================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 number: 0-11676
BEL FUSE INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1463699
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
198 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At November 1, 1995, there were 5,051,445 shares of Common Stock, $.10 par
value, outstanding.
================================================================================
BEL FUSE INC.
INDEX
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements ............................ 1
Consolidated Balance Sheets as of September
30, 1995 (unaudited) and December 31, 1994 ...... 2 - 3
Consolidated Statements of Operations for
the Nine Months and Three Months Ended
September 30, 1995 and 1994 (unaudited) ......... 4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1995
and 1994 (unaudited) ............................ 5 - 6
Notes to Consolidated Financial
Statements (unaudited) .......................... 7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................... 9 - 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders ................................ 14
Item 6. Exhibits and Reports on Form 8-K ................ 14
Signatures ....................................................... 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
The results of operations for the three and nine month periods ended
September 30, 1995, are not necessarily indicative of the results to be expected
for the entire fiscal year or for any other period.
-1-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
Current Assets:
Cash ....................................... $ 4,428,900 $ 2,842,894
Marketable securities ...................... 5,272,684 7,508,304
Accounts receivable, less allowance
for doubtful accounts of $82,000
and $70,000 ............................... 11,460,181 8,079,971
Inventories ................................. 10,499,790 8,766,203
Prepaid expenses and other current
assets ..................................... 1,989,661 959,764
----------- -----------
Total Current Assets ..................... 33,651,216 28,157,136
----------- -----------
Property, plant and equipment--net .......... 26,760,849 22,226,076
Unamortized excess of cost over fair
value of assets acquired .................... 151,412 166,925
Other assets ................................. 1,017,345 1,102,898
----------- -----------
TOTAL ASSETS ............................. $61,580,822 $51,653,035
=========== ===========
(Continued)
See notes to consolidated financial statements.
-2-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
Current Liabilities:
Note payable .............................. $ -- $ 300,000
Accounts payable .......................... 3,657,642 3,171,408
Accrued expenses .......................... 4,174,239 1,987,536
Income taxes payable ...................... 280,993 --
Deferred income taxes ..................... 322,000 28,000
------------ ------------
Total Current Liabilities ............... 8,434,874 5,486,944
Deferred income taxes ....................... 554,000 240,000
------------ ------------
Total Liabilities ....................... 8,988,874 5,726,944
------------ ------------
Stockholders' Equity:
Preferred stock, no par value--
authorized 1,000,000 shares;
none issued ............................. -- --
Common stock, par value $.10 per
share--authorized 10,000,000
shares; outstanding 5,049,820 and
4,965,195 shares ........................ 504,982 496,520
Additional paid-in capital ............... 6,696,187 6,288,987
Retained earnings ........................ 44,967,238 40,017,231
Net unrealized gain (loss) on
marketable securities .................. 423,541 (876,647)
------------ ------------
Total Stockholders' Equity ............. 52,591,948 45,926,091
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ............................... $ 61,580,822 $ 51,653,035
============ ============
See notes to consolidated financial statements.
-3-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Sales .............................................. $ 51,527,885 $ 31,725,477 $ 17,567,632 $ 12,191,187
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales .................................... 37,617,231 25,690,741 12,589,829 9,613,095
Selling, general and administrative
expenses ....................................... 9,047,109 9,127,718 3,276,672 2,466,731
------------ ------------ ------------ ------------
46,664,340 34,818,459 15,866,501 12,079,826
------------ ------------ ------------ ------------
Income (loss) from operations ...................... 4,863,545 (3,092,982) 1,701,131 111,361
Other income--net .................................. 847,311 490,007 732,307 147,571
Interest expense ................................... (3,849) (672) (738) (201)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes ................ 5,707,007 (2,603,647) 2,432,700 258,731
Income tax provision (benefit) ..................... 757,000 (86,000) 453,000 (96,000)
------------ ------------ ------------ ------------
Net earnings (loss) ................................ $ 4,950,007 $ (2,517,647) $ 1,979,700 $ 354,731
============ ============ ============ ============
Earnings (loss) per common share ................... $ .99 $ (.51) $ .39 $ .07
============ ============ ============ ============
Weighted average number of common
shares outstanding ............................... 4,997,173 4,942,372 5,028,415 4,949,368
============ ============ ============ ============
See notes to consolidated financial statements.
-4-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
----------------------------
1995 1994
----------- -----------
Cash flows from operating activities:
Net income (loss) .......................... $ 4,950,007 $(2,517,647)
Adjustments to reconcile net income
(loss) to net cash provided from
operating activities:
Depreciation and amortization .............. 2,023,331 1,847,274
Deferred income taxes ...................... 255,000 (332,000)
Bad debt reserve ........................... 12,000 --
Inventory obsolescence reserve ............. 270,000 --
Loss on disposition of equipment ........... 111,000 --
Tax effect of non-qualifying
disposition of incentive stock
options .................................. 116,000 83,000
Net (gain) loss on sale of
marketable securities .................... (565,490) 13,268
Changes in operating assets and
liabilities .............................. (2,119,024) (612,991)
----------- -----------
Net Cash Provided by Operating
Activities ............................... 5,052,824 (1,519,096)
----------- ------------
Cash flows from investing activities:
Purchase of property, plant and
equipment ................................ (6,653,591) (4,328,991)
Purchase of marketable securities .......... -- (2,923,066)
Proceeds from sale of marketable
securities ............................... 3,165,361 3,030,904
Proceeds from repayment by contractor ...... 21,750 21,750
----------- -----------
Net Cash (used in) Investing
Activities ............................... (3,466,480) (4,199,403)
----------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options .... 299,662 73,371
Repayment of borrowings .................... (300,000) (3,139)
----------- -----------
Net Cash Provided by (used in)
Financing Activities .................... (338) 70,232
----------- ------------
Net Increase (Decrease) in Cash .............. 1,586,006 (5,648,267)
Cash--beginning of period .................... 2,842,894 8,102,768
----------- -----------
Cash--end of period .......................... $ 4,428,900 $ 2,454,501
=========== ===========
(Continued)
See notes to consolidated financial statements.
-5-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(unaudited)
Nine Months Ended
September 30,
--------------------------
1995 1994
----------- -----------
Changes in operating assets and liabilities
consist of:
(Increase) in accounts receivable .............. $(3,392,210) $(1,362,398)
(Increase) decrease in inventories ............. (2,003,587) 396,096
(Increase) decrease in prepaid
expenses and other current assets ............ 606,321 (181,775)
Decrease in refundable income taxes ............ -- 12,000
(Increase) decrease in other assets ............ 85,553 (242,196)
Increase in accounts payable ................... 486,234 762,758
Increase in accrued expenses ................... 1,817,672 490,157
Increase (decrease) in income taxes
payable ...................................... 280,993 (487,633)
----------- -----------
$(2,119,024) $ (612,991)
=========== ===========
Supplementary information:
Cash paid during the period for:
Interest ....................................... $ 3,849 $ 672
=========== ===========
Income taxes ................................... $ 33,000 $ 639,000
=========== ===========
Supplemental disclosures of non-cash activities:
Unrealized gains (losses) on
marketable securities ........................ $ 1,300,188 $ 496,000
=========== ===========
Investment advisory fee ........................ $ 322,000 $ --
=========== ===========
See notes to consolidated financial statements.
-6-
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The consolidated balance sheet as of September 30, 1995, and the consolidated
statements of operations and cash flows for the nine months ended September 30,
1995 and 1994 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 financial position, results of
operations and cash flows for all periods presented have been made. Certain
items in the September 30, 1994 financial statements have been reclassified to
conform to September 30, 1995 classifications. The information for December 31,
1994 was derived from audited financial statements.
2. Earnings (Loss) Per Share - Earnings (loss) per common share are computed
using the weighted average number of common shares outstanding during the
period. The dilutive effect of outstanding options at September 30, 1995 was not
material and were not considered at September 30, 1994 as their effect is
antidilutive.
3. Inventories consist of the following:
September 30, 1995 December 31, 1994
------------------ -----------------
Raw materials ...................... $ 7,747,029 $ 6,552,826
Work-in-process .................... 124,194 35,897
Finished goods ..................... 2,628,567 2,177,480
----------- -----------
$10,499,790 $ 8,766,203
=========== ===========
4. Property, plant and equipment consists of the following:
September 30, 1995 December 31, 1994
------------------ -----------------
Land .................................. $ 686,987 $ 686,987
Buildings and improvements ............ 13,828,649 10,121,169
Machinery and equipment ............... 29,839,773 27,004,662
Idle property held for sale ........... 935,000 935,000
----------- -----------
45,290,409 38,747,818
Less accumulated depreciation
and amortization ..................... 18,529,560 16,521,742
----------- -----------
Net property, plant and
equipment ............................ $26,760,849 $22,226,076
=========== ===========
-7-
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. INCOME TAXES
Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" (SFAS 109), provides for the recognition of deferred assets
subject to a valuation allowance. At December 31, 1994, the Company established
a valuation allowance equal to the full amount of the tax effect of the net
operating loss carryforward. For the nine months ended September 30, 1995 and
1994, the Company recognized approximately $286,000 and $-0-, respectively as a
reduction of United States and Far East tax expense.
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
a. Results of Operations
---------------------
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
consolidated statements of operations and the percentage increase for such
items.
Percentage of Net Sales
-----------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1995 1994 1995 1994
------ ------ ------ ------
Net sales ........................ 100.0% 100.0% 100.0% 100.0%
Cost of sales .................... 73.0 81.0 71.7 78.9
Selling, general and
administrative expenses ......... 17.5 28.8 18.7 20.2
Other income, net of
interest expense ................ 1.6 1.6 4.2 1.2
Earnings (loss) before
income tax provision (benefit) .. 11.1 (8.2) 13.8 2.1
Income tax provision (benefit) ... 1.5 (.3) 2.6 (.8)
Net earnings (loss) .............. 9.6 (7.9) 11.2 2.9
The following table sets forth, for the periods indicated, the percentage
increase or decrease of items included in the Company's consolidated statements
of operations.
Increase (Decrease) from Prior Period
----------------------------------------
Nine Months Ended Three Months Ended
September 30, 1995 September 30, 1995
compared with 1994 compared with 1994
------------------ ------------------
Net sales ........................... 62.4% 44. %
Cost of sales ....................... 46.4 31.0
Selling, general and
administrative expenses ............ (.9) 32.8
Other income--net ................... 72.4 *
Earnings (loss) before
income tax provision (benefit) ..... * *
Income tax provision (benefit) ...... * *
Net earnings (loss) ................. * *
- -----------
* Percentage not meaningful.
-9-
Nine Months 1995 vs. Nine Months 1994
- -------------------------------------
Sales
-----
Net sales increased 62.4% from $31,725,477 during the first nine months of
1994 to $51,527,885 during the first nine months of 1995. The Company attributes
this increase primarily to strong demand from OEM customers for local area
network ("LAN") products. Increased LAN market share is due to a greater focus
on certain key OEM accounts and sales growth from improvements in the Company's
engineering service and support to major OEM customers.
Cost of Sales
-------------
Cost of sales as a percentage of net sales decreased 8% from 81% during the
first nine months of 1994 to 73% during the first nine months of 1995. The
decrease in the cost of sales percentage is primarily attributable to increased
sales, which resulted in better absorption of indirect labor and overhead
despite higher material content associated with the manufacture of packaged
modules, and the move to lower cost manufacturing facilities in the Far East.
Selling, General and Administrative Expenses
--------------------------------------------
The percentage relationship of selling, general and administrative expenses
to net sales decreased from 28.8% for the first nine months of 1994 to 17.5% for
the first nine months of 1995. The Company attributes the decrease primarily to
the increase in sales and the decrease in the dollar amount of such expenses.
Selling, general and administrative expenses decreased in dollar amount by .9%.
The Company attributes the decrease in the dollar amount of such expenses
primarily to a $1,190,000 charge during the first nine months of 1994 related to
severance costs and moving expenses associated with a move to lower cost
production facilities offset in part by increases in commissions and other sales
related expenses due to higher sales, accrued severance and bonus amounts, the
write off in June 1995 of certain expenses related to the unrealized acquisition
of Pulse Engineering, Inc. ("Pulse") and the abandonment of certain fixed assets
during the first nine months of 1995.
Other Income and Expenses
-------------------------
Other income, consisting of earnings on cash equivalents and marketable
securities and net realized gains on the sale of marketable securities,
increased by approximately $354,000 from the first nine months of 1994 to the
first nine months of 1995. This increase is primarily due to the Company
realizing approximately $650,000 of gains from the partial liquidation of the
Company's investment in Pulse's common stock upon Pulse's acquisition by
Technitrol Corporation in September 1995, offset in part by lower earnings on
invested funds due to lower average balances, and certain non-income generating
securities owned in 1995.
-10-
Provision for Income Taxes
--------------------------
The provision for income taxes for the first nine months of 1995 was
$757,000 as compared to a benefit of $86,000 for the first nine months of 1994.
The Company attributes this change primarily to the earnings before income tax
for the first nine months of 1995 versus the loss before income tax during the
first nine months of 1994. In addition, the Company utilized U.S. carryforward
and current deductions arising from the exercise of incentive stock options
which increased both the provision for income taxes and additional
paid-in-capital by approximately $116,000. The utilization of United States and
Far East net operating loss carryforward in 1995 reduced income taxes by
approximately $286,000.
The Company's effective tax rate has been lower than the statutory United
States corporate rate primarily as a result of the lower tax rates in Hong Kong
and Macau and the utilization of tax benefits arising from the operating loss
carryforward in the United States and the Far East.
Three Months 1995 vs. Three Months 1994
- ---------------------------------------
Sales
-----
Net sales increased 44.1% from $12,191,187 during the third quarter of 1994
to $17,567,632 during the third quarter of 1995. The Company attributes this
increase primarily to those reasons set forth in the nine month analysis.
Cost of Sales
-------------
Cost of sales as a percentage of net sales decreased 7.2% from 78.9% during
the third quarter of 1994 to 71.7% during the third quarter of 1995. The Company
attributes this decrease primarily to those reasons set forth in the nine month
analysis.
Selling, General and Administrative Expenses
--------------------------------------------
The percentage relationship of selling, general and administrative expenses
to net sales decreased 1.5% from the third quarter of 1994 to the third quarter
of 1995 and selling, general and administrative expenses increased in dollar
amount by 32.8%. The Company attributes this increase in dollar amount
primarily to increases in commissions and other sales related expenses due to
higher sales, accrued severance and bonus amounts, and the abandonment of
certain fixed assets.
Other Income and Expenses
-------------------------
Other income for the third quarter of 1995 compared to the third quarter of
1994 increased in dollar amount by approximately $584,000 due to those reasons
set forth in the nine month analysis.
Provision for Income Taxes
--------------------------
The provision for income taxes for the third quarter of 1995 was $453,000
as compared to a benefit of $96,000 for the third quarter of 1994 due primarily
to those reasons set forth in the nine month analysis.
-11-
Liquidity and Capital Resources
-------------------------------
Historically, the Company has financed its capital expenditures through
operating cash flows. Management believes that the cash flow from operations,
combined with its existing capital base and the Company's available lines of
credit, will be sufficient to fund its operations for the near term.
The Company has lines of credit, all of which were unused at September 30,
1995, in the aggregate amount of $3,000,000, of which $1,000,000 is from
domestic banks and $2,000,000 is from foreign banks.
From October 3, 1994 through November 8, 1994, the Company acquired 531,400
Class A Voting Common Shares of Pulse Engineering, Inc. ("Pulse"), representing
approximately 9.7% of Pulse's outstanding shares at a cost of $2,464,839.
On July 20, 1995, Pulse announced that its Board of Directors had accepted
a revised offer from Technitrol, Inc. ("Technitrol"), to acquire all of Pulse's
outstanding common stock. Effective September 29, 1995, Technitrol acquired the
Pulse common stock from the Company at a per share price of $3.12 per share in
cash plus .364 shares of Technitrol common stock resulting in the Company
receiving $1,657,968 in cash and 193,430 shares of Technitrol common stock.
As of the date hereof, the Company had made no decision regarding the steps
that it may take with respect to its Technitrol shares.
During June 1995, the Company's Far East subsidiary acquired 22,000 square
feet of additional production facilities for approximately $2,300,000 in cash.
The Company estimates that approximately $195,000 will be required to refurbish
the facility.
During the first nine months of 1995, the Company's cash positions
increased by $1.6 million, principally reflecting $5.1 million provided by
operating activities, the proceeds of approximately $3.2 million from the sale
of marketable securities and $300,000 from the exercise of stock options
offset in part by $6.7 million in purchases of fixed assets (including the above
mentioned production facilities) and repayment of $300,000 of short-term debt.
The Company has historically followed a policy of reinvesting the earnings
of foreign subsidiaries in the Far East. If the unrepatriated funds were
distributed to the parent corporation, such funds would be subject to United
States federal income taxes. No funds were repatriated during the first nine
months of 1995 or 1994.
-12-
Liquidity and Capital Resources (Continued)
-------------------------------------------
The Company's shareholders' equity increased by $6.6 million from December
31, 1994 to September 30, 1995, reflecting the Company's first nine months
profit of $4.9 million, an improvement from a $877,000 net unrealized loss on
marketable securities at December 31, 1994 to a $424,000 net unrealized gain on
marketable securities at September 30, 1995, the exercise of incentive stock
options and the utilization for U.S. tax purposes of carryforward and current
incentive stock option deductions of $400,000.
Cash, accounts receivable, marketable securities and amounts receivable
from the sale of marketable securities included in prepaid expenses and other
current assets comprised approximately 37.1% and 35.7% of the Company's total
assets at September 30, 1995 and December 31, 1994, respectively. The Company's
current ratio (i.e., the ratio of current assets to current liabilities) was 4.0
to 1 and 5.1 to 1 at September 30, 1995 and December 31, 1994, respectively.
-13-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: None
(b) There were no Current Reports on Form 8-K filed by
the registrant during the quarter ended September 30, 1995.
-14-
SIGNATURES
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.
By: /s/ Daniel Bernstein
--------------------------
Daniel Bernstein, President
(Principal Financial and
Accounting Officer)
Dated: November 10, 1995
-15-