[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004 |
[_] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
BEL FUSE INC. | ||
(Exact name of registrant as specified in its charter) | ||
New Jersey | 22-1463699 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
206 Van Vorst Street | ||
Jersey City, New Jersey 07302 | ||
(Address of principal executive offices) | ||
(Zip Code) | ||
(201) 432-0463 | ||
(Registrant's telephone number, including area code) | ||
(Former name, former address and former fiscal year, if changed since last report) |
Yes | [X] | No | [_] |
Yes | [X] | No | [_] |
Page Number | |||
Part I. | Financial Information | 1 | |
Item 1. | Financial Statements | ||
Consolidated Balance Sheets as ofSeptember 30, 2004 (unaudited) and December 31, 2003 | 2 - 3 | ||
Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2004 and 2003 (unaudited) | 4 | ||
Consolidated Statements of Stockholders' Equity for theYear Ended December 31, 2003 and theNine Months EndedSeptember 30, 2004 (Unaudited) | 5 | ||
Consolidated Statements ofCash Flows for the NineMonths Ended September 30,2004 and 2003 (unaudited) | 6 - 8 | ||
Notes to Consolidated Financial Statements (unaudited) | 9 - 25 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 - 40 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 | |
Item 4. | Controls and Procedures | 41 | |
Part II. | Other Information | ||
Item 1. | Legal Proceedings | 43 | |
Item 6. | Exhibits | 44 | |
Signatures | 45 |
PART I. | Financial Information |
Item 1. | Financial Statements |
- 1 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 65,706,944 | $ | 57,461,152 | |||
Marketable securities | 21,525,501 | 5,038,749 | |||||
Accounts receivable - less allowance for doubtfulaccounts of $1,733,000 and $1,976,000 atSeptember 30, 2004 and December 31, 2003, respectively | 33,513,000 | 30,381,613 | |||||
Inventories | 34,045,368 | 26,228,697 | |||||
Prepaid expenses and other currentassets | 2,211,004 | 1,704,475 | |||||
Assets held for sale | 625,000 | 625,000 | |||||
Deferred income taxes | — | 650,000 | |||||
Total Current Assets | 157,626,817 | 122,089,686 | |||||
Property, plant and equipment - net | 40,103,763 | 43,494,786 | |||||
Intangible assets - net | 2,845,845 | 3,637,985 | |||||
Goodwill | 9,881,854 | 9,881,854 | |||||
Prepaid pension costs | 1,741,792 | 1,359,414 | |||||
Other assets | 2,460,123 | 1,352,836 | |||||
TOTAL ASSETS | $ | 214,660,194 | $ | 181,816,561 |
- 2 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
(Unaudited) | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current Liabilities: | |||||||
Current portion of long-term debt | $ | 2,000,000 | $ | 2,000,000 | |||
Accounts payable | 12,355,678 | 7,514,860 | |||||
Accrued expenses | 14,204,215 | 9,442,689 | |||||
Deferred income taxes | 1,043,000 | — | |||||
Income taxes payable | 757,758 | 226,432 | |||||
Dividends payable | 540,000 | 530,000 | |||||
Total Current Liabilities | 30,900,651 | 19,713,981 | |||||
Long-term Liabilities: | |||||||
Minimum pension obligation | 2,289,627 | 1,983,627 | |||||
Long-term debt - net of current portion | 5,000,000 | 6,500,000 | |||||
Deferred income taxes | 5,632,000 | 6,764,000 | |||||
Total Long-term Liabilities | 12,921,627 | 15,247,627 | |||||
Total Liabilities | 43,822,278 | 34,961,608 | |||||
Commitments and Contingencies | |||||||
Stockholders' Equity: | |||||||
Preferred stock, no par value,authorized 1,000,000 shares; none issued | — | — | |||||
Class A common stock, par value $.10 per share - authorized 10,000,000 shares; outstanding 2,701,663 and 2,701,663 shares at September 30, 2004 and December 31, 2003, respectively (net of 2,676,225 treasury shares) | 270,167 | 270,167 | |||||
Class B common stock, par value $.10 per share - authorized 30,000,000 shares; outstanding 8,639,603 and 8,460, 692 shares, at September 30, 2004 and December 31, 2003, respectively (net of 8,405,492 treasury shares) | 863,966 | 846,069 | |||||
Additional paid-in capital | 21,471,956 | 17,352,448 | |||||
Retained earnings | 144,462,825 | 127,406,693 | |||||
Accumulated other comprehensiveincome | 3,769,002 | 979,576 | |||||
Total Stockholders' Equity | 170,837,916 | 146,854,953 | |||||
TOTAL LIABILITIES AND | |||||||
STOCKHOLDERS' EQUITY | $ | 214,660,194 | $ | 181,816,561 | |||
- 3 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
(Unaudited) | |||||||||||||
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Net Sales | $ | 140,732,891 | $ | 115,632,156 | $ | 49,985,626 | $ | 45,863,648 | |||||
Costs and expenses: | |||||||||||||
Cost of sales | 97,994,687 | 83,564,436 | 35,007,672 | 32,689,492 | |||||||||
Selling, general and administrative | 23,053,991 | 20,791,634 | 7,984,406 | 7,622,239 | |||||||||
Fixed asset impairment | 1,032,786 | — | — | — | |||||||||
122,081,464 | 104,356,070 | 42,992,078 | 40,311,731 | ||||||||||
Income from operations | 18,651,427 | 11,276,086 | 6,993,548 | 5,551,917 | |||||||||
Other income (expense): | |||||||||||||
Interest expense | (176,931 | ) | (191,900 | ) | (60,457 | ) | (108,615 | ) | |||||
Interest income | 448,835 | 305,891 | 169,256 | 106,271 | |||||||||
Lawsuit proceeds | 2,935,000 | — | — | — | |||||||||
3,206,904 | 113,991 | 108,799 | (2,344 | ) | |||||||||
Earnings before provision for income taxes | 21,858,331 | 11,390,077 | 7,102,347 | 5,549,573 | |||||||||
Income tax provision | 3,164,000 | 3,223,000 | 208,000 | 1,920,000 | |||||||||
Net earnings | $ | 18,694,331 | $ | 8,167,077 | $ | 6,894,347 | $ | 3,629,573 | |||||
Earnings per common share - basic | $ | 1.66 | $ | 0.74 | $ | 0.61 | $ | 0.33 | |||||
Earnings per common share - diluted | $ | 1.63 | $ | 0.73 | $ | 0.60 | $ | 0.32 | |||||
Weighted average common sharesoutstanding - basic | 11,260,597 | 10,978,737 | 11,331,012 | 11,033,760 | |||||||||
Weighted average common sharesoutstanding - diluted | 11,490,057 | 11,129,723 | 11,537,814 | 11,225,693 | |||||||||
- 4 - | ||
BEL FUSE INC. AND SUBSIDIARIES | ||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||
Total | Compre- hensive | Retained Earnings | Accumulated Other | Class A Common | Class B Common | Additional Paid-In | ||||||||||||||||
Balance, January 1, 2003 | $ | 130,659,147 | $ | 115,632,819 | $ | (50,132 | ) | $ | 267,623 | $ | 826,149 | $ | 13,982,688 | |||||||||
Exercise of stock options | 2,580,224 | 2,544 | 19,920 | 2,557,760 | ||||||||||||||||||
Tax benefits arising from the disposition of non-qualified incentive stock options | 812,000 | 812,000 | ||||||||||||||||||||
Cash dividends on Class Acommon stock | (322,234 | ) | (322,234 | ) | ||||||||||||||||||
Cash dividends on Class Bcommon stock | (1,667,586 | ) | (1,667,586 | ) | ||||||||||||||||||
Currency translationadjustment - net of taxes | 1,014,808 | $ | 1,014,808 | 1,014,808 | ||||||||||||||||||
Increase in marketablesecurities-net of taxes | 14,900 | 14,900 | 14,900 | |||||||||||||||||||
Net earnings | 13,763,694 | 13,763,694 | 13,763,694 | |||||||||||||||||||
Comprehensive income | $ | 14,793,402 | ||||||||||||||||||||
Balance, December 31, 2003 | 146,854,953 | 127,406,693 | 979,576 | 270,167 | 846,069 | 17,352,448 | ||||||||||||||||
Exercise of stockoptions | 3,515,405 | 17,897 | 3,497,508 | |||||||||||||||||||
Tax benefits arising from the disposition of non-qualified incentive stock options | 622,000 | 622,000 | ||||||||||||||||||||
Cash dividends on Class Acommon stock | (405,000 | ) | (405,000 | ) | ||||||||||||||||||
Cash dividends on Class Bcommon stock | (1,233,199 | ) | (1,233,199 | ) | ||||||||||||||||||
Currency translationadjustment - net of taxes | (90,175 | ) | $ | (90,175 | ) | (90,175 | ) | |||||||||||||||
Increase in marketablesecurities-net of taxes | 2,879,601 | 2,879,601 | 2,879,601 | |||||||||||||||||||
Net earnings | 18,694,331 | 18,694,331 | 18,694,331 | |||||||||||||||||||
Comprehensive income | $ | 21,483,757 | ||||||||||||||||||||
Balance, September 30, 2004 (Unaudited) | $ | 170,837,916 | $ | 144,462,825 | $ | 3,769,002 | $ | 270,167 | $ | 863,966 | $ | 21,471,956 | ||||||||||
- 5 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2004 | 2003 | ||||||
Cash flows from operatingactivities: | |||||||
Net income | $ | 18,694,331 | $ | 8,167,077 | |||
Adjustments to reconcile netincome to net cash providedby operating activities: | |||||||
Depreciation and amortization | 7,112,701 | 6,218,809 | |||||
Fixed asset impairment | 1,032,786 | — | |||||
Other | 928,000 | 711,000 | |||||
Deferred income taxes | 1,496,000 | 1,229,000 | |||||
Changes in operating assetsand liabilities (net of acquisitions) | (5,408,089 | ) | 606,552 | ||||
Net Cash Provided byOperating Activities | 23,855,729 | 16,932,438 | |||||
Cash flows from investing activities: | |||||||
Purchase of property, plantand equipment | (3,772,543 | ) | (2,047,586 | ) | |||
Purchase of marketablesecurities | (17,723,615 | ) | (1,228,873 | ) | |||
Payment for acquisitions - net ofcash acquired | (74,539 | ) | (36,169,750 | ) | |||
Proceeds from repaymentby contractors | 21,750 | 21,750 | |||||
Proceeds from sale ofmarketable securities | 5,599,894 | 4,904,875 | |||||
Net Cash Used inInvesting Activities | (15,949,053 | ) | (34,519,584 | ) | |||
- 6 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) | |||||||
(Unaudited) | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2004 | 2003 | ||||||
Cash flows from financingactivities: | |||||||
Proceeds from borrowings | — | 10,000,000 | |||||
Loan repayments | (1,500,000 | ) | (1,000,000 | ) | |||
Proceeds from exercise ofstock options | 3,515,405 | 1,653,037 | |||||
Dividends paid to commonshareholders | (1,628,199 | ) | (1,344,565 | ) | |||
Net Cash Provided ByFinancing Activities | 387,206 | 9,308,472 | |||||
Effect of exchange rate changes on cash | (48,090 | ) | — | ||||
Net Increase (decrease) inCash and Cash Equivalents | 8,245,792 | (8,278,674 | ) | ||||
Cash and Cash Equivalents- beginning of period | 57,461,152 | 59,002,581 | |||||
Cash and Cash Equivalents- end of period | $ | 65,706,944 | $ | 50,723,907 | |||
Changes in operating assetsand liabilities (net of acquisitions) consist of: | |||||||
Increase in accounts receivable | $ | (3,241,831 | ) | $ | (1,131,876 | ) | |
(Increase) decrease in inventories | (7,879,365 | ) | 239,907 | ||||
Increase in prepaidexpenses and other current assets | (888,907 | ) | (429,176 | ) | |||
Increase in other assets | (259,037 | ) | (388,507 | ) | |||
Increase in accounts payable | 4,830,008 | 466,779 | |||||
Increase in income taxes payable | 531,326 | 1,019,215 | |||||
Increase in accrued expenses | 1,499,717 | 830,210 | |||||
$ | (5,408,089 | ) | $ | 606,552 | |||
- 7 - | ||
BEL FUSE INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded) | |||||||
(Unaudited) | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2004 | 2003 | ||||||
Supplementary information: | |||||||
Cash paid during the period for: | |||||||
Income taxes | $ | 878,994 | $ | 267,000 | |||
Interest | $ | 176,931 | $ | 191,900 | |||
Details of acquisitions: | |||||||
Fair value of assetsacquired (excluding cash of $799,000in 2003) | $ | — | $ | 36,362,954 | |||
Intangibles | 74,539 | 6,253,917 | |||||
Less: cash on deposit previous year | — | (6,447,121 | ) | ||||
Cash paid for acquisitions | $ | 74,539 | $ | 36,169,750 | |||
- 8 - | ||
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of Presentation and Accounting Policies |
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- 9 - | ||
The fair values of marketable securities are based on quoted market prices. Realized gains or losses from the sales of marketable securities are based on the specific identification method.
ACQUISITION EXPENSES -The Company capitalizes all direct costs associated with proposed acquisitions. If the proposed acquisitions are consummated, such costs will be included as a component of the overall cost of the acquisition. Such costs are expensed at such time as the Company deems the consummation of a proposed acquisition to be unsuccessful.
- 10 - | ||
The Company typically has a twelve-month warranty policy for workmanship defects. Warranty returns have historically averaged at or below 1% of annual net sales.
The Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the customer's quality specifications. However, the Company may permit its customers to return product for other reasons. In these instances, the Company would generally require a significant cancellation penalty payment by the customer. The Company estimates such returns, where applicable, based upon management's evaluation of historical experience, market acceptance of products produced and known negotiations with customers. Such estimates are deducted from gross sales and provided for at the time revenue is recognized.
GOODWILL AND OTHER INTANGIBLES -In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS No. 142”) "Goodwill and Other Intangible Assets". SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives are not amortized but rather they are tested at least annually for impairment unless certain impairment indicators are identified. This standard was effective for fiscal years beginning after December 15, 2001. The Company tests goodwill for impairment at least annually (fourth quarter), using a fair value approach at the reporting unit level. A reporting unit is an oper ating segment or one level below an operating segment for which discrete financial information is available and reviewed regularly by management. Assets and liabilities of the Company have been assigned to the reporting units to the extent that they are employed in or are considered a liability related to the operations of the reporting unit and were considered in determining the fair value of the reporting unit.
- 11 - | ||
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Net earnings - as reported | $ | 18,694,331 | $ | 8,167,077 | $ | 6,894,347 | $ | 3,629,573 | |||||
Stock-based compensation expense using fair value method | (929,696 | ) | (1,559,134 | ) | (309,899 | ) | (599,702 | ) | |||||
Net earnings - pro forma | $ | 17,764,635 | $ | 6,607,943 | $ | 6,584,448 | $ | 3,029,871 | |||||
Earnings per share -basic-as reported | $ | 1.66 | $ | 0.74 | $ | 0.61 | $ | 0.33 | |||||
Earnings per share - basic-pro forma | $ | 1.58 | $ | 0.60 | $ | 0.58 | $ | 0.27 | |||||
Earnings per share -diluted-as reported | $ | 1.63 | $ | 0.73 | $ | 0.60 | $ | 0.32 | |||||
Earnings per share -diluted-pro forma | $ | 1.55 | $ | 0.59 | $ | 0.57 | $ | 0.27 |
- 12 - | ||
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Weighted average shares outstanding - basic | 11,260,597 | 10,978,737 | 11,331,012 | 11,033,760 | |||||||||
Dilutive impact of options and warrants outstanding | 229,460 | 150,986 | 206,802 | 191,933 | |||||||||
Weighted average shares outstanding - diluted | 11,490,057 | 11,129,723 | 11,537,814 | 11,225,693 | |||||||||
- 13 - | ||
2. | Acquisitions |
- 14 - | ||
Nine Months Ended | ||||
September 30, | ||||
2003 | ||||
Net sales | $ | 131,345 | ||
Net earnings | 8,813 | |||
Earnings per share - diluted | 0.79 |
Cash | $ | 799,000 | ||
Accounts receivable | 14,764,000 | |||
Inventories | 15,613,000 | |||
Prepaid expenses | 327,000 | |||
Property, plant andequipment | 11,049,000 | |||
Other assets | 244,000 | |||
Goodwill | 5,062,000 | |||
Patents | 1,600,000 | |||
Accounts payable | (2,748,000 | ) | ||
Accrued expenses | (3,540,000 | ) | ||
Income taxes payable | 566,000 | |||
Deferred income taxespayable | (421,000 | ) | ||
Net assets acquired | $ | 43,315,000 |
3. | Goodwill and Other Intangibles |
- 15 - | ||
Total | Asia | North America | Europe | ||||||||||
Balance, January 1, 2003 | $ | 4,819,563 | $ | 3,396,181 | $ | 1,423,382 | $ | — | |||||
Goodwill allocationrelated to acquisitions | 5,062,291 | 3,011,254 | 1,445,710 | 605,327 | |||||||||
Balance December 31, 2003and September 30, 2004 | $ | 9,881,854 | $ | 6,407,435 | $ | 2,869,092 | $ | 605,327 |
- 16 - | ||
December 31, 2003 | |||||||||||||||||||
Total | Asia | North America | |||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | ||||||||||||||
Patents and ProductInformation | $ | 2,935,000 | $ | 863,591 | $ | 2,653,000 | $ | 741,680 | $ | 282,000 | $ | 121,911 | |||||||
Covenants not-to-compete | 3,169,987 | 1,603,411 | 3,169,987 | 1,603,411 | — | — | |||||||||||||
$ | 6,104,987 | $ | 2,467,002 | $ | 5,822,987 | $ | 2,345,091 | $ | 282,000 | $ | 121,911 |
September 30, 2004 | |||||||||||||||||||
Total | Asia | North America | |||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | ||||||||||||||
Patents and Productnformation | $ | 2,935,000 | $ | 1,220,237 | $ | 2,653,000 | $ | 1,077,176 | $ | 282,000 | $ | 143,061 | |||||||
Covenants not-to-compete | 3,244,526 | 2,113,444 | 3,244,526 | 2,113,444 | — | — | |||||||||||||
$ | 6,179,526 | $ | 3,333,681 | $ | 5,897,526 | $ | 3,190,620 | $ | 282,000 | $ | 143,061 |
Year Ending | Amortization | |||
December 31, | Expense | |||
2004 | $ | 1,117,000 | ||
2005 | 1,031,000 | |||
2006 | 806,000 | |||
2007 | 417,000 | |||
2008 | 266,000 | |||
Total | $ | 3,637,000 |
4. | Inventories |
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
Raw materials | $ | 18,028,192 | $ | 12,421,655 | |||
Work in progress | 1,653,196 | 2,094,474 | |||||
Finished goods | 14,363,980 | 11,712,568 | |||||
$ | 34,045,368 | $ | 26,228,697 |
- 17 - | ||
5. | Restructuring Charges |
6. | Fixed Asset Impairment |
7. | Business Segment Information |
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Revenues: | |||||||||||||
Revenues from external customers | |||||||||||||
North America | $ | 51,580,796 | $ | 36,409,918 | $ | 17,686,995 | $ | 15,330,334 | |||||
Asia | 77,996,804 | 71,890,351 | 28,440,754 | 27,508,516 | |||||||||
Europe | 11,155,291 | 7,331,887 | 3,857,877 | 3,024,798 | |||||||||
Total revenues from external customers | 140,732,891 | 115,632,156 | 49,985,626 | 45,863,648 | |||||||||
Intersegment Revenues | |||||||||||||
North America | 7,991,302 | 9,345,197 | 2,181,204 | 3,503,559 | |||||||||
Asia | 21,818,717 | 13,879,247 | 6,644,341 | 2,250,164 | |||||||||
Europe | 1,125,982 | 1,020,524 | 404,676 | 236,722 | |||||||||
Total intersegment revenues | 30,936,001 | 24,244,968 | 9,230,221 | 5,990,445 | |||||||||
Total Revenues | 171,668,892 | 139,877,124 | 59,215,847 | 51,854,093 | |||||||||
Reconciling items: | |||||||||||||
Intersegment revenues | (30,936,001 | ) | (24,244,968 | ) | (9,230,221 | ) | (5,990,445 | ) | |||||
Total Consolidated Revenues | $ | 140,732,891 | $ | 115,632,156 | $ | 49,985,626 | $ | 45,863,648 |
- 18 - | ||
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Income from Operations: | |||||||||||||
North America | $ | 3,953,654 | $ | 2,101,819 | $ | 2,212,762 | $ | 1,484,629 | |||||
Asia | 13,583,612 | 8,210,570 | 4,754,118 | 3,574,354 | |||||||||
Europe | 1,114,161 | 963,697 | 26,668 | 492,934 | |||||||||
$ | 18,651,427 | $ | 11,276,086 | $ | 6,993,548 | $ | 5,551,917 |
8. | Debt |
9. | Marketable Securities |
- 19 - | ||
10. | Accrued Expenses |
September 30, 2004 | December 31, 2003 | ||||||
Sales commissions | $ | 1,670,971 | $ | 1,378,925 | |||
Subcontracting labor | 2,066,924 | 1,900,189 | |||||
Salaries, bonuses and | |||||||
related benefits | 4,213,972 | 3,047,904 | |||||
Other | 6,252,348 | 3,115,671 | |||||
$ | 14,204,215 | $ | 9,442,689 |
11. | Retirement Fund and Profit Sharing Plan |
- 20 - | ||
and 5 years of Plan participation), his normal retirement benefit under the Plan would be annual payments equal to 40% of his average base compensation (calculated using compensation from the highest 5 consecutive calendar years of Plan participation), payable in monthly installments for the remainder of his life. If a participant retires early from the Company (55 years old, 20 years of service, and 5 years of Plan participation), his early retirement benefit under the Plan would be an amount (i) calculated as if his early retirement date were in fact his normal retirement date, (ii) multiplied by a fraction, with the numerator being the actual years of service the participant has with the Company and the denominator being the years of service the participant would have had if he had retired at age 65, and (iii) actuarially reduced to reflect the early retirement date. If a participant dies prior to receiving 120 monthly payment s under the Plan, his beneficiary would be entitled to continue receiving benefits for the shorter of (i) the time necessary to complete 120 monthly payments or (ii) 60 months
If a participant dies while employed by the Company, his beneficiary would receive, as a survivor benefit, an annual amount equal to (i) 100% of the participant’s annual base salary at date of death for one year, and (ii) 50% of the participant’s annual base salary at date of death for each of the following 4 years, each payable in monthly installments. The Plan also provides for disability benefits, and a forfeiture of benefits if a participant terminates employment for reasons other than those contemplated under the Plan. The expense for the nine months ended September 30, 2004 and 2003 amounted to approximately $306,000 and $300,000, respectively and for the three months ended September 30, 2004 and 2003 amounted to approximately $102,000 and $111,000, respectively.
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Service cost | $ | 107,000 | $ | 142,000 | $ | 36,000 | $ | 58,000 | |||||
Interest cost | 120,000 | 78,000 | 40,000 | 26,000 | |||||||||
Amortization of adjustments | 79,000 | 80,000 | 26,000 | 27,000 | |||||||||
Total SERP expense | $ | 306,000 | $ | 300,000 | $ | 102,000 | $ | 111,000 |
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
Balance sheet amounts: | |||||||
Accrued pension liability | $ | 2,289,627 | $ | 1,983,627 | |||
Intangible asset | 1,741,792 | 1,359,414 | |||||
12. | Common Stock |
· | Voting - Class A receives one vote per share; Class B is non-voting; |
- 21 - | ||
· | Dividends (cash) - Cash dividends are payable at the discretion of the Board of Directors and is subject to a 5% provision whereby cash dividends paid out to Class B must be at least 5% higher per share annually than Class A. At the discretion of the Board of Directors, Class B may receive a cash dividend without Class A receiving a cash dividend. |
· | Dividends (other than cash) and distributions in connection with any recapitalization and upon liquidation, dissolution or winding up of the Company - Shared equally among Class A and Class B; |
· | Mergers and consolidations - Equal amount and form of consideration per share among Class A and Class B; |
· | Class B Protection - Any person or group that purchases 10% or more of the outstanding Class A (excluding certain shares, as defined) must make a public cash tender offer (within 90 days) to acquire additional shares of Class B to avoid disproportionate voting rights. Failure to do so will result in forfeiture of voting rights for those shares acquired after the recapitalization. Alternatively, the purchaser can sell Class A shares to reduce the purchaser's holdings below 10% (excluding shares owned prior to recapitalization). Above 10%, this protection transaction is triggered every 5% (i.e., 15%, 20%, 25%, etc.); |
· | Convertibility - Not convertible into another class of Common Stock or any other security by the Company, unless by resolution by the Board of Directors to convert such shares as a result of either class becoming excluded from quotation on NASDAQ, or if total outstanding shares of Class A falls below 10% of the aggregate number of outstanding shares of both classes (in which case, all Class B shares will be automatically converted in Class A shares). |
· | Transferability and trading - Both Class A and Class B are freely transferable and publicly traded on NASDAQ National Market; |
· | Subdivision of shares - Any split, subdivision or combination of the outstanding shares of Class A or Class B must be proportionately split with the other class in the same manner and on the same basis. |
- 22 - | ||
13. | Comprehensive Income |
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Net earnings | $ | 18,694,331 | $ | 8,167,077 | $ | 6,894,347 | $ | 3,629,573 | |||||
Currency translation adjustment-net of taxes | (90,175 | ) | 581,425 | 113,285 | 89,671 | ||||||||
Increase in marketablesecurities - net of taxes | 2,879,601 | 11,100 | 2,872,401 | 6,900 | |||||||||
Comprehensive income | $ | 21,483,757 | $ | 8,759,602 | $ | 9,880,033 | $ | 3,726,144 |
14. | Legal Proceedings |
a) | The Company had been a party to an ongoing arbitration proceeding related to the acquisition of its Telecom business in 1998. The Company believes that the seller breached the terms of a related Global Procurement Agreement dated October 2, 1998 and was seeking damages related thereto. During February 2004, the Company and the seller agreed in principle to settle the matter. The settlement resulted in a payment to the Company and an unconditional release by the seller of all counterclaims against the Company. The net gain of $2,935,000 from the settlement of the lawsuit is included in the Company's consolidated statement of operations for the nine months ended September 30, 2004. |
b) | The Company is a party to a lawsuit commenced by a third party which claims that its patent covers all of the Company's modular jack products. That party had previously advised the Company that it was willing to grant a non-exclusive license to the Company under the patent for a 3% royalty on all future gross sales of ICM products; payments of a lump sum of 3% of past sales including sales of applicable Insilco products; an annual minimum royalty of $500,000; payment of all attorney fees and marking of all licensed ICM's with the third party's patent number. The Company is subject to another lawsuit commenced by a third party which claims that its patent covers certain of the Company's modular jack products. That party had previously advised the Company that it was willing to grant a non transferable license to the Company for an up front fee of $500,00 0 plus a 6% royalty on future sales. The Company believes that none of its products are covered by these patents and intends to vigorously defend its position and no accrual has been provided. The Company cannot predict the outcome of these matters; however, management believes that the ultimate resolution of these matters will not have a material impact on the Company's consolidated financial condition or results of operations. |
- 23 - | ||
15. | Asset Held For Sale |
16. | Recent Accounting Pronouncements |
- 24 - | ||
- 25 - | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
- 26 - | ||
- 27 - | ||
4th Quarter | 2001 | $ | 164,329 | ||||
1st Quarter | 2002 | 4,538 | |||||
2nd Quarter | 2002 | 68,098 | |||||
3rd Quarter | 2002 | 38,914 | |||||
4th Quarter | 2002 | 271,163 | |||||
1st Quarter | 2003 | 77,069 | |||||
2nd Quarter | 2003 | 80,046 | |||||
3rd Quarter | 2003 | 28,851 | |||||
4th Quarter | 2003 | 98,263 | |||||
1st Quarter | 2004 | 31,051 | |||||
2nd Quarter | 2004 | 78,232 | |||||
3rd Quarter | 2004 | 72,857 | |||||
$ | 1,013,411 |
- 28 - | ||
Percentage of Net Sales | Percentage of Net Sales | ||||||||||||
Nine Months Ended | Three Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||
Cost of sales | 69.6 | 72.3 | 70.0 | 71.3 | |||||||||
Selling, general andadministrative expenses | 16.4 | 18.0 | 16.0 | 16.6 | |||||||||
Fixed asset impairment | 0.7 | — | — | — | |||||||||
Interest income | 0.3 | 0.3 | 0.3 | 0.2 | |||||||||
Interest expense | 0.1 | 0.2 | 0.1 | 0.2 | |||||||||
Lawsuit proceeds | 2.0 | — | — | — | |||||||||
Earnings before provisionfor income taxes | 15.5 | 9.8 | 14.2 | 12.1 | |||||||||
Income tax provision | 2.2 | 2.8 | 0.4 | 4.2 | |||||||||
Net earnings | 13.3 | 7.0 | 13.8 | 7.9 | |||||||||
Increase from | Increase from | ||||||
Prior Period | Prior Period | ||||||
Nine Months Ended September | Three Months Ended September | ||||||
30, 2004 compared with the | 30, 2004 compared with the | ||||||
Nine Months Ended | Three Months Ended | ||||||
September 30, 2003 | September 30, 2003 | ||||||
Net sales | 21.7 | % | 9.0 | % | |||
Cost of sales | 17.3 | 7.1 | |||||
Selling, general andadministrative expenses | 10.9 | 4.8 | |||||
Net earnings | 128.9 | 90.0 |
- 29 - | ||
- 30 - | ||
- 31 - | ||
- 32 - | ||
- 33 - | ||
- 34 - | ||
- 35 - | ||
- 36 - | ||
- 37 - | ||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||
Long-term debt | $ | 7,000,000 | $ | 2,000,000 | $ | 5,000,000 | $ | — | $ | — | ||||||
Capital expenditure obligations | 736,000 | 736,000 | — | — | — | |||||||||||
Operating leases | 1,631,000 | 898,000 | 733,000 | — | — | |||||||||||
Raw material purchase obligations | 7,352,000 | 7,352,000 | — | — | — | |||||||||||
Total | $ | 16,719,000 | $ | 10,986,000 | $ | 5,733,000 | $ | — | $ | — | ||||||
- 38 - | ||
- 39 - | ||
- 40 - | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
a) | Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specifi ed in the SEC’s rules and forms. |
b) | Changes in internal controls over financial reporting. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Company internal control over financial reporting. |
- 41 - | ||
Section 404 of the Sarbanes-Oxley Act. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with the Company's Annual Report on Form 10-K for the fiscal year ending December 31, 2004, the Company will be required to furnish a report by management on the Company's internal control over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, including a statement as to whether or not the Company's internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in the Company's internal control over financial reporting identified by management. Such report must also contain a statement that the Company's auditors have issued an attestation report on management's assessment of such internal controls. Public Company Oversight Board Auditing Standard No. 2 provides the professional standards and related performance guidance for auditors to attest to, and report on, management's assessment of the effectiveness of internal control over financial reporting under Section 404. While the Company currently believes that its internal control over financial reporting is effective, the Company is still performing the system and process documentation and evaluation needed to comply with Section 404, which is both costly and challenging. During this process, if the Company's management identifies one or more material weaknesses in the Company's internal control over financial reporting, the Company will be unable to assert that such internal control is effective. I f the Company is unable to assert that its internal control over financial reporting is effective as of December 31, 2004 (or if the Company's auditors are unable to attest that the Company's management's report is fairly stated or are unable to express an opinion on the effectiveness of the Company's internal controls), the Company could lose investor confidence in the accuracy and completeness of its financial reports, which could have an adverse effect on the Company's stock price. | |
While we currently anticipate being able to satisfy the requirements of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and any required remediation due in large part to the fact that there is no precedent available by which to measure compliance with the new Auditing Standard No. 2. |
- 42 - | ||
PART II. | Other Information |
Item 1. | Legal Proceedings |
a) | The Company had been a party to an ongoing arbitration proceeding related to the acquisition of its Telecom business in 1998. The Company believes that the seller breached the terms of a related Global Procurement Agreement dated October 2, 1998 and was seeking damages related thereto. During February, 2004, the Company and the seller agreed in principle to settle the matter. The settlement resulted in a payment to the Company and an unconditional release by the seller of all counterclaims against the Company. The net gain of $2,935,000 from the settlement of the lawsuit is included in the Company's consolidated statement of operations for the three months ended September 30, 2004. |
b) | The Company is a party to a lawsuit commenced by Murata Manufacturing Company Ltd. in the United States District Court Northern District of Illinois Eastern Division. The complaint claims that the plaintiff's patent covers all of the Company's modular jack products The complainant previously advised the Company that it was willing to grant a non-exclusive license to the Company under the patent for a 3% royalty on all future gross sales of ICM products; payments of a lump sum of 3% of past sales including sales of applicable Insilco products; an annual minimum royalty of $500,000; payment of all attorney fees and marking of all licensed ICM's with the third party's patent number. The Company is also a party to a lawsuit commenced by Regal Electronics, Inc. in the United States District Court for the Northern District of California. The compliant claims that the plaintiff's patent covers certain of the Company's modu lar jack products. The complainant previously advised the Company that it was willing to grant a non transferable license to the Company for an up front fee of $500,000 plus a 6% royalty on future sales. The Company believes that none of its products are covered by these patents and intends to vigorously defend its position and no accrual has been provided. The Company cannot predict the outcome of these matters; however, management believes that the ultimate resolution of these matters will not have a material impact on the Company's consolidated financial condition or results of operations. This statement represents a Forward Looking Statement; outcomes of legal proceedings are difficult to predict, due in part to the difficulties associated with the proof of facts in such proceedings. |
The Company is not a party to any other legal proceeding, the adverse outcome of which is expected to have a material adverse effect on the Company's consolidated financial condition or results of operations. |
- 43 - | ||
Item 6. | Exhibits | |
(a) | Exhibits |
Exhibit 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
Exhibit 31.2 | Certification of the Vice President of Finance pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
Exhibit 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
Exhibit 32.2 | Certification of the Vice President of Finance pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
- 44 - | ||
BEL FUSE, INC. | ||
| | |
Date: November 5, 2004 | By: | /s/ Daniel Bernstein |
Daniel Bernstein, President and Chief Executive Officer |
| | |
By: | /s/ Colin Dunn | |
Colin Dunn, Vice President of Finance |
- 45 - | ||
- 46 - | ||