2,339 | $ | 2,533 |
See accompanying notes to unaudited condensed consolidated financial statements. |
BEL FUSE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES The condensed consolidated balance sheets and statements of operations, comprehensive income, Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form Reclassifications - During the fourth quarter of 2019, the Company changed its financial statement presentation of research and development costs. These costs were previously included within cost of sales and were a factor in arriving at gross profit. Research and development costs in the amount of $6.9 million and $14.0 million have been reclassified from cost of sales to a separate line item below gross profit in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019, respectively. Also during the fourth quarter of 2019, the Company changed its financial statement presentation related to gain/loss on foreign currency exchange. These gains/losses were previously included within selling, general and administrative expense. Gains (losses) on foreign currency exchange in the amount of $0.5 million and ($0.1) million have been reclassified from selling, general and administrative expense and are now included within other (expense) income, net on the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019, respectively. These changes in presentation are consistent with that of our peers. The Company also implemented a change to its reportable segments during the fourth quarter of 2019. In the past, the Company's reportable operating segments were geographic in nature: North America, Europe and Asia. In connection with the Company's migration to its new ERP system and with the acquisition of CUI, management is now assessing the business on a product group basis, and making decisions based on the profitability of three product segments, Cinch Connectivity Solutions, Power Solutions and Protection and Magnetic Solutions, in addition to a Corporate segment. The segment disclosures in Note 14 for the three and six months ended June 30, 2019 have been recast to reflect the new reportable operating segments. 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 In August 2018, the FASB issued ASU 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”), as amended. 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 effective for the Company for annual reporting periods beginning after December 15, 2022, with early adoption permitted. Management is 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 adds 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. The Company is currently In December 2019, the FASB issued ASU 2019-12,Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact of ASU 2019-12, but it is not expected to have a material impact on the Company’s consolidated financial statements. 2. ACQUISITION On December 3, 2019, the Company completed the acquisition of the majority of the power supply products business of CUI Inc. ("CUI") through an asset purchase agreement with CUI Global Inc. for $29.2 million (after a working capital adjustment), plus the assumption of certain liabilities. The CUI power business designs and markets a broad portfolio of AC/DC and DC/DC power supplies and board level components. The CUI power business is headquartered in Tualatin, Oregon and had sales of $32.0 million for the year ended December 31, 2019. The acquisition of the CUI power business enhances Bel's existing offering of power products, allowing the Company to better address all of its customer power needs. It also introduces an alternative business model to Bel's, one which carries a higher gross margin profile and lower manufacturing risk. The acquisition of CUI has also created the opportunity for expense reduction and the elimination of redundancies. The combination of these factors has given rise to $10.9 million of goodwill. During the three and six months ended June 30, 2020, the Company expensed $0.2 million of acquisition-related costs. These costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. While the purchase price allocation related to CUI is substantially complete, the allocations are currently under review and are subject to change. The Company expects to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. CUI’s results of operations have been included in the Company’s condensed consolidated financial statements for the period subsequent to the acquisition date. CUI contributed revenues of $10.6 million and estimated net earnings of $2.3 million to the Company for the three months ended June 30, 2020 and revenues of $18.9 million and estimated net earnings of $3.1 million to the Company for the six months ended June 30, 2020. The following unaudited pro forma information presents the combined operating results of the Company and CUI. The following unaudited pro forma consolidated results of operations assume that the acquisition of CUI was completed as of January 1,2019: Three Months Ended Six Months Ended June 30, 2019 June 30, 2019 Revenue Net earnings Earnings per Class A common share - basic and diluted Earnings per Class B common share - basic and diluted 3. REVENUE The following table provides information about disaggregated revenue by Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 By Product Group: North America Europe Asia By Sales Channel: Direct to customer Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 By Product Group: North America Europe Asia By Sales Channel: Direct to customer Through distribution June 30, December 31, 2020 2019 Contract assets - current (unbilled receivable) Contract liabilities - current (deferred revenue) The change in balance of our unbilled receivables from December 31, The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of June 30, (loss), 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 six months ended June 30, 20192020 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-K10-K for the year ended December 31, 2018.the followingthese condensed consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements, of the 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.10-K10-K for the year ended December 31, 2018.2019. There were no significant changes to these accounting policies during the six months ended June 30, 2019,2020, except as discussed in “Recently Adopted Accounting Standards” below.February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), to provide a new comprehensive model for lease accounting. Under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. This guidance was effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements.The Company adopted ASU 2016-02 as amended effective January 1, 2019 using the modified retrospective approach. In connection with the adoption, we elected to utilize 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, 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 implemented a new lease system to facilitate the requirements of the new standard and completed the necessary changes to our accounting policies, processes, disclosures and internal control over financial reporting.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 as of January 1, 2019. The standard did not materially affect the Company’s consolidated net earnings or have any impact on cash flows. See Note 12, Leases, for Topic 842 disclosures in connection with the adoption of ASU 2016-02.In FebruaryAugust 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. This 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 of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.8Return to IndexIn 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. This 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.Accounting Standards Issued But Not Yet AdoptedIn 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 effective for public entities for annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management is currently assessing the impact of ASU 2016-13, but it is not expected to 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 is required to adopt ASU 2017-04 for its annual or any interim goodwill impairment tests for annual periods beginning after December 15, 2019, and the guidance is to be applied on a prospective basis.In August 2018, the FASB issued ASU 2018-13, -13,Fair Value Measurement (Topic 820)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 adoptingadopted the updated provisions.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 added additional disclosures. The standard is effective for fiscal years ending after December 2018-15, 2020. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. The Company is currently assessing the impact the new guidance will have on its disclosures.In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40)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, 2019. The Company adopted this guidance effective January 1, 2020 and it did not have a material impact on its consolidated financial position or consolidated results of operations.permitted.currently assessing the impact of ASU 2016-13, but it is not expected to have a material impact on the Company’s consolidated financial statements.evaluatingassessing the impacts that adoption of this ASUimpact the new guidance will have on itsthe Company's disclosures. $ 135,847 $ 270,504 3,383 5,069 0.26 0.39 0.28 0.42 9Return to Index82.product groupgeographic region and sales channel, and includes a reconciliation of the disaggregated revenue to our reportable segments: Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 North North America Asia Europe Consolidated America Asia Europe Consolidated By Product Group: Connectivity solutions $ 31,297 $ 3,027 $ 8,212 $ 42,536 $ 63,418 $ 6,502 $ 16,977 $ 86,897 Magnetic solutions 9,638 29,168 2,046 40,852 18,583 56,258 4,267 79,108 Power solutions and protection 26,131 7,129 10,768 44,028 49,652 13,841 23,307 86,800 $ 67,066 $ 39,324 $ 21,026 $ 127,416 $ 131,653 $ 76,601 $ 44,551 $ 252,805 By Sales Channel: Direct to customer $ 45,442 $ 32,707 $ 13,293 $ 91,442 $ 89,323 $ 63,835 $ 29,506 $ 182,664 Through distribution 21,624 6,617 7,733 35,974 42,330 12,766 15,045 70,141 $ 67,066 $ 39,324 $ 21,026 $ 127,416 $ 131,653 $ 76,601 $ 44,551 $ 252,805 Three Months Ended June 30, 2018 Six Months Ended June 30, 2018 North North America Asia Europe Consolidated America Asia Europe Consolidated By Product Group: Connectivity solutions $ 34,834 $ 4,820 $ 9,274 $ 48,928 $ 65,878 $ 8,241 $ 17,727 $ 91,846 Magnetic solutions 10,158 32,844 2,546 45,548 18,209 60,669 4,898 83,776 Power solutions and protection 26,248 8,250 11,736 46,234 46,609 15,625 21,105 83,339 $ 71,240 $ 45,914 $ 23,556 $ 140,710 $ 130,696 $ 84,535 $ 43,730 $ 258,961 By Sales Channel: Direct to customer $ 44,055 $ 39,402 $ 15,990 $ 99,447 $ 81,951 $ 72,330 $ 30,183 $ 184,464 Through distribution 27,185 6,512 7,566 41,263 48,745 12,205 13,547 74,497 $ 71,240 $ 45,914 $ 23,556 $ 140,710 $ 130,696 $ 84,535 $ 43,730 $ 258,961 Cinch Connectivity Solutions Power Solutions and Protection Magnetic Solutions Consolidated Cinch Connectivity Solutions Power Solutions and Protection Magnetic Solutions Consolidated $ 27,608 $ 29,029 $ 7,097 $ 63,734 $ 57,310 $ 51,752 $ 14,204 $ 123,266 8,356 8,965 1,717 19,038 16,118 18,279 2,918 37,315 2,944 7,118 28,338 38,400 4,579 11,258 48,731 64,568 $ 38,908 $ 45,112 $ 37,152 $ 121,172 $ 78,007 $ 81,289 $ 65,853 $ 225,149 $ 23,600 $ 26,894 $ 31,021 $ 81,515 $ 48,652 $ 48,471 $ 55,363 $ 152,486 Through distribution 15,308 18,218 6,131 39,657 29,355 32,818 10,490 72,663 $ 38,908 $ 45,112 $ 37,152 $ 121,172 $ 78,007 $ 81,289 $ 65,853 $ 225,149 Cinch Connectivity Solutions Power Solutions and Protection Magnetic Solutions Consolidated Cinch Connectivity Solutions Power Solutions and Protection Magnetic Solutions Consolidated $ 31,297 $ 26,131 $ 9,638 $ 67,066 $ 63,418 $ 49,652 $ 18,583 $ 131,653 8,212 10,768 2,046 21,026 16,977 23,307 4,267 44,551 3,027 7,129 29,168 39,324 6,502 13,841 56,258 76,601 $ 42,536 $ 44,028 $ 40,852 $ 127,416 $ 86,897 $ 86,800 $ 79,108 $ 252,805 $ 28,207 $ 28,594 $ 34,641 $ 91,442 $ 57,812 $ 57,694 $ 67,158 $ 182,664 14,329 15,434 6,211 35,974 29,085 29,106 11,950 70,141 $ 42,536 $ 44,028 $ 40,852 $ 127,416 $ 86,897 $ 86,800 $ 79,108 $ 252,805
The balances of the Company’s contract assets and contract liabilities at June 30, 20192020 and December 31, 20182019 are as follows: June 30, December 31, 2019 2018 Contract assets - current (unbilled receivable) $ 11,470 $ 15,799 Contract liabilities - current (deferred revenue) $ 1,763 $ 1,036 $ 15,334 $ 16,318 $ 1,148 $ 653 20182019 to June 30, 20192020 primarily relates to a timing difference between the Company’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).20192020 related to contracts that exceed one year in duration amounted to $14.3$15.2 million, with expected contract expiration dates that range from 20202021 - 2025. It is expected that 21%27% of this aggregate amount will be recognized in 2020, 54%2021, 70% will be recognized in 20212022 and the remainder will be recognized in years beyond 2021.10Return to Index9
4. | EARNINGS PER SHARE |
The following table sets forth the calculation of basic and diluted net earnings per common share under the two-classtwo-class method for the three and six months ended June 30, 2019 2020 and 2018:2019:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Numerator: | ||||||||||||||||
Net earnings | $ | 5,573 | $ | 2,967 | $ | 1,769 | $ | 4,098 | ||||||||
Less dividends declared: | ||||||||||||||||
Class A | 129 | 131 | 259 | 261 | ||||||||||||
Class B | 707 | 704 | 1,416 | 1,412 | ||||||||||||
Undistributed earnings | $ | 4,737 | $ | 2,132 | $ | 94 | $ | 2,425 | ||||||||
Undistributed earnings allocation - basic and diluted: | ||||||||||||||||
Class A undistributed earnings | $ | 794 | $ | 363 | $ | 15 | $ | 412 | ||||||||
Class B undistributed earnings | 3,943 | 1,769 | 79 | 2,013 | ||||||||||||
Total undistributed earnings | $ | 4,737 | $ | 2,132 | $ | 94 | $ | 2,425 | ||||||||
Net earnings allocation - basic and diluted: | ||||||||||||||||
Class A net earnings | $ | 923 | $ | 494 | $ | 274 | $ | 673 | ||||||||
Class B net earnings | 4,650 | 2,473 | 1,495 | 3,425 | ||||||||||||
Net earnings | $ | 5,573 | $ | 2,967 | $ | 1,769 | $ | 4,098 | ||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Class A - basic and diluted | 2,145 | 2,175 | 2,145 | 2,175 | ||||||||||||
Class B - basic and diluted | 10,178 | 10,112 | 10,151 | 10,100 | ||||||||||||
Net earnings per share: | ||||||||||||||||
Class A - basic and diluted | $ | 0.43 | $ | 0.23 | $ | 0.13 | $ | 0.31 | ||||||||
Class B - basic and diluted | $ | 0.46 | $ | 0.24 | $ | 0.15 | $ | 0.34 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net earnings | $ | 2,967 | $ | 6,634 | $ | 4,098 | $ | 5,332 | ||||||||
Less dividends declared: | ||||||||||||||||
Class A | 131 | 131 | 261 | 261 | ||||||||||||
Class B | 704 | 689 | 1,412 | 1,390 | ||||||||||||
Undistributed earnings | $ | 2,132 | $ | 5,814 | $ | 2,425 | $ | 3,681 | ||||||||
Undistributed earnings allocation - basic and diluted: | ||||||||||||||||
Class A undistributed earnings | $ | 363 | $ | 1,010 | $ | 412 | $ | 640 | ||||||||
Class B undistributed earnings | 1,769 | 4,804 | 2,013 | 3,041 | ||||||||||||
Total undistributed earnings | $ | 2,132 | $ | 5,814 | $ | 2,425 | $ | 3,681 | ||||||||
Net earnings allocation - basic and diluted: | ||||||||||||||||
Class A net earnings | $ | 494 | $ | 1,141 | $ | 673 | $ | 901 | ||||||||
Class B net earnings | 2,473 | 5,493 | 3,425 | 4,431 | ||||||||||||
Net earnings | $ | 2,967 | $ | 6,634 | $ | 4,098 | $ | 5,332 | ||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Class A - basic and diluted | 2,175 | 2,175 | 2,175 | 2,175 | ||||||||||||
Class B - basic and diluted | 10,112 | 9,844 | 10,100 | 9,850 | ||||||||||||
Net earnings per share: | ||||||||||||||||
Class A - basic and diluted | $ | 0.23 | $ | 0.52 | $ | 0.31 | $ | 0.41 | ||||||||
Class B - basic and diluted | $ | 0.24 | $ | 0.56 | $ | 0.34 | $ | 0.45 |
5. | 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 June 30, 20192020 and December 31, 2018,2019, our available-for-sale securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations. These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs1 inputs) and amounted to $1.3$0.9 million at June 30, 20192020 and $1.4$1.1 million at December 31, 2018. 2019. During the second quarter of 2020, the Company entered into foreign exchange forward contracts, the fair value of which was less than $0.1 million at June 30, 2020. The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2020 or June 30, 2019 or June 30, 2018.. There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the six months ended June 30, 2020 or June 30, 2019 or June 30, 2018.
There were no financial assets accounted for at fair value on a nonrecurring basis as of June 30, 20192020 or December 31, 2018.
The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, 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’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 June 30, 20192020 and December 31, 2018,2019, the estimated fair value of total debt was $118.5$141.7 million and $117.9$146.4 million, respectively, compared to a carrying amount of $113.0$135.2 million and $114.2$143.7 million, respectively. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2019.
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 event or in the case of goodwill, on at least an annual basis. There were noThe Company considered the impacts of COVID-19 on Bel's business and on general economic conditions when making its assessment on whether a triggering events thatevent had occurred during the six months ended June 30, 2019 2020. Based on the Company's assessment, it was concluded that no triggering events occurred during the six months ended June 30, 2020 that would warrant interim impairment testing.
6. | INVENTORIES |
The components of inventories are as follows:
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Raw materials | $ | 47,707 | $ | 47,936 | ||||
Work in progress | 29,139 | 27,065 | ||||||
Finished goods | 27,880 | 32,275 | ||||||
Inventories | $ | 104,726 | $ | 107,276 |
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Raw materials | $ | 53,251 | $ | 63,348 | ||||
Work in progress | 28,548 | 21,441 | ||||||
Finished goods | 36,410 | 35,279 | ||||||
Inventories | $ | 118,209 | $ | 120,068 |
7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consist of the following:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Land | $ | 1,433 | $ | 2,251 | ||||
Buildings and improvements | 29,319 | 30,119 | ||||||
Machinery and equipment | 129,386 | 126,747 | ||||||
Construction in progress | 5,516 | 4,687 | ||||||
165,654 | 163,804 | |||||||
Accumulated depreciation | (123,310 | ) | (119,872 | ) | ||||
Property, plant and equipment, net | $ | 42,344 | $ | 43,932 |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Land | $ | 1,428 | $ | 1,431 | ||||
Buildings and improvements | 22,647 | 29,722 | ||||||
Machinery and equipment | 124,192 | 132,134 | ||||||
Construction in progress | 2,662 | 5,090 | ||||||
150,929 | 168,377 | |||||||
Accumulated depreciation | (113,595 | ) | (126,434 | ) | ||||
Property, plant and equipment, net | $ | 37,334 | $ | 41,943 |
Depreciation expense for the three months ended June 30, 2019 2020 and 20182019 was $2.5$2.3 million and $2.9$2.5 million, respectively. Depreciation expense for the six months ended June 30, 2019 2020 and 20182019 was $5.0$4.7 million and $6.1$5.0 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.
8. | ACCRUED EXPENSES |
Accrued expenses consist of the following:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Sales commissions | $ | 2,628 | $ | 2,609 | ||||
Subcontracting labor | 1,276 | 1,550 | ||||||
Salaries, bonuses and related benefits | 14,918 | 18,275 | ||||||
Warranty accrual | 1,329 | 1,078 | ||||||
Other | 9,941 | 8,778 | ||||||
$ | 30,092 | $ | 32,290 |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Sales commissions | $ | 2,685 | $ | 2,542 | ||||
Subcontracting labor | 1,115 | 990 | ||||||
Salaries, bonuses and related benefits | 15,301 | 14,715 | ||||||
Warranty accrual | 1,368 | 1,576 | ||||||
Other | 7,933 | 7,095 | ||||||
$ | 28,402 | $ | 26,918 |
The change in warranty accrual during the six months ended June 30, 20192020 primarily related to repair costs incurred and adjustments to pre-existing warranties. There were no new material warranty charges incurred during the six months ended June 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 six months ended June 30, 20192020 are as follows:
Six Months Ended | ||||||||||||||||
June 30, 2020 | ||||||||||||||||
Liability at | Cash Payments | Liability at | ||||||||||||||
December 31, | New | and Other | June 30, | |||||||||||||
2019 | Charges | Settlements | 2020 | |||||||||||||
Severance costs | $ | - | $ | 216 | $ | (216 | ) | $ | - | |||||||
Other restructuring costs | 44 | (44 | ) | - | - | |||||||||||
Total | $ | 44 | $ | 172 | $ | (216 | ) | $ | - |
Six Months Ended | ||||||||||||||||
June 30, 2019 | ||||||||||||||||
Liability at | Cash Payments | Liability at | ||||||||||||||
December 31, | New | and Other | June 30, | |||||||||||||
2018 | Charges | Settlements | 2019 | |||||||||||||
Severance costs | $ | - | $ | 311 | $ | (244 | ) | $ | 67 | |||||||
Other restructuring costs | - | 809 | (107 | ) | 702 | |||||||||||
Total | $ | - | $ | 1,120 | $ | (351 | ) | $ | 769 |
9. | DEBT |
The Company has a Credit and Security Agreement with KeyBank National Association (as amended, the “CSA”"credit agreement" or the "CSA"). The CSA consists of (i) a term loan, with outstanding borrowings of $114.5$104.8 million and $116.0$113.0 million at June 30, 20192020 and December 31, 2018,2019, respectively, and (ii) a $75 million revolving credit facility (“Revolver”), with no$32.0 million in outstanding borrowings at each of June 30, 2019 or 2020 and December 31, 2018.2019. The CSA has a maturity date of December 11, 2022. At June 30, 20192020 and December 31, 2018,2019, the carrying value of the debt on the condensed consolidated balance sheet is reflected net of $1.5$1.6 million and $1.8$1.3 million, respectively, of deferred financing costs. During the six months ended June 30, 2019,
On February 18, 2020, the Company borrowed $12.0 million fromfurther amended its revolver, allcredit agreement whereby the Company voluntarily prepaid a portion of which was repaid by June 30, 2019.
The weighted-average interest rate in effect was 4.19%3.44% at June 30, 20192020 and 4.31%3.31% at December 31, 20182019 and consisted of LIBOR plus the Company’s credit spread, as determined per the terms of the CSA. The Company incurred $1.4$1.3 million and $1.3$1.4 million of interest expense during the three months ended June 30, 2020 and June 30, 2019 and June 30, 2018, respectively, and $2.8, respectively. The Company incurred $2.6 million and $2.5$2.8 million of interest expense during the six months ended June 30, 2020 and June 30, 2019, and June 30, 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’s consolidated EBITDA, as defined, (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s consolidated fixed charges.charges ("Fixed Charge Coverage Ratio"). 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 June 30, 2019,2020, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Fixed Charge Coverage Ratio.
10. | INCOME TAXES |
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Certain provisions of the CARES Act impact the 2019 income tax provision computations of the Company and were reflected in the three months ended March 31, 2020, or the period of enactment. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Index
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 20082009 in Asia and generally 2011 in Europe. The Company is currently under examination by the taxing authorities in Slovakia for the tax year 2014.
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’s consolidated financial statements at June 30, 2019. 2020. The Company’s liabilities for uncertain tax positions totaled $28.5$28.4 million and $28.9$29.1 million at June 30, 2019 2020 and December 31, 2018, 2019, respectively, of which $0.1$1.3 million and $1.4$2.2 million is included in other current liabilities at June 30, 2019 2020 and December 31, 2018, respectively.2019, respectively and are expected to be resolved during 2020 by way of expiration of the related statute of limitations. These amounts, if recognized, would reduce the Company’s effective tax rate. As of June 30, 2019, approximately $0.1 million of the Company’s liabilities for uncertain tax positions are expected to be resolved during 2019 by way of expiration of the related statute of limitations.
The Company’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 six months ended June 30, 2019 2020 and 2018,2019, the Company recognized $0.3$0.4 million and $0.5 million, respectively, in interest and penalties in the condensed consolidated statements of operations.operations during each period. During the six months ended June 30, 2019 and 2018, 2020, the Company recognized a benefit of $0.7$0.3 million and a benefit of $0.4 million, respectively, for the reversal of such interest and penalties, relating to the settlement of the liability for uncertain tax positions. The Company has approximately $4.5 million and $3.8$4.9 million accrued for the payment of interest and penalties at each of June 30, 2019 2020 and December 31, 2018, respectively, 2019, which is included in both income taxes payable and liability for uncertain tax positions in the condensed consolidated balance sheets.
11. | RETIREMENT FUND AND PROFIT SHARING PLAN |
The Company maintains the Bel Fuse Inc. Employees’ Savings Plan, a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a)401(a) and (k) of the Internal Revenue Code of 1986, as amended (the “Code”). The expense for the three months ended June 30, 2019 2020 and 20182019 amounted to $0.3 million in both periods. The expense for the six months ended June 30, 2019 2020 and 20182019 amounted to $0.6 million in both periods. The Company’s matching contribution is made in the form of Bel Fuse Inc. Class A common stock. As of June 30, 2019,2020, the plan owned 133,280223,406 and 107,962111,761 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 June 30, 2019 2020 and 20182019 amounted to $0.1 million in both periods. The expense for the six months ended June 30, 2019 2020 and 20182019 amounted to $0.2 million in both periods. As of June 30, 2019,2020, 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 NoteThe components of SERP expense are as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Service cost | $ | 144 | $ | 183 | $ | 288 | $ | 366 | ||||||||
Interest cost | 185 | 166 | 370 | 332 | ||||||||||||
Net amortization | 48 | 111 | 96 | 222 | ||||||||||||
Net periodic benefit cost | $ | 377 | $ | 460 | $ | 754 | $ | 920 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Service cost | $ | 150 | $ | 144 | $ | 300 | $ | 288 | ||||||||
Interest cost | 159 | 185 | 318 | 370 | ||||||||||||
Net amortization | 86 | 48 | 172 | 96 | ||||||||||||
Net periodic benefit cost | $ | 395 | $ | 377 | $ | 790 | $ | 754 |
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,(expense) income, net in the accompanying condensed consolidated statements of operations.
The following amounts are recognized net of tax in accumulated other comprehensive loss:
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Prior service cost | $ | 662 | $ | 738 | ||||
Net loss | 1,870 | 1,965 | ||||||
$ | 2,532 | $ | 2,703 |
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Prior service cost | $ | 828 | $ | 918 | ||||
Net loss | 1,971 | 1,977 | ||||||
$ | 2,799 | $ | 2,895 |
12. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulated other comprehensive loss at June 30, 20192020 and December 31, 20182019 are summarized below:
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Foreign currency translation adjustment, net of taxes of ($752) at | ||||||||
June 30, 2019 and ($751) at December 31, 2018 | $ | (22,929 | ) | $ | (22,635 | ) | ||
Unrealized holding gains on available-for-sale securities, net of taxes of | ||||||||
$0 at June 30, 2019 and $0 at December 31, 2018 | 12 | 12 | ||||||
Unfunded SERP liability, net of taxes of ($195) at June 30, 2019 | ||||||||
and ($680) at December 31, 2018 | (2,604 | ) | (2,215 | ) | ||||
Accumulated other comprehensive loss | $ | (25,521 | ) | $ | (24,838 | ) |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Foreign currency translation adjustment, net of taxes of ($711) at June 30, 2020 and ($742) at December 31, 2019 | $ | (21,600 | ) | $ | (20,032 | ) | ||
Unrealized holding gains on available-for-sale securities, net of taxes of $0 at June 30, 2020 and $0 at December 31, 2019 | 11 | 12 | ||||||
Unfunded SERP liability, net of taxes of ($599) at June 30, 2020 and ($639) at December 31, 2019 | (3,913 | ) | (4,045 | ) | ||||
Accumulated other comprehensive loss | $ | (25,502 | ) | $ | (24,065 | ) |
Changes in accumulated other comprehensive loss by component during the six months ended June 30, 20192020 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 income before reclassifications | (294 | ) | - | 11 | (283 | ) | |||||||||||
Amount reclassified from accumulated other | |||||||||||||||||
comprehensive loss | - | - | 63 | (a) | 63 | ||||||||||||
Net current period other comprehensive income | (294 | ) | - | 74 | (220 | ) | |||||||||||
Effect of adoption of ASU 2018-02 (Topic 220) | - | - | (463 | ) | (463 | ) | |||||||||||
Balance at June 30, 2019 | $ | (22,929 | ) | $ | 12 | $ | (2,604 | ) | $ | (25,521 | ) | ||||||
(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. |
Unrealized Holding | |||||||||||||||||
Foreign Currency | Gains on | ||||||||||||||||
Translation | Available-for- | Unfunded | |||||||||||||||
Adjustment | Sale Securities | SERP Liability | Total | ||||||||||||||
Balance at December 31, 2019 | $ | (20,032 | ) | $ | 12 | $ | (4,045 | ) | $ | (24,065 | ) | ||||||
Other comprehensive loss before reclassifications | (1,568 | ) | (1 | ) | (37 | ) | (1,606 | ) | |||||||||
Amount reclassified from accumulated other comprehensive loss | - | - | 169 | (a) | 169 | ||||||||||||
Net current period other comprehensive income (loss) | (1,568 | ) | (1 | ) | 132 | (1,437 | ) | ||||||||||
Balance at June 30, 2020 | $ | (21,600 | ) | $ | 11 | $ | (3,913 | ) | $ | (25,502 | ) |
(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. |
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Amortization of ROU Assets - Finance Leases | $ | 33 | $ | 67 | ||||
Interest on Lease Liabilities - Finance Leases | 12 | 25 | ||||||
Operating Lease Cost (Cost resulting from lease payments) | 1,978 | 3,969 | ||||||
Short-term Lease Cost | 31 | 100 | ||||||
Variable Lease Cost (Cost excluded from lease payments) | 61 | 121 | ||||||
Sublease Income | - | - | ||||||
Total Lease Cost | $ | 2,115 | $ | 4,282 |
Six Months Ended June 30, 2019 | ||||
Cash paid for amounts included in the measruement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 3,963 | ||
Operating cash flows from finance leases | 25 | |||
Finance cash flows from finance leases | 57 | |||
Right-of-use assets obtained in exchange for lease obligations: | ||||
Operating leases | 21,396 | |||
Finance leases | - |
June 30, 2019 | ||||
Operating Leases: | ||||
Operating lease right-of-use assets | $ | 17,885 | ||
Operating lease liability, current | 6,238 | |||
Operating lease liability, long-term | 12,121 | |||
Total operating lease liabilities | 18,359 | |||
Finance Leases: | ||||
Property, plant and equipment, gross | $ | 894 | ||
Accumulated depreciation | (202 | ) | ||
Property, plant and equipment, net | 692 | |||
Other current liabilities | 120 | |||
Other long-term liabilities | 626 | |||
Total finance lease liabilities | $ | 746 |
13. | COMMITMENTS AND CONTINGENCIES | |||
Year Ending | Operating | Finance | ||||||
June 30, | Leases | Leases | ||||||
2020 | $ | 7,204 | $ | 164 | ||||
2021 | 5,549 | 163 | ||||||
2022 | 4,206 | 163 | ||||||
2023 | 2,440 | 163 | ||||||
2024 | 422 | 163 | ||||||
Thereafter | 305 | 67 | ||||||
Total undiscounted cash flows | 20,126 | 883 | ||||||
Less imputed interest | (1,767 | ) | (137 | ) | ||||
Present value of lease liabilities | $ | 18,359 | $ | 746 |
Legal Proceedings
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”) 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’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 June 30, 20192020 and December 31, 2018.
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.
14. | SEGMENTS |
The Company operates in one industry with three reportable operating segments, which are geographic in nature.represent the Company's three product groups and a corporate segment. The segments consist of North America, AsiaCinch Connectivity Solutions, Power Solutions and Europe.Protection, Magnetic Solutions and a Corporate segment. The primary criteria by which financial performance is evaluated and resources are allocated are net salesrevenue and income from operations.gross profit. The following is a summary of key financial data:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Sales to External Customers: | ||||||||||||||||
North America | $ | 67,066 | $ | 71,240 | $ | 131,653 | $ | 130,696 | ||||||||
Asia | 39,324 | 45,914 | 76,601 | 84,535 | ||||||||||||
Europe | 21,026 | 23,556 | 44,551 | 43,730 | ||||||||||||
$ | 127,416 | $ | 140,710 | $ | 252,805 | $ | 258,961 | |||||||||
Net Sales: | ||||||||||||||||
North America | $ | 69,450 | $ | 74,602 | $ | 136,923 | $ | 137,173 | ||||||||
Asia | 63,062 | 70,005 | 125,372 | 126,144 | ||||||||||||
Europe | 25,734 | 27,630 | 52,598 | 51,942 | ||||||||||||
Less intercompany net sales | (30,830 | ) | (31,527 | ) | (62,088 | ) | (56,298 | ) | ||||||||
$ | 127,416 | $ | 140,710 | $ | 252,805 | $ | 258,961 | |||||||||
Income from Operations: | ||||||||||||||||
North America | $ | 2,373 | $ | 2,963 | $ | 1,880 | $ | 2,661 | ||||||||
Asia | 270 | 5,319 | 1,283 | 5,234 | ||||||||||||
Europe | 2,310 | 2,385 | 4,604 | 3,209 | ||||||||||||
$ | 4,953 | $ | 10,667 | $ | 7,767 | $ | 11,104 |
Three Months Ended June 30, 2020 | ||||||||||||||||||||
Cinch Connectivity | Power Solutions | Magnetic | Corporate | |||||||||||||||||
Solutions | and Protection | Solutions | Segment | Total | ||||||||||||||||
Revenue | $ | 38,908 | $ | 45,112 | $ | 37,152 | $ | - | 121,172 | |||||||||||
Gross Profit | 11,531 | 10,615 | 9,445 | 178 | 31,769 | |||||||||||||||
Gross Profit % | 29.6 | % | 23.5 | % | 25.4 | % | nm | 26.2 | % |
Three Months Ended June 30, 2019 | ||||||||||||||||||||
Cinch Connectivity | Power Solutions | Magnetic | Corporate | |||||||||||||||||
Solutions | and Protection | Solutions | Segment | Total | ||||||||||||||||
Revenue | $ | 42,536 | $ | 44,028 | $ | 40,852 | $ | - | 127,416 | |||||||||||
Gross Profit | 10,135 | 8,876 | 8,180 | (445 | ) | 26,746 | ||||||||||||||
Gross Profit % | 23.8 | % | 20.2 | % | 20.0 | % | nm | 21.0 | % |
Six Months Ended June 30, 2020 | ||||||||||||||||||||
Cinch Connectivity | Power Solutions | Magnetic | Corporate | |||||||||||||||||
Solutions | and Protection | Solutions | Segment | Total | ||||||||||||||||
Revenue | $ | 78,007 | $ | 81,289 | $ | 65,853 | $ | - | 225,149 | |||||||||||
Gross Profit | 22,698 | 19,523 | 15,438 | (779 | ) | 56,880 | ||||||||||||||
Gross Profit % | 29.1 | % | 24.0 | % | 23.4 | % | nm | 25.3 | % |
Six Months Ended June 30, 2019 | ||||||||||||||||||||
Cinch Connectivity | Power Solutions | Magnetic | Corporate | |||||||||||||||||
Solutions | and Protection | Solutions | Segment | Total | ||||||||||||||||
Revenue | $ | 86,897 | $ | 86,800 | $ | 79,108 | $ | - | 252,805 | |||||||||||
Gross Profit | 22,450 | 18,855 | 16,708 | (533 | ) | 57,480 | ||||||||||||||
Gross Profit % | 25.8 | % | 21.7 | % | 21.1 | % | nm | 22.7 | % |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this Our Company Bel designs, manufactures and The Company operates through three 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 People’s Republic of China (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. The Effects of COVID-19 on Bel’s Business During the first half of 2020, the Company has focused heavily on the continued safety and well-being of its associates around the world in light of COVID-19. The majority of the products manufactured by Bel are utilized in military, medical and networking applications, and are therefore deemed essential by the various jurisdictions in which we operate. Our management team has been able to respond quickly in implementing our business continuity plans around the world. Significant protective measures were put in place throughout our facilities, including employee screenings, physical partitions, social distancing, use of face coverings, travel and visitor restrictions and work from home policies as we continue to service our customers. The majority of our office staff continues to work remotely to avoid a large number of associates being present in an office setting at any one time. With the significant increase in the number of staff working remotely, Bel's IT department took a variety of precautionary measures to protect the computer equipment that associates are utilizing in the remote environment. The combination of protective measures at our factories coupled with remote work arrangements have enabled us to maintain operations, including financial reporting systems, internal controls over financial reporting and disclosure controls and procedures. Our financial results for the first six months of 2020 reflected the temporary facility closures at certain of our manufacturing locations, particularly in China, Mexico and the Dominican Republic, due to the outbreak of COVID-19 and the related disruption to our supply chain. This led to an estimated $14-$17 million of shipments scheduled for the first quarter which were ultimately shipped in the second quarter. The Company also incurred additional indirect COVID-19 related costs, including operational inefficiencies and employee retention programs at its manufacturing facilities in China in the first quarter, which were partially offset by $2.2 million of COVID-19 relief funding received from the Chinese government also during the first quarter. All of our manufacturing sites are operating as of the filing date of this Quarterly Report. Although the majority of our factories in North America, Europe and Asia are currently at 90+% of their normal workforce levels, we are experiencing lower productivity and efficiency rates at certain sites in North America and Europe (estimated at 60-85%, depending on the impacted site) due to a reduced workforce at those sites. In addition, in order to comply with social distancing requirements, certain of our factory floors have been reconfigured to provide additional spacing in production lines, which has resulted in some inefficiencies related to product flow. Bel has also experienced higher freight costs for products typically shipped by air due to lower cargo capacity with the reduction in commercial air travel. While there are some delays within the supply chain in the movement of products related to border closures, to date such delays have not materially impacted our ability to operate our business or achieve our business goals. To date, we have not seen a significant reduction in demand for our products due to COVID-19, as many of our products support military, medical and networking applications, which generally have not been negatively impacted by COVID-19. However, approximately 5% of our revenue relates to products utilized in end markets that have been impacted by COVID-19, such as commercial aerospace. Given the general uncertainty regarding the impact of COVID-19 on our manufacturing capability and on our customers, we are unable to quantify the ultimate impact of COVID-19 on our future results at this time. Based on our analysis of ASC 350 and ASC 360 during the six months ended June 30, 2020, we are currently not aware of any material impairments of our goodwill, indefinite-lived intangible assets or finite-lived assets. The Company will continue to assess the relevant criteria on a quarterly basis based on updated cash flow and market assumptions. Unfavorable changes in cash flow or market assumptions could result in impairment of these assets in future periods. As our operations have continued, albeit at slightly reduced production and efficiency rates, we have not experienced a negative impact on our liquidity to date. Our balance of cash on hand continues to be strong at $75.3 million at June 30, 2020 as compared to $72.3 million at December 31, 2019, despite a voluntary debt payment of $8.2 million made during the first quarter. Our cash balance on hand as of July 31, 2020 was $78.5 million. The Company also has availability under its current revolving credit facility; as of June 30, 2020, the Company could borrow an additional $44.8 million while still being in compliance with its debt covenants. However, any further negative impact to our financial results related to COVID-19 would have a related negative impact on our financial covenants outlined in our credit agreement, which would impact the amount available to borrow under our revolving credit facility. In order to assist with maintaining our liquidity position, the Company implemented several measures during the first quarter, including the deferral of employer social security taxes under the federal CARES Act, restrictions on new hires, suspension of salary reviews, the elimination of all business travel and restrictions on spending related to capital expenditures. During the three and six months ended June 30, 2020, travel expenses incurred by the Company were $0.7 million and $0.9 million lower, respectively, than the comparable periods of 2019. Management has developed Phase 2 and Phase 3 of the Company’s cash conservation/cost savings plan which would be implemented in the event our liquidity position or financial results become materially impacted by COVID-19. Our statements regarding the future impact of COVID-19 represent Forward-Looking Statements. See “Cautionary Notice Regarding Forward-Looking Information.” Other Key Factors Affecting our Business The Company believes that, in addition to COVID-19, the key factors affecting Bel’s results for the six months ended June 30, • Revenues – The Company’s revenues decreased by • Backlog – Our backlog of orders amounted to • 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 Company’s gross margin percentage. In general, our connectivity products have the highest contribution margins of our three product groups. Our power products have a higher bill of materials and are impacted to a greater extent by changes in material costs. As our magnetic solutions products are more labor intensive, • Pricing and Availability of Materials – • Labor Costs – Labor costs decreased from • Restructuring – The Company continues to implement restructuring programs to increase operational efficiencies and incurred • Impact of Foreign Currency – During the first six months of • Effective Tax Rate – The Company’s effective tax rate will fluctuate based on the geographic Visibility is limited as we enter the Summary by Operating Segment Revenue The Company’s revenue by operating segment for the three and six months ended June 30, Three Months Ended Six Months Ended June 30, June 30, Revenue Gross Margin Revenue Gross Margin 2020 2019 2020 2019 2020 2019 2020 2019 Connectivity solutions Magnetic solutions Power solutions and protection Connectivity Solutions: Sales of our Magnetic Solutions: Sales of our Magnetic Solutions products were down $3.7 million and $13.3 million during the three and six months ended June 30, 2020, respectively, as compared to the same periods of 2019. As the majority of our manufacturing of Magnetic Solutions products is in the PRC, our ability to manufacture product was temporarily impacted during the first quarter of Power Solutions and Protection: Sales of our Power Solutions and Protection products were Cost of Sales Cost of sales as a Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Material costs Labor costs Other expenses Total cost of sales The fluctuations in material costs 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 decreased during the three and six months ended June 30, Research and Development ("R&D") Expense: R&D expense amounted to $6.1 million and $6.9 million for the three months ended June 30, 2020 and 2019, respectively, and $12.2 million and $14.0 million for the six months ended June 30, 2020 and 2019, respectively. The lower Selling, General and Administrative Expense (“SG&A”) SG&A expenses were SG&A expenses were $40.1 million, up $1.7 million from the first half of 2019. A reduction in ERP costs of Provision for Income Taxes The Company’s effective tax rate will fluctuate based on the geographic The provision for income taxes for the three months ended June 30, The (benefit) provision for income taxes for the six months ended June 30, 2020 and 2019 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 June 30, Cash and cash equivalents, marketable securities and accounts receivable comprised approximately In June 2014, the Company entered into a senior Credit and Security Agreement, which was subsequently amended in December 2014, 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 The Company was in compliance with its debt covenants as of June 30, 2020, including its most restrictive covenant, the Fixed Charge Coverage Ratio. The unused credit available under the credit facility at June 30, We are currently engaged in a multi-year process of conforming the majority of our operations onto one global Enterprise Resource Planning system (“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 Cash Flows Six Months Ended June 30, 2020 During the six months ended June 30, 2020, the Company’s cash and cash equivalents increased by $3.0 million. This increase was primarily due to purchases of property, plant and equipment of $3.0 million; dividend payments of $1.6 million; and repayments of long-term debt of $8.2 million. During the six months ended June 30, 2020, accounts receivable increased by $2.5 million primarily due to higher sales during the second quarter of 2020 as compared to the fourth quarter of 2019. Days sales outstanding (DSO) improved slightly to 59 days at June 30, 2020 as compared to 60 days at December 31, 2019. Inventory decreased by $1.9 million at June 30, 2020 compared to December 31, 2019. Inventory turns were 3.6 at each June 30, 2020 and December 31, 2019. Six Months Ended June 30, 2019 During the six months ended June 30, 2019, the Company’s cash and cash equivalents increased by $4.5 million. This increase was primarily due to the following: net cash provided by operating activities of $7.8 million; and purchases of property, plant and equipment of $5.3 million; dividend payments of $1.6 million; and repayments of long-term debt of $1.5 During the six months ended June 30, 2019, accounts receivable decreased by $7.7 million primarily due to lower sales during the second quarter of 2019 as compared to the fourth quarter of 2018. Days sales outstanding (DSO) increased slightly to 60 days at June 30, 2019 from 59 days at December 31, 2018. Inventory decreased by $1.8 million at June 30, 2019 compared to December 31, 2018. Inventory turns were 3.6 at June 30, 2019 as compared to 3.7 at December 31, 2018. Critical Accounting Policies Management’s discussion and analysis of Bel’s financial condition and results of operations are based upon the Company’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. Recent Accounting Pronouncements The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1 to the Company’s Financial Statements, “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 Disclosure controls and procedures Changes in internal controls over financial reporting PART II. Other Information The information called for by this Item is incorporated herein by reference to Note 13, "Commitments and Contingencies" of the Company’s Condensed Consolidated Financial Statements, under “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. The risks described below, in addition to those described in Part I, Item 1A, Our global operations and demand for our products face risks related to Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, consolidated financial condition and consolidated results of operations. In January 2020, the outbreak of COVID-19 was first identified and had an unfavorable impact on our four largest manufacturing facilities, which are located in China, throughout the first quarter of 2020. Travel restrictions imposed by the local governmental authorities to control the spread of the virus resulted in an extended closure of our facilities in China over the Lunar New Year holiday, with the return of workers delayed after the holiday break. By March 9, 2020, our overall worker return rate at our China facilities was approximately 85%. Our suppliers, customers and our customers’ contract manufacturers have been similarly impacted, and many are also currently operating at less than full capacity. Throughout the second quarter of 2020, many of the jurisdictions in which we operate within North America and Europe had mandated shelter-in-place orders, with the exception of essential businesses. As of the filing date of this Quarterly Report, all of the Company's manufacturing sites were open, with certain locations at reduced workforce levels due to local government mandates. As the status of the COVID-19 outbreak continues to be uncertain particularly in the U.S. and Europe, additional Bel facilities could become negatively impacted. In addition, COVID-19 has adversely affect the economies and financial markets of many countries, resulting in an economic downturn that has affected demand for certain of our end customers’ products. The extent to which COVID-19 will impact our business and our consolidated financial results will depend on future developments which are highly uncertain and cannot be predicted at the time of the filing of this Quarterly Report on Form 10-Q. Our high level of indebtedness could negatively impact our access to the capital markets and our ability to satisfy financial covenants under our existing credit agreement. We incurred substantial amounts of indebtedness to fund the acquisitions of Power Solutions and Connectivity Solutions in 2014, and CUI in December 2019, and we may need to incur additional indebtedness to finance operations or for other general corporate purposes in the future. Our consolidated principal amount of outstanding indebtedness was $136.8 million at June 30, 2020, resulting in a leverage ratio of 3.45x adjusted EBITDA, as calculated in accordance with our credit agreement (as compared to the maximum leverage ratio of 5.00x as noted in our amended credit agreement). As of June 30, 2020, our fixed charge coverage ratio was 1.50x, as calculated in accordance with our credit agreement (as compared to the minimum fixed charge coverage ratio of 1.05x). Pursuant to the terms of our amended credit agreement, the leverage ratio will step down to 4.75x effective September 30, 2020, to 4.00x effective December 31, 2020, to 3.25x effective March 31, 2021 and to 3.00x effective June 30, 2021 and thereafter. The fixed charge coverage ratio will step up to 1.10x effective September 30, 2020, to 1.15x effective December 31, 2020 and to 1.25x effective March 31, 2021 and thereafter. Our U.S. debt service requirements are significant in relation to our U.S. revenue and cash flow. This leverage exposes us to risk in the event of downturns in our business, in our industry or in the economy generally, and may impair our operating flexibility and our ability to compete effectively. Our current credit agreement requires us to maintain certain covenant ratios, and as noted, the ratios become more restrictive at specific dates during the term. If we do not continue to satisfy these required ratios or receive waivers from our lenders, we will be in default under the credit agreement, which could result in an accelerated maturity of our debt obligations. We cannot assure investors that we will be able to access private or public debt or equity on satisfactory terms, or at all. Any equity financing that could be arranged may dilute existing shareholders and any debt financing that could be arranged may result in the imposition of more stringent financial and operating covenants. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Mine Safety Disclosures Not applicable. Not applicable. (a) Exhibits: 10.1† 31.1* 31.2* 32.1** 32.2** 101.INS* Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith. ** Submitted herewith. † Management contract or compensatory plan or arrangement. 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. August 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)quarterly reportQuarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 20182019 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 20182019 Annual Report on Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “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 statements herein regarding the likely impact of COVID-19 constitute 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,” we are referring to our “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.
OverviewWe design, manufacturemarketmarkets a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the military, aerospace, networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries. Bel’s portfolio of products also finds application in the automotive, medical and consumer electronics markets.We operategeographic segments: North America, Asia and Europe.product group segments, in addition to a Corporate segment. In the six months ended June 30, 2019, 52%2020, 36% of the Company’s revenues were derived from North America, 30%Power Solutions and Protection, 35% from AsiaCinch Connectivity Solutions and 18%29% from its EuropeMagnetic Solutions operating segment. By product group, 35% of sales for the six months ended June 30, 2019 related to the Company’s connectivity solutions products, 34% in power solutions and protection products and 31% in magnetic solutions products.20192020 and/or future results include the following:·$6.2$27.7 million (or 2.4%10.9%) in the first halfsix months of 20192020 as compared to the same period of 2018. 2019. The sales decline was seen across all of our major product groups and was largely due to an over-inventoried supply channellower product demand from our commercial aerospace and cloud customers, in addition to temporary closures and lower efficiency levels at certain of our customers and distributors followingfactories during the high volumefirst half of purchases in 2018 in advance of the tariffs that went into effect in 2019. 2020 due to COVID-19.·$150.9$179.6 million at June 30, 2019, a decline2020, an increase of $20.3$19.3 million, or 12%, from December 31, 2018.2019. Since year-end, we saw an 8%a 63% increase in the backlog for our ConnectivityMagnetic Solutions products, primarily driven by additional orders from our military customers.a large networking customer. The backlog of orders for our Power Solutions and Protection products declinedincreased by 17% and backlog15% due to increased demand across the majority of our power product lines. Backlog for our MagneticConnectivity Solutions products was down 29%14% from the 2019 year-end 2018 levels. Order volumes werelevels, primarily due to lower in the first half of 2019 as a result of slowdowns in certain markets coupled with customers working down heighted inventory levels which had been built up in response to new product launchesdemand from our direct and the tariffs that went into effect in 2018 and 2019.after-market commercial aerospace customers. ·and are therefore less profitable than the connectivity products and our powermargins on these products are onimpacted to a greater extent by minimum wage increases in the lower end of our profit margin range, due to their high material content.PRC and fluctuations in foreign exchange rates between the U.S. Dollar and the Chinese Renminbi. Fluctuations in salesrevenue volume among our product groups will have a corresponding impact on Bel’s profit margins. As compared to the first half of 2019, Connectivity Solutions revenues were down 10.2% in the first half of 2020, Power Solutions and Protection revenues were down 6.5% and Magnetic Solutions revenues were down 16.6%.19Return to Index·While material costThe inventory of resistors and availability for certain components have started to ease, the higher raw material costs which were in place during 2018, particularly related to resistors, capacitors acquired by Bel and mosfets, are still running through ourits supply chain as we shipin 2018 at higher prices have been worked through and new prices for these materials are significantly less than the balance of our inventory on hand from 2018.2018 costs. Lead times continue to be extended for certain mosfets and costs for those components remain elevated. As a result, the Company’s material costs as a percentage of sales increasedrevenue decreased slightly to 43.5% during the first six months of 2020 from 43.8% during the first halfsame period of 2019 from 41.4% during the first half of 2018. 2019. ·11.4%11.0% of salesrevenue during the first halfsix months of 20182019 to 11.0%9.7% of salesrevenue during the first halfsame period of 2019,2020, as a more favorable exchange rate environment in 20192020 related to the Mexican Peso and Chinese Renminbi offsetoutweighed the overall impact of minimum wage increases in Mexico which went into effect on January 1, 2019 as well as minimum wage increasesat two of our factories in the PRC which went into effect in the firsteffective March 1, 2020 and third quarters of 2018.May 1, 2020. ·$1.4$0.2 million in restructuring costs during the first six months of 2020. Actions implemented in 2019 related to our Power Solutions and Protections and Magnetic Solutions segments are expected to yield incremental annualized cost savings of $5.7 million. Of this amount, $1.7 million was realized in 2019, and $1.4 million and $2.9 million were realized during the three and six months ended June 30, 2020, respectively, with $1.1 million to be realized in the second half of 2019. During2020. Additionally, during the second quarter of 2020, Bel initiated the Company completed the realignmentclosure of its Power R&D resources dedicated to its Power Solutions and Protection group and substantially completed the transition of manufacturing and warehousing operations from its Inwood, New York facility to other existing Bel facilities. The R&D and Inwood initiatives combined are expectedin Uster, Switzerland. This closure is anticipated to result in annualized cost savings of $2.1$3.0 million, beginning in the third quarter of 2019. We further identified and have startedwith expected savings to implement measures at certain facilities in Asia that are expected to result in annualized cost savings of $1.4 millionbe realized beginning in the fourth quarter of 2019. Incremental2020. The Company also implemented temporary cost reduction measures are expectedwithin its Cinch Connectivity Solutions segment during the first half of 2020 in order to follow throughoutalign its cost structure with its current level of revenue. These scalable manufacturing costs, which resulted in estimated cost savings of $1.7 million and $3.0 million during the thirdthree and fourth quarters of 2019six months ended June 30, 2020, respectively, will increase as demand from our remaining sites are reviewed. commercial aerospace customers recovers. The Company continues to implement its corporate-wide cost savings program to look at all areas for improvements. The preceding sentences represent Forward-Looking Statements. See “Cautionary Notice Regarding Forward-Looking Information.”·2019, the Company experienced lower2020, labor and overhead costs were $1.6 million lower than the same period of $3.2 million related2019 due to a favorable fluctuations inforeign exchange rates versus 2018, partially offset byenvironment. The Company also realized foreign exchange transactional losses realized of less than $0.1 million.million during the six months ended June 30, 2020. Since we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results and the revaluation of certain intercompany as well as third-party transactions to and from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact to our consolidated statements of operations and cash flows. The Company was favorably impacted by transactional foreign exchange gains in the first halfsix months of 20192020 due to the depreciation of the Peso, Euro, Pound, and Renminbi against the U.S. dollar as compared to exchange rates in effect during 2018.2019. The Company has significant manufacturing operations located in Mexico and in the PRC where labor and overhead costs are paid in local currency. As a result, the U.S. Dollar equivalent costs of these operations were $3.2$1.6 million lower in the first halfsix months of 20192020 as compared to the same period of 2018.2019. During the second quarter of 2020, the Company entered into forward contracts to secure a favorable exchange rate related to the Peso through December 31, 2020 for a portion of Bel's expected Peso obligations for the remainder of the year. The Company monitors changes in foreign currencies and may implement further pricing actions to help mitigate the impact that changes in foreign currencies may have on its consolidated operating results.·segmentjurisdiction in which our pretax profits are earned. Of the geographic segmentsjurisdictions in which we operate, the U.S.'s and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographical segments.jurisdictions. See Note 9,10, “Income Taxes”.After record bookings throughout 2018,Company has experienced slower bookings during the firstsecond half of 2019 as customers work through their inventory on hand. The Company experienced margin pressure during the second quarter of 2019year due to lower sales volumesthe continued uncertainty around COVID-19, and high material costs from 2018 whichits potential impact on the operations of Bel, its customers and its suppliers globally. Bel's management team will continue to run throughtake meaningful steps toward improving our profitability. Further restructuring efforts and related incremental cost savings are expected to continue over the Company’s statementnext 18 months as we further rationalize our operational footprint and complete the implementation of operations. As a resultour new ERP system. We remain focused on bottom line growth, and will continue the process of these ongoing factors, the Company expects the balancere-evaluating our customer base and product portfolio to ensure our resources are supporting those customers and products that align with our goal of 2019 to remain challenging from both a sales and margin perspective.improved profitability. The preceding sentence represents asentences represent Forward-Looking Statement.Statements. See “Cautionary Notice Regarding Forward-Looking Information.”Net sales to external customers20192020 and 20182019 were as follows: Three Months Ended Six Months Ended June 30, June 30, 2019 2018 2019 2018 North America $ 67,066 53 % $ 71,240 50 % $ 131,653 52 % $ 130,696 50 % Asia 39,324 31 % 45,914 33 % 76,601 30 % 84,535 33 % Europe 21,026 16 % 23,556 17 % 44,551 18 % 43,730 17 % $ 127,416 100 % $ 140,710 100 % $ 252,805 100 % $ 258,961 100 % 20Return to IndexSales declines in our North America segment during the second quarter of 2019 reflected lower sales into our distribution channel as our distribution partners continue to work down their level of inventory on hand. $ 38,908 $ 42,536 29.6 % 23.8 % $ 78,007 $ 86,897 29.1 % 25.8 % 37,152 40,852 25.4 % 20.0 % 65,853 79,108 23.4 % 21.1 % 45,112 44,028 23.5 % 20.2 % 81,289 86,800 24.0 % 21.7 % $ 121,172 $ 127,416 26.2 % 21.0 % $ 225,149 $ 252,805 25.3 % 22.7 % connectorConnectivity Solutions products into military applications were also lowerdeclined $3.6 million and $8.9 million during the secondthree and six months ended June 30, 2020, respectively, as compared to the same periods of 2019. These declines were primarily due to lower demand from direct and after-market commercial aerospace customers, partially offset by higher demand for our military products in the first half of 2020 as compared to the first half of 2019. This shift in product mix along with the operational cost reductions detailed in the "Restructuring" section above have resulted in improved gross margins for the three and six month periods of 2020 as compared to the same periods of 2019.20192020 due to the factory closures associated with COVID-19, which contributed to the decline in sales for the first half of 2020 as compared to the same period of 2018, impacting2019. There were improvements in both the levels of productivity and customer demand for our North America and European segment sales. Sales in our Asia segmentICM products in the second quarter of 2020 as compared to the first quarter of 2020, while demand remained below that of the second quarter 2019 levels. The gross margin improvement in the 2020 periods presented above versus the comparable 2019 periods was largely the result of restructuring measures implemented in late 2019 and a shift in product mix within the Magnetic Solutions segment.down versus 2018 $1.1 million higher in the second quarter of 2020 compared to the same quarter of 2019, while sales were $5.5 million lower for the first half of 2020 as compared to the same period of 2019. The CUI business, which was acquired in December 2019, contributed sales of $10.6 million and $18.9 million during the three and six months ended June 30, 2020, respectively, at a gross margin of 39.3% and 38.2%, respectively. Sales of our Bel Power Solutions products decreased by $9.0 million and $20.9 million during the three and six months ended June 30, 2020, respectively, as compared to the same periods of 2019. These declines were due in part to factory closures in China following the Lunar New Year holiday in connection with COVID-19, in addition to lower demand from a Cloud customer due to tariffs imposed on our product. Our DC/DC power products were also $1.4 million and $2.6 million lower during the three and six months ended June 30, 2020, respectively, as compared to the same periods last year. The gross margin expansion noted for the 2020 periods above as compared to the 2019 periods is largely due to the inclusion of higher-margin CUI sales in addition to cost savings that resulted from restructuring efforts implemented in the latter half of 2019.resultpercentage of customers working down heighted inventory levels which had been built up during 2018 in response to new product launches and the tariffs that went into effect in 2018 and 2019.Net sales and income from operations by operating segmentrevenue for the three and six months ended June 30, 2020 and 2019 and 2018 were as follows. Segment net sales are attributed to individual segments based on the geographic sourceconsisted of the billing for customer sales. Three Months Ended Six Months Ended June 30, June 30, 2019 2018 2019 2018 Total segment sales: North America $ 69,450 $ 74,602 $ 136,923 $ 137,173 Asia 63,062 70,005 125,372 126,144 Europe 25,734 27,630 52,598 51,942 Total segment sales 158,246 172,237 314,893 315,259 Reconciling item: Intersegment sales (30,830 ) (31,527 ) (62,088 ) (56,298 ) Net sales $ 127,416 $ 140,710 $ 252,805 $ 258,961 Income from operations: North America $ 2,373 $ 2,963 $ 1,880 $ 2,661 Asia 270 5,319 1,283 5,234 Europe 2,310 2,385 4,604 3,209 $ 4,953 $ 10,667 $ 7,767 $ 11,104 Income from operations declined across all segments during the second quarter of 2019 as compared with the same quarter of 2018 primary due to lower sales volume. Our Asia segment was also impacted by $0.4 million of restructuring charges during the second quarter of 2019. During the first half of 2019, income from operations for our North America segment was unfavorably impacted by $0.9 million of restructuringfollowing: 43.4 % 45.7 % 43.5 % 43.8 % 10.5 % 10.6 % 9.7 % 11.0 % 19.9 % 22.7 % 21.5 % 22.4 % 73.8 % 79.0 % 74.7 % 77.2 % 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 an increase in minimum wage rates which went into effect on January 1, 2019.Net SalesThe Company’s netas a percentage of sales by major product line forduring the three and six months ended June 30, 2020 compared to the same periods in 2019 and 2018 were as follows: Three Months Ended Six Months Ended June 30, June 30, 2019 2018 2019 2018 Connectivity solutions $ 42,536 33 % $ 48,928 35 % $ 86,897 35 % $ 91,846 35 % Magnetic solutions 40,852 32 % 45,548 32 % 79,108 31 % 83,776 33 % Power solutions and protection 44,028 35 % 46,234 33 % 86,800 34 % 83,339 32 % $ 127,416 100 % $ 140,710 100 % $ 252,805 100 % $ 258,961 100 % Connectivity Solutions:Sales of our connectivity solutions products during the second quarter of 2019 declined $6.4 million primarily due to lower demanda shift in classification of certain outsourced manufacturing from military customers duringlabor costs to material costs in connection with the 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 six-month period ended June 30, 2019, which declined $4.9 million from the same period of 2018, partially offset by higher sales to aerospace customers during the first quarter of 2019.21Return to IndexMagnetic Solutions:Salestransition of our magnetic products duringTRP business onto the second quarternew ERP system effective January 1, 2020. As such, material costs and first halflabor costs should be viewed on a combined basis when comparing to the prior year period. In the aggregate, these variable costs decreased from 56.3% of 2019 were down $4.7 million from the same periods of 2018 while inventory levels built up in advance of a new program launch during 2018 are worked through.Power Solutions and Protection:Sales of our power solutions and protection products were $2.2 million lowerrevenue in the second quarter of 2019 compared to the same quarter53.9% of 2018. Sales of our Bel Power Solutions products into datacenter applications decreased by $1.9 million and sales of our Custom Module products were $0.8 million lower as compared to last year’s second quarter. These decreases were partially offset by a $0.8 million increaserevenue in sales of our DC/DC power products. Sales during the six-month period ended June 30, 2019 increased by $3.5 million from the same period of 2018, as stronger sales into datacenter applications during the first quarter of 2019 lessened the impact of the second quarter declines onof 2020 and from 54.8% in the six-month period.Cost of SalesCost of sales as a percentage of net sales for the three and six months ended June 30, 2019 and 2018 consisted of the following: Three Months Ended Six Months Ended June 30, June 30, 2019 2018 2019 2018 Material costs 45.7 % 41.9 % 43.8 % 41.4 % Labor costs 10.6 % 11.5 % 11.0 % 11.4 % Research and development expenses 5.4 % 5.2 % 5.6 % 5.7 % Other expenses 22.7 % 20.8 % 22.4 % 22.1 % Total cost of sales 84.4 % 79.4 % 82.8 % 80.6 % Material costs as a percentage of sales continued to increase during the second quarter and first half of 2019 compared to 53.2% in the same periodsfirst half of 20182020. These reductions were primarily due to the industry-wide supply constraints related to certain of our purchased components during 2018. The finished goods shipped during the second quarter of 2019 still contained some of the higher-cost rawa reduction in material components.Labor costs as a percentage of sales also declined during the second quarter and first six months of 2019 compared to the same periods of 2018 as a more favorable exchange rate environment related to the Chinese Renminbi and Mexican Peso, which resulted in lower labor costs. This was partially offset the overall impact ofby PRC government-mandated minimum wage increases in the PRC and Mexico. The PRC government increased the minimum wage intwo of the regions where Bel’s factories are located in Februaryeffective March 1, 2020 and July of 2018. Furthermore, the minimum wage rates in Mexico increased effective JanuaryMay 1, 2019 which also drove labor costs higher in the second quarter and first half of 2019.Included in cost of sales is research and development (“R&D”) expense of $6.9 million and $7.4 million for the three months ended June 30, 2019 and 2018, respectively, and $14.0 million and $14.7 million for the six months ended June 30, 2019 and 2018, respectively. The lower R&D expenses in 2019 as compared to the respective 2018 periods is largely reflective of cost savings related to the realignment of our Power Solutions R&D resources earlier in 2019.20192020 by $0.2$4.8 million and $0.5$8.4 million, respectively, as compared to the same periods of 2018,2019. These declines primarily related cost savings from restructuring measures and other operational cost reductions noted in the "Restructuring" section above. The costs during the first half of 2020 were also reduced by $2.2 million related to subsidies received during the first quarter from the Chinese government to offset costs and inefficiencies incurred due to the temporary closures of our factories in China in connection with COVID-19.depreciationR&D expenses in 2020 as compared to the same periods 2019 is largely reflective of cost savings related to the realignment of our Power Solutions R&D implemented in 2019 and amortization expensea more favorable foreign exchange rate environment in the 2019 periods.$18.8$18.1 million, up $0.5down $1.2 million from the second quarter of 2018. Included within2019. Lower travel expenses of $0.7 million, a reduction in ERP costs of $0.4 million and savings from other cost containment efforts outweighed the $1.9 million of incremental SG&A expenses is a foreign exchange gain of $0.5 million inassociated with the second quarter of 2019 compared to a foreign exchange gain of $1.9 million in the second quarter of 2018. Excluding the effects of foreign exchange gains,recently-acquired CUI business. SG&A expense was downalso included a gain on the cash surrender value of COLI policies of $1.0 million in the second quarter of 2019 as2020 compared to a gain on these policies of $0.2 million in the same periodsecond quarter of 2018, led by reductions2019.$0.5$1.4 million, lower travel expenses of $0.9 million and sales and marketing expensessavings from other cost containment efforts partially offset the $4.1 million of $0.3 million from last year’s second quarter.were $38.6 million, down from $39.0associated with the recently-acquired CUI business. SG&A expense also included a loss on the cash surrender value of COLI policies of $0.4 million in the first half of 2018. Factors contributing2020 compared to the lower SG&A expense in the 2019 period were lower legal and professional fees and a reduction in sales and marketing expenses from the 2018 period. These reductions were partially offset by a $1.0 million unfavorable swing in foreign exchange rates (a lossgain on these policies of $0.1$0.8 million in the first half of 2019 compared to a foreign exchange gain of $0.9 million in the first half of 2018).22Return to Indexsegmentjurisdiction in which the pretax profits are earned. Of the geographic segmentsjurisdictions in which the Company operates, the U.S.'s and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographical segments.jurisdictions. See Note 9,10, “Income Taxes”.20192020 and 20182019 was $0.4 million and $2.4 million, respectively.million. The Company’s earnings before income taxes for the three months ended June 30, 2019,2020, were approximately $5.6$2.6 million lowerhigher than the same period in 2018,2019, primarily attributable to lower earningsan increase in the income from the Asia and Europe segments.segment. The Company’s effective tax rate was 12.4%7.1% and 26.6%12.4% for the three months ended June 30, 20192020 and 2018,2019, respectively. The change in the effective tax rate during the three months ended June 30, 20192020 as compared to the same period in 2018,2019, is primarily attributable to a decrease inthe impact of permanent differences on U.S. taxes relating to income from foreign subsidiaries taxed in the U.S. as part of the Tax Cuts and Jobs Act.tax exempt activities. See Note 9,10, “Income Taxes.”and 2018 was $0.5($0.3) million and $2.7$0.5 million, respectively. The Company’s earnings before income taxes for the six months ended June 30, 20192020, were approximately $3.5$3.1 million lower than the same period in 2018,2019, primarily attributable to lower earningsa decrease in the Asiaincome from the North America and Europe segment.segments. The Company’s effective tax rate was 10.1%(24.6%) and 33.8%10.1% for the six-month periodssix months ended June 30, 20192020 and 2018,2019, respectively. The change in the effective tax rate during the six months ended June 30, 20192020 as compared to the same period of 2018,in 2019, is primarily attributable to a decrease in U.S. taxestax benefits relating to income from foreign subsidiaries taxed in the U.S. as partreversal of valuation allowances and the Tax Cuts and Jobsfederal tax law changes for the CARES Act, and offset by the impact of permanent differences on U.S. tax exempt activities.20192020 and December 31, 2018, $37.62019, $37.5 million and $46.3$29.1 million, respectively (or 64%50% and 86%40%, respectively), of cash and cash equivalents was held by foreign subsidiaries of the Company. During the first halfsix months of 2019,2020, the Company repatriated $10.0$5.0 million of funds from outside of the U.S., with minimal incremental tax liability, and completed an intercompany loan from one of the Company’s foreign subsidiaries to its U.S. parent entity during the second quarter. Management has current intentions to repatriate an additional $5.0 million of funds from outside of the U.S., with a minimal incremental tax liability, by the end of 2019 with the intent of reducing our outstanding debt balance. The preceding sentence represents a Forward-Looking Statement. See “Cautionary Notice Regarding Forward-Looking Information."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’s U.S. operations in the future. In the event these funds were needed for Bel’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.31.7%33.3% of the Company’s total assets at June 30, 20192020 and 32.9%31.6% of total assets at December 31, 2018.2019. The Company’s current ratio (i.e., the ratio of current assets to current liabilities) was 3.2 to 1 at June 30, 20192020 and 2.73.1 to 1 at December 31, 2018.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 June 30, 2019,On February 18, 2020, the Company further amended its credit agreement whereby the Company voluntarily prepaid a portion of its term loan under the credit agreement in the amount of $8.2 million. The amendment also served to modify the interest rate and fees applicable to the loans under the credit agreement and changes certain covenants related to matters including acquisitions, share repurchases and financial ratios.20192020 was $75.0$43.0 million, of which we had the ability to borrow $37.1$44.8 million without violating our Leverage Ratio covenant based on the Company’sCompany's existing consolidated EBITDA.unitsunit on a three-phase approach through 2020. We currently estimate total costs over the course of this system implementation to be approximately $6.9 million. The preceding sentence represents a Forward-Looking Statement. See “Cautionary Notice Regarding Forward-Looking Information.”early 2021. Since inception of the project, we have incurred costs in a cumulative amount of $6.5$7.0 million in connection with this implementation, of which $0.4 million and $1.4 million in implementation costs was incurred duringin the threesecond quarter and six months ended June 30,first half of 2019, respectively.respectively, with no additional costs incurred in the second quarter or first half of 2020. These costs are included in SG&A on the condensed consolidated financial statements. The first phase of the ERP implementation project was completed in the first quarter of 2019 with the Power Solutions business going live on the new system effective January 1, 2019. In relation to thisThe second phase of the project was completed in the first phase completed, we started realizing annualizedquarter of 2020 with the TRP business going live on the new system effective January 1, 2020. To date, we've achieved annual cost savings on ERP licensing fees of approximately $1.3$2 million within SG&A expense which were largely realized starting in the second quarter of 2019. We anticipate completing this project with in-house resources by early 2021, with no further outside consulting costs. The preceding sentence represents a Forward-Looking Statement. See “Cautionary"Cautionary Notice Regarding Forward-Looking Information.”23Return"IndexCash Flows• net cash provided by operating activities of $16.8 million; partially offset by • • • ·• ·• proceeds from the sale of property, plant and equipment of $5.8 million; partially offset by • ·• ·• millionmillion.Six Months Ended June 30, 2018During the six months ended June 30, 2018, the Company’s cash and cash equivalents decreased by $13.6 million. This decrease was primarily due to the following:·purchases of property, plant and equipment of $5.9 million;·repayments of long-term debt of $7.5 million; and·dividend payments of $1.6 million; partially offset by·net cash provided by operations of $1.2 million.During the six months ended June 30, 2018, accounts receivable increased by $10.5 million primarily due to higher sales volume in the second quarter of 2018 as compared to the fourth quarter of 2017. Days sales outstanding (DSO) declined to 58 days at June 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. Excluding the adoption adjustment related to this accounting change, inventory increased by $10.6 million at June 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 4.2 at June 30, 2018, primarily due to the change in revenue recognition accounting noted above.24Return to Index21halfsix months of 2019,2020, the U.S. Dollar was stronger against most other currencies in which the Company pays its expenses. In comparing average exchange rates during the first halfsix months of 20192020 versus those during the first halfsame period of 2018,2019, the Euro depreciated by 7%2%, the Pound depreciated by 6%2%, the Peso depreciated by 1%11% and the Renminbi depreciated by 6%3% against the U.S. Dollar.Dollar. The Company estimates that the depreciation in these foreign currencies led to lower operating costs of $3.2$1.6 million during the first half of 2020 as compared to the same period of 2019, as the majority of ourthe Company's expenses in the PRC, Europe and Mexico are paid in local currency. This offset the foreignForeign exchange losslosses were also recognized in the first halfsix months of 20192020 of less than $0.1 million on translation of local currency balance sheet accounts to the U.S. Dollar in consolidation, resulting from foreign currency fluctuations since December 31, 2018.2019. During the second quarter of 2020, the Company entered into forward contracts to secure a favorable exchange rate related to the Peso through December 31, 2020 for a portion of Bel's expected Peso obligations for the remainder of the year. The Company monitors changes in foreign currencies and may implement further pricing actions to help mitigate the impact that changes in foreign currencies may have on its consolidated operating results. Refer to Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 for further discussion of market risks.See“Risk"Risk Factors,”" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019, should be carefully considered before making an investment decision. These are the risk factors that we consider to be the most significant risk factors, but they are not the only risk factors that should be considered in making an investment decision. This Form 10-Q also contains Forward-Looking Statements that involve risks and uncertainties. See the "Cautionary Notice Regarding Forward-Looking Information," above. Our business, consolidated financial condition and consolidated results of operations could be materially adversely affected by any of the risk factors described, under "Cautionary Notice Regarding Forward-Looking Information" or with respect to specific Forward-Looking Statements presented herein. The trading price of our securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially adversely affect our business in the future. 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.25ReturnIndexhealth epidemics such as the coronavirus. (a)Exhibits:31.1* 101.INS*104*Cover Page Interactive Data File (formatted as Inline XBRL Instance Documentand contained in Exhibit 101)101.SCH*XBRL Taxonomy Extension Schema Document101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*XBRL Taxonomy Extension Definition Linkbase Document101.LAB*XBRL Taxonomy Extension Label Linkbase Document101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document **26Return to Index246, 20197, 202027