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 June 30, 1998
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 August 1, 1998, there were 2,600,997 shares of Class A Common Stock,
$.10 par value, outstanding and 2,600,997 shares of Class B Common Stock,
$.10 par value.
BEL FUSE INC.
INDEX
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements 1
Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and
December 31, 1997 2 - 3
Consolidated Statements of Opera-
tions and Comprehensive Income
for the Six Months and Three
Months Ended June 30, 1998 and 1997
(unaudited) 4 - 5
Consolidated Statements of
Cash Flows for the Six Months
Ended June 30, 1998 and 1997
(unaudited) 6 - 7
Notes to Consolidated Financial
Statements (unaudited) 8 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11 - 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use
of Proceeds 15
Item 4. Submission of Matters to a Vote
of Security Holders 15 - 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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 six month period ended June 30, 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
June 30, December 31,
1998 1997
----------- -----------
(unaudited)
Current Assets:
Cash and cash equivalents $34,911,825 $29,231,967
Marketable securities 2,830,415 --
Accounts receivable, less allowance
for doubtful accounts of $238,000
and $227,000 12,186,539 11,181,379
Inventories 9,854,987 12,202,938
Prepaid expenses and other current
assets 659,129 383,084
Deferred income taxes 365,000 421,000
----------- -----------
Total Current Assets 60,807,895 53,420,368
Property, plant and equipment - net 29,256,418 29,052,354
Other assets 584,404 679,511
----------- -----------
TOTAL ASSETS $90,648,717 $83,152,233
=========== ===========
(Continued)
See notes to consolidated financial statements.
-2-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1998 1997
----------- -----------
(unaudited)
Current Liabilities:
Accounts payable $ 3,182,126 $ 3,467,897
Accrued expenses 6,533,050 5,660,411
Income taxes payable 161,927 237,515
----------- -----------
Total Current Liabilities 9,877,103 9,365,823
Deferred income taxes 971,000 957,000
----------- -----------
Total Liabilities 10,848,103 10,322,823
----------- -----------
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 5,201,995 and
5,121,920 shares (net of 2,145,539
treasury shares) 520,200 512,192
Additional paid-in capital 8,503,882 7,525,753
Retained earnings 70,776,491 64,771,298
Cumulative currency translation
adjustment 41 20,167
----------- -----------
Total Stockholders' Equity 79,800,614 72,829,410
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $90,648,717 $83,152,233
=========== ===========
See notes to consolidated financial statements.
-3-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Sales $39,046,355 $34,710,894 $19,531,655 $18,748,690
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 26,024,635 24,478,017 12,846,907 13,107,902
Selling, general and
administrative expenses 7,033,510 6,503,284 3,646,028 3,408,975
----------- ----------- ----------- -----------
33,058,145 30,981,301 16,492,935 16,516,877
----------- ----------- ----------- -----------
Income from operations 5,988,210 3,729,593 3,038,720 2,231,813
Other income - net 893,983 682,028 477,985 341,949
----------- ----------- ----------- -----------
Earnings before income taxes 6,882,193 4,411,621 3,516,705 2,573,762
Income tax provision 877,000 969,000 478,000 441,000
----------- ----------- ----------- -----------
Net earnings $ 6,005,193 $ 3,442,621 $ 3,038,705 $ 2,132,762
=========== =========== =========== ===========
Earnings per common share-basic $ 1.16 $ .68 $ .59 $ .42
=========== =========== =========== ===========
Earnings per common share-
diluted $ 1.15 $ .67 $ .58 $ .42
=========== =========== =========== ===========
Weighted average number of
common shares outstanding-basic 5,158,028 5,072,919 5,184,994 5,073,736
=========== =========== =========== ===========
Weighted average number of
common shares outstanding-
diluted 5,222,613 5,125,791 5,212,584 5,123,839
=========== =========== =========== ===========
(Continued)
See notes to consolidated financial statements.
-4-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited) (Continued)
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net earnings $ 6,005,193 $ 3,442,621 $ 3,038,705 $ 2,132,762
Other comprehensive income
(expense), net of income
taxes:
Foreign currency
translation adjustment (20,126) 15,376 (1,511) 460
----------- ----------- ----------- -----------
Comprehensive income $ 5,985,067 $ 3,457,997 $ 3,037,194 $ 2,133,222
=========== =========== =========== ===========
See notes to consolidated financial statements.
-5-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
-----------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 6,005,193 $ 3,442,621
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,662,700 1,630,050
Other 196,000 169,000
Changes in operating assets and
liabilities 1,569,259 (3,375,201)
------------ ------------
Net Cash Provided by Operating
Activities 9,433,152 1,866,470
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and
equipment (1,837,547) (3,855,172)
Purchase of marketable securities (2,830,415) (3,962,825)
Proceeds from sale of marketable
securities -- 2,982,450
Proceeds from repayment by contractor 82,531 83,789
------------ ------------
Net Cash (Used in) Investing
Activities (4,585,431) (4,751,758)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 832,137 27,125
------------ ------------
Net increase (decrease) in Cash 5,679,858 (2,858,163)
Cash and Cash Equivalents -
beginning of period 29,231,967 23,498,491
------------ ------------
Cash and Cash Equivalents -
end of period $ 34,911,825 $ 20,640,328
============ ============
(Continued)
See notes to consolidated financial statements.
-6-
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(unaudited)
Six Months Ended
June 30,
----------------------------
1998 1997
----------- -----------
Changes in operating assets and
liabilities consist of:
(Increase) in accounts receivable $(1,016,160) $(1,753,425)
(Increase) decrease in inventories 2,347,951 (2,150,635)
(Increase) in prepaid expenses and
other current assets (363,378) (323,807)
Decrease in other assets 89,566 146,728
(Decrease) in accounts payable (285,771) (295,352)
Increase in accrued expenses 872,639 988,430
Increase (decrease) in income
taxes payable (75,588) 12,860
----------- -----------
$ 1,569,259 $(3,375,201)
=========== ===========
Supplementary information:
Cash paid during the period for:
Interest $ -- $ --
=========== ===========
Income taxes $ 432,000 $ 787,941
=========== ===========
See notes to consolidated financial statements.
-7-
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The consolidated balance sheet as of June 30, 1998, and the consolidated
statements of operations and comprehensive income 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 financial position, results of
operations and comprehensive income and cash flows for all periods presented
have been made. Certain items in the June 30, 1997 financial statements have
been reclassified to conform to June 30, 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 June 30, 1997 have been restated to
conform to the provisions of SFAS 128.
Six Months Ended Three Months Ended
June 30 June 30
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Basic:
Net earnings $6,005,193 $3,442,621 $3,038,705 $2,132,762
Weighted average
shares out-
standing 5,158,028 5,072,919 5,184,994 5,073,736
Earnings per share-
basic $ 1.16 $ .68 $ .59 $ .42
Diluted:
Net earnings $6,005,193 $3,442,621 $3,038,705 $2,132,762
Weighted average
shares out-
standing 5,158,028 5,072,919 5,184,994 5,073,736
Incremental shares
under stock
option plan 64,585 52,872 27,590 50,103
---------- ---------- ---------- ----------
Adjusted weighted
average shares
outstanding 5,222,613 5,125,791 5,212,584 5,123,839
========== ========== ========== ==========
Earnings per share-
diluted $ 1.15 $ .67 $ .58 $ .42
-8-
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Inventories consist of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials $ 5,671,276 $ 7,029,632
Work-in-process 88,199 115,586
Finished goods 4,095,512 5,057,720
----------- -----------
$ 9,854,987 $12,202,938
=========== ===========
4. Property, plant and equipment consists of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Land $ 835,218 $ 835,218
Buildings and improvements 14,294,251 14,230,326
Machinery and equipment 40,025,930 38,233,434
Idle property held for sale 935,000 935,000
----------- -----------
56,090,399 54,233,978
Less accumulated
depreciation and
amortization 26,833,981 25,181,624
----------- -----------
Net property, plant and
equipment $29,256,418 $29,052,354
=========== ===========
5. SHAREHOLDERS' ANNUAL MEETING
On July 9, 1998, the shareholders approved an amendment to the Company's
Stock Option Plan to provide for the issuance of an additional 500,000 shares of
common stock under the Plan.
The shareholders also approved an amendment to Article VI of the Company's
Certificate of Incorporation that (i) authorized a new voting Class A Common
Stock, par value $.10 per share, and a new non-voting Class B Common Stock, par
value $.10 share,(ii) increased the authorized number of shares of common stock
from 10,000,000 to 20,000,000, consisting of 10,000,000 shares of Class A Common
Stock and 10,000,000 shares of Class B Common Stock, (iii) established the
rights, powers and limitations of the Class A Common Stock and the Class B
Common Stock and (iv) reclassified each share of the Company's issued Common
Stock, par value $.10 per share, as one-half share of Class A Common Stock and
one-half share of Class B Common Stock.
6. NEW ACCOUNTING PRONOUNCEMENTS
SEGMENT INFORMATION -- During June 1997, the Financial Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information".
-9-
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
This statement requires the disclosure of financial and descriptive information
about reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly in deciding how to allocate resources and
in assessing performance. The Company has not yet completed its evaluation of
this Statement. This Statement is effective for the Company's 1998 year end
financial statements.
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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
------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 66.7 70.5 65.8 69.9
Selling, general and
administrative expenses 18.0 18.7 18.7 18.2
Other income, net of
interest expense 2.3 2.0 2.5 1.8
Earnings before income
tax provision 17.6 12.7 17.9 13.7
Income tax provision 2.2 2.8 2.4 2.3
Net earnings 15.4 9.9 15.6 11.4
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
-------------------------------------------
Six Months Ended Three Months Ended
June 30, 1998 June 30, 1998
compared with 1997 compared with 1997
------------------ ------------------
Net sales 12.5% 4.2%
Cost of sales 6.3 (2.0)
Selling, general and
administrative
expenses 8.2 7.0
Other income - net 31.1 39.8
Earnings before
income tax provi-
sion 56.0 36.6
Income tax provision (9.5) 8.4
Net earnings 74.4 42.5
-11-
Six Months 1998 vs. Six Months 1997
Sales
Net sales increased 12.5% from $34,710,894 during the first six months of
1997 to $39,046,355 during the first six months of 1998. The Company attributes
this increase primarily to sales growth of network magnetic products offset, in
part, by reduced sales of value-added products. 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 3.8% to 66.7% during
the first six months of 1998 from 70.5% during the first six months of 1997. The
decrease in the cost of sales percentage is primarily attributable to lower raw
material and labor costs and improved manufacturing efficiencies.
Selling, General and Administrative Expenses
The percentage relationship of selling, general and administrative expenses
to net sales decreased from 18.7% for the first six months of 1997 to 18.0% for
the first six months of 1998. The Company attributes the percentage decrease
primarily to increased sales. Selling, general and administrative expenses
increased in dollar amount by 8.2%. The Company attributes the increase in
dollar amount of such expenses primarily to increases in sales and marketing
salaries and sales related expenses.
Other Income and Expenses
Other income, consisting principally of interest earned on cash equivalents
and marketable securities, increased by approximately $212,000 during the first
six months of 1998 compared to the first six 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 six months of 1997 was
$969,000 as compared to $877,000 for the first six months of 1998. The decrease
in the provision is due primarily to lower foreign income tax rates offset in
part by higher United States earnings before income taxes in 1998 versus 1997.
-12-
Three Months 1998 vs. Three Months 1997
Sales
Sales increased 4.2% to $19,531,655 during the second quarter of 1998 from
$18,748,690 during the second quarter of 1997. The Company attributes the
increase primarily to the reasons set forth in the six month analysis.
Cost of Sales
Cost of sales as a percentage of net sales decreased 4.1% to 65.8% during
the second quarter of 1998 from 69.9% during the second quarter of 1997. The
Company attributes the decrease primarily to the reasons set forth in the six
month analysis.
Selling, General and Administrative Expenses
The percentage relationship of selling, general and administrative expenses
to net sales remained relatively constant during the second quarter of 1998 as
compared to 1997. Selling, general and administrative expenses increased in
dollar amount by $237,000. The Company attributes the increase in dollar amount
to the reasons set forth in the six month analysis.
Other Income and Expense
Other income increased for the second quarter of 1998 compared to the
second quarter of 1997 due to those reasons set forth in the six month analysis.
Provision for Income Taxes
The provision for income taxes increased to $478,000 for the second quarter
of 1998 from $441,000 for the second quarter of 1997. The increase in the
provision is due primarily to higher United States earnings before income taxes
offset in part by lower foreign income tax rates in the second quarter of 1998
versus 1997.
-13-
Liquidity and Capital Resources
Historically, the Company has financed its capital expenditures 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. This statement represents a forward-looking statement. Actual results
could differ materially from such statement if the Company experiences
substantial unanticipated cash requirements.
The Company has lines of credit, all of which were unused at June 30, 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 the first six months of 1998, the Company's cash and cash
equivalents and marketable securities increased by $8.5 million, reflecting $9.4
million provided by operating activities and $.8 million from the exercise of
stock options, offset, in part, by $1.8 million in purchases of plant and
equipment.
The Company has historically followed a policy of reinvesting the earnings
of foreign subsidiaries in the Far East. No earnings were repatriated during the
first six months of 1998 or 1997.
Cash, accounts receivable and marketable securities comprised approximately
55.1% and 48.6% of the Company's total assets at June 30, 1998 and December 31,
1997, respectively. The Company's current ratio (i.e., the ratio of current
assets to current liabilities) was 6 to 1 and 5.7 to 1 at June 30, 1998 and
December 31, 1997, respectively.
This report contains forward-looking statements that involve substantial
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the "Business",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Risks and Uncertainties" captions in the Company's Form 10-K
for the year ended December 31, 1997.
-14-
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 2. Changes in Securities and Use of Proceeds
On July 9, 1998, the shareholders of the Company approved an amendment to
Article VI of the Company's Certificate of Incorporation that (i) authorized a
new voting Class A Common Stock, par value $.10 per share, and a new non-voting
Class B Common Stock, par value $.10 share,(ii) increased the authorized number
of shares of common stock from 10,000,000 to 20,000,000, consisting of
10,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B
Common Stock, (iii) established the rights, powers and limitations of the Class
A Common Stock and the Class B Common Stock and (iv) reclassified each share of
the Company's issued Common Stock, par value $.10 per share, as one-half share
of Class A Common Stock and one-half share of Class B Common Stock.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of security holders was held on July 9, 1998.
At the meeting the following votes were taken:
(1) The Board's nominees were elected to the Board of Directors for a term
of three years. The votes were cast as follows:
For Withheld
--------- --------
Daniel Bernstein 4,039,203 489,222
Peter Gilbert 4,039,745 488,680
John S. Johnson 4,036,469 491,956
There were -0- abstentions and -0- broker non-votes.
(2) The Company's Stock Option Plan was amended to increase the number of
shares authorized for issuance under such Plan by 500,000 shares. The votes were
cast as follows:
For Against Abstain Not Voted
--------- ------- ------- ---------
3,798,907 289,532 19,944 420,042
-15-
PART II. Other Information (Continued)
(3) The Company's Certificate of Incorporation was amended to authorize a
new class of non-voting Common Stock and to effect a recapitalization of the
Company.
For Against Abstain
--------- --------- -------
2,802,987 1,703,729 21,709
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Restated Certificate of Incorportion, as
amended
27.1 Financial Data Schedule
(b) There were no Current Reports on Form 8-K filed by the
registrant during the quarter ended June 30, 1998.
-16-
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: August 11, 1998
-17-