================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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 (201) 432-0463 --------------------------------------- (Address of principal executive office) 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 May 1, 1998, there were 5,162,070 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 March 31, 1998 (unaudited) and December 31, 1997 ............................... 2 - 3 Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 1998 and 1997 (unaudited) ................................ 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (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 - 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ................................. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................. 12 SIGNATURES ......................................................... 13 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, 1997. The results of operations for the three month period ended March 31, 1998, 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 March 31, December 31, 1998 1997 ----------- ----------- Current Assets: Cash and cash equivalents .................. $31,606,662 $29,231,967 Marketable securities ...................... 2,102,012 -- Accounts receivable, less allowance for doubtful accounts of $238,000 and $227,000 .............................. 10,219,688 11,181,379 Inventories ................................ 10,646,926 12,202,938 Prepaid expenses and other current assets .................................... 675,988 383,084 Deferred income taxes ...................... 402,000 421,000 ----------- ----------- Total Current Assets .................. 55,653,276 53,420,368 Property, plant and equipment -- net ......... 29,243,011 29,052,354 Other assets ................................. 636,336 679,511 ----------- ----------- TOTAL ASSETS .......................... $85,532,623 $83,152,233 =========== =========== See notes to consolidated financial statements. -2- BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 1998 1997 ----------- ----------- Current Liabilities: Accounts payable ............................. $ 2,707,894 $ 3,467,897 Accrued expenses ............................. 5,669,607 5,660,411 Income taxes payable ......................... 101,964 237,515 ----------- ----------- Total Current Liabilities ............... 8,479,465 9,365,823 Deferred income taxes .......................... 950,000 957,000 ----------- ----------- Total Liabilities ....................... 9,429,465 10,322,823 ----------- ----------- Commitments and Contingencies 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 5,147,420 and 5,121,920 shares (net of 2,145,539 treasury shares) ........................... 514,742 512,192 Additional paid-in capital ................... 7,849,078 7,525,753 Retained earnings ............................ 67,737,786 64,771,298 Cumulative currency translation adjustment ................................. 1,552 20,167 ----------- ----------- Total Stockholders' Equity .............. 76,103,158 72,829,410 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $85,532,623 $83,152,233 =========== =========== See notes to consolidated financial statements. -3- BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Three Months Ended March 31, ---------------------------- 1998 1997 ----------- ----------- Net sales ..................................... $19,514,700 $15,962,204 ----------- ----------- Costs and Expenses: Cost of sales ............................... 13,177,728 11,370,115 Selling, general and administrative ............................ 3,387,482 3,093,309 ----------- ----------- 16,565,210 14,463,424 ----------- ----------- Income from operations ........................ 2,949,490 1,498,780 Other income -- net ........................... 415,998 340,079 ----------- ----------- Earnings before income taxes .................. 3,365,488 1,838,859 Income tax provision .......................... 399,000 529,000 ----------- ----------- Net earnings .................................. $ 2,966,488 $ 1,309,859 =========== =========== Earnings per common share -- basic ............ $ .58 $ .26 =========== =========== Earnings per common share -- diluted .......... $ .56 $ .26 =========== =========== Weighted average number of common shares outstanding -- basic ................. 5,130,885 5,072,094 =========== =========== -- diluted ............... 5,232,465 5,138,826 =========== =========== Net earnings .................................. $ 2,966,488 $ 1,309,859 Other comprehensive income (expense), net of income taxes: Foreign currency translation .............. (18,615) 14,916 ----------- ----------- Comprehensive income .......................... $ 2,947,873 $ 1,324,775 =========== =========== See notes to consolidated financial statements. -4- BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, --------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net income ................................... $ 2,966,488 $ 1,309,859 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............ 803,236 775,307 Other .................................... 68,000 62,000 Changes in operating assets and liabilities ............................ 1,324,110 (1,133,907) ----------- ----------- Net Cash Provided by Operating Activities ......................... 5,161,834 1,013,259 ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment .................................. (1,008,036) (1,269,628) Purchase of marketable securities ............ (2,102,012) (2,000,000) Proceeds from sale of marketable securities ................................. -- 633,410 Proceeds from repayment by contractor ........ 41,334 41,445 ----------- ----------- Net Cash (Used in) Investing Activities ......................... (3,068,714) (2,594,773) ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options ...... 281,575 15,750 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents .................... -- 14,906 ----------- ----------- Net Increase (Decrease) in Cash ................ 2,374,695 (1,550,858) Cash and Cash Equivalents -- beginning of period .................................... 29,231,967 23,498,491 ----------- ----------- Cash and Cash Equivalents -- end of period .................................... $31,606,662 $21,947,633 =========== =========== (Continued) See notes to consolidated financial statements. -5- BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Three Months Ended March 31, --------------------------- 1998 1997 ----------- ----------- Changes in operating assets and liabilities consist of: Decrease in accounts receivable ............ $ 950,691 $ 434,520 (Increase) decrease in inventories ......... 1,556,012 (1,402,863) (Increase) in prepaid expenses and other current assets ..................... (339,040) (95,731) Decrease in other assets ................... 42,805 108,246 (Decrease) in accounts payable ............. (760,003) (559,174) Increase in accrued expenses ............... 9,196 252,697 Increase (decrease) in income taxes payable ............................ (135,551) 128,398 ----------- ----------- $ 1,324,110 $(1,133,907) =========== =========== Supplementary information: Cash paid during the period for: Interest ................................... $ -- $ -- =========== =========== Income taxes ............................... $ 182,000 $ 337,000 =========== =========== 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 March 31, 1998, and the consolidated statements of operations and comprehensive income and cash flows for the three months ended March 31, 1998 and 1997 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 comprehensive income and cash flows for all periods presented have been made. Certain items in the March 31, 1997 financial statements have been reclassified to conform to March 31, 1998 classifications. The information for December 31, 1997 was derived from audited financial statements. 2. Earnings Per Share -- Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed using the weighted average number of common shares and common stock equivalent shares outstanding during the period. Earnings per share for the quarter ended March 31, 1997 have been restated to conform to the provisions of SFAS 128. Three Months Ended March 31, ------------------------- 1998 1997 ---------- ---------- Basic: Net earnings ................................... $2,966,488 $1,309,859 Weighted average shares outstanding .............. 5,130,885 5,072,094 Earnings per share -- basic ...................... $.58 $.26 Diluted: Net earnings ................................... $2,966,438 $1,309,859 Weighted average shares outstanding .............. 5,130,885 5,072,094 Incremental shares under stock option plans ........................... 101,580 66,732 ---------- ---------- Adjusted weighted average shares outstanding ..................................... 5,232,465 5,138,826 ---------- ---------- Earnings per share -- diluted .................... $.56 $.26 ========== ========== 3. Inventories consist of the following: March 31, December 31, 1998 1997 ----------- ----------- Raw materials ............................. $ 6,147,638 $ 7,029,632 Work-in-process ........................... 112,678 115,586 Finished goods ............................ 4,386,610 5,057,720 ----------- ----------- $10,646,926 $12,202,938 =========== =========== -7- BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited) 4. Property, plant and equipment consists of the following: March 31, December 31, 1998 1997 ----------- ----------- Land ..................................... $ 835,218 $ 835,218 Buildings and improvements ............... 14,294,251 14,230,326 Machinery and equipment .................. 39,158,260 38,233,434 Idle property held for sale .............. 935,000 935,000 ----------- ----------- 55,222,729 54,233,978 Less accumulated depreciation and amortization ........................... 25,979,718 25,181,624 ----------- ----------- Net Property, Plant and Equipment .............................. $29,243,011 $29,052,354 =========== =========== -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All statements in this Quarterly Report on Form 10-Q that are not historical statements constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from such statements as a result of a number of factors, including the impact of competitive developments, fluctuations in customer demand and in the timing of customer orders, general economic conditions, and other risk factors referred to in the 10-K. 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. Percentage of Net Sales ----------------------- Three Months Ended March 31, ---------------------- 1998 1997 ------ ------ Net sales ...................................... 100.0% 100.0% Cost of sales .................................. 67.5 71.2 Selling, general and administrative expenses ...................... 17.4 19.4 Other income, net of interest expense ...................................... 2.1 2.1 Earnings before income tax provision .................................... 17.2 11.5 Income tax provision ........................... 2.0 3.3 Net earnings ................................... 15.2 8.2 The following table sets forth, for the periods indicated, the percentage increase (decrease) of items included in the Company's consolidated statements of operations. Increase (Decrease) From Prior Period ------------------- Three Months Ended March 31, 1998 compared with 1997 ------------------- Net sales .......................................... 22.3 % Cost of sales ...................................... 15.9 Selling, general and administrative expenses .......................... 9.5 Other income -- net ................................ 22.3 Earnings before income tax provision ........................................ 83.0 Income tax provision ............................... (24.6) Net earnings ....................................... 126.5 -9- SALES Net sales increased 22.3% during the first three months of 1998 compared to the first three months of 1997 from approximately $16.0 million to $19.5 million. The Company attributes this increase primarily to sales growth in magnetic components and, to a lesser extent, fuse products, offset, in part, by reduced sales of customer-specific value-added circuits and assemblies. Such reduced sales reflect the completion of certain contracts. Sales growth consisted primarily of growth in unit sales, including sales of certain new products. COST OF SALES Cost of sales as a percentage of net sales decreased 3.7% during the first three months of 1998 compared to the first three months of 1997, from 71.2% to 67.5%. The decrease in the cost of sales percentage is primarily attributable to lower labor and overhead costs as a percentage of sales due to the increase in sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The percentage relationship of selling, general and administrative expenses to net sales decreased during the first three months of 1998 compared to the first three months of 1997 from 19.4% to 17.4%. The Company attributes the decrease primarily to increased sales. Selling, general and administrative expenses increased in dollar amount by 9.5%. The Company attributes the increase in dollar amount of such expenses primarily to increased sales volume and increases in sales and marketing salaries and sales related expenses. OTHER INCOME Other income, consisting principally of interest earned on cash equivalents and marketable securities, increased by approximately $76,000 during the first three months of 1998 compared to the first three months of 1997. The increase is primarily due to higher earnings on invested funds due to greater average balances in 1998 compared to 1997. PROVISION FOR INCOME TAXES The provision for income taxes for the first three months of 1998 versus 1997 was $399,000 as compared to $529,000. The decrease in the provision is due primarily to lower foreign income tax rates and lower United States earnings before income taxes in 1998 versus 1997. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its capital expenditures primarily through cash flows from operating activities. 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 March 31, 1998, in the aggregate amount of $7.0 million, of which $5.0 million is from domestic banks and $2.0 million is from foreign banks. During 1998, the Company's cash increased by $2.4 million, reflecting $5.2 million provided by operating activities and $.3 million from proceeds from the exercise of stock options, offset, in part, by $2.1 million in purchases of marketable securities and $1.0 million in purchases of plant and equipment. -10- Cash, marketable securities and accounts receivable comprised 51.4% and 48.6% of the Company's total assets at March 31, 1998 and December 31, 1997, respectively. The Company's working capital ratio (i.e., the ratio of current assets to current liabilities) was 6.6 to 1 at March 31, 1998 and 5.7 to 1 at December 31, 1997, respectively. -11- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Item 3 of the Company's Form 10-K for the year ended December 31, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27.1 Financial Data Schedule. (b) There were no current reports on Form 8-K filed by the registrant during the quarter ended March 31, 1998. -12- 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: May 12, 1998 -13-