SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  BEL FUSE INC /NJ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

[November 09, 2012]

BEL FUSE INC /NJ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The Company's quarterly and annual operating results are impacted by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the "SEC") contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements") with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2011, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company's SEC filings.


Overview Our Company Bel is a leading producer of electronic products that help make global connectivity a reality. The Company designs, manufactures and markets a broad array of magnetics, modules, circuit protection devices and interconnect products. These products are designed to protect, regulate, connect, isolate or manage a variety of electronic circuits. Bel's products are primarily used in the networking, telecommunications, computing, military, aerospace and transportation industries. Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets.

Bel's business is operated through three geographic segments: North America, Asia and Europe. During the nine months ended September 30, 2012, 45% of the Company's revenues were derived from North America, 44% from Asia and 11% from its Europe operating segment. Sales of the Company's interconnect products represented approximately 39% of our total net sales for the nine months ended September 30, 2012. The remaining revenues related to sales of the Company's magnetic products (34%), module products (24%) and circuit protection products (3%).

The Company's expenses are driven principally by the cost of labor where the factories that Bel uses are located, the cost of the materials that it uses and its ability to efficiently manage overhead costs. As labor and material costs vary by product line, any significant shift in product mix has an associated impact on the Company's costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. The Company's products are manufactured at various facilities in: the People's Republic of China ("PRC"); Glen Rock, Pennsylvania; Inwood, New York; Haina, Dominican Republic; Reynosa and Cananea, Mexico; Louny, Czech Republic; Vinita, Oklahoma; Worksop, England and Great Dunmow, England. In July 2012, the Company announced that it plans to close its Vinita, Oklahoma manufacturing facility by the end of 2012 and will be moving a portion of the Vinita operations to a new manufacturing facility in McAllen, Texas.

In the PRC, where the Company generally enters into processing arrangements with several independent third-party contractors and also has its own manufacturing facilities, the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday as well as economic conditions in the PRC. In addition, the Company has little visibility into the ordering habits of its customers and can be subjected to large and unpredictable variations in demand for its products. Accordingly, the Company must continually recruit and train new workers to replace those lost to attrition each year and to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet demand, can add volatility to the costs incurred by the Company for labor in the PRC.

18-------------------------------------------------------------------------------- Return to Index Trends Affecting our Business The Company believes the key factors affecting Bel's three and nine months ended September 30, 2012 and/or future results include the following: · 2012 Acquisitions - During the third quarter of 2012, the Company completed two acquisitions. U.K.-based Fibreco Ltd. ("Fibreco") has joined GigaCom Interconnect AB ("GigaCom"), which Bel acquired in March 2012, as part of the Company's Cinch Connectors business. Fibreco's fiber optic-based products complement Cinch's copper-based products, increasing Cinch's reach into the aerospace, military and industrial markets, while providing Fibreco with access to well-established sales channels it had not previously explored. The Company's most recent acquisition of Powerbox Italia S.r.L. ("Powerbox") will add established AC-DC products to Bel's existing power portfolio, bringing additional product offerings to Bel's key power customers. Since their respective dates of acquisition, the 2012 Acquired Companies contributed revenues of $0.9 million and $1.0 million during the three and nine months ended September 30, 2012, respectively.

· Revenues - Sales for the nine months ended September 30, 2012 were down by 5.1% from the same period of 2011. The decline in sales related primarily to the Company's module product line, where sales were $18.9 million lower in the nine months ended September 30, 2012 versus the same period of 2011 reflecting a change in the ordering pattern of two major customers. This decline in sales was partially offset by increased revenues generated by Bel's MagJack products, which are integrated connector modules within the Company's magnetic product line ("MagJacks"), and Cinch Connector's commercial aerospace business within the Company's interconnect product line.

· Product Mix - Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the Company's gross margin percentage. During the first nine months of 2012, the Company experienced a favorable shift in the mix of products sold, which partially mitigated the effects of higher labor and material costs during the period.

· Pricing and Availability of Materials - Component pricing and availability have been stable for most of the Company's product lines, though lead times on electrical components have recently been extended. With regard to commodities, while the Company started to experience some price decreases related to precious metals through the middle of the third quarter of 2012, costs for commodities including gold, copper, and petroleum-based plastics remain high in comparison to the prior year. Any fluctuations in component prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on Bel's profit margins. Due to their relatively high material content, margins in the Company's module product line were most dramatically affected by the continued high cost of materials as well as lower sales volume during the first nine months of 2012.

· Labor Costs - Labor costs in the first nine months of 2012 increased significantly both in dollar amount and as a percentage of sales, in spite of decreased sales in comparison to the same period in 2011. Approximately one-third of Bel's total sales are generated from labor intensive magnetic products, which are primarily manufactured in the PRC. Wage rates in the PRC, which are mandated by the government, now have higher minimum wage and overtime requirements and have been steadily increasing. Furthermore, fluctuation in the exchange rate related to the Chinese Renminbi has been further increasing the cost of labor in terms of U.S. dollars. Finally, there has been a shift in product mix such that Bel's labor-intensive MagJacks represented a larger proportion of the Company's total sales during the first nine months of 2012 than during the same period of 2011. The increased demand for these products early in 2012 resulted in recruiting, training and overtime costs, in addition to the relative inefficiency of the new workers hired after the Lunar New Year holiday. Because of the relatively high labor content in MagJacks, margins in Bel's magnetic product line were particularly impacted by higher labor costs during 2012.

· 2012 Restructuring Program - The Company began implementing its plan to effect operational efficiencies, and recorded expenses related to these actions of $2.2 million during the nine months ended September 30, 2012. On July 12, 2012, the Company announced that it would close its Cinch manufacturing facility in Vinita, Oklahoma and move the operations to McAllen, Texas. The Company also identified and implemented further cost cutting initiatives in Asia during the third quarter of 2012. It is currently estimated that additional pre-tax costs associated with the 2012 Restructuring Program will be approximately $2.9 million, and annual savings of approximately $5.5 million are expected from these initiatives once fully implemented.

· Impact of Pending Lawsuits - As further described in the Company's 2011 Annual Report on Form 10-K, the Company is currently appealing the verdict in the SynQor case. By the end of 2011, the Company had ceased the manufacturing of products that were subject to SynQor's claim and there were no sales of such products during the nine months ended September 30, 2012.

19-------------------------------------------------------------------------------- Return to Index · Acquisition-Related Costs - During the first nine months of 2012, Bel completed its acquisitions of GigaCom, Fibreco and Powerbox. These acquisitions, along with other potential acquisition candidates, gave rise to acquisition-related costs of $0.7 million and $0.8 million during the three and nine months ended September 30, 2012, respectively. Bel's continuing strategy to actively consider potential acquisitions could result in additional legal and other professional costs in future periods.

· Effective Tax Rate - The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments.

The Company's effective tax rate was significantly lower during the first nine months of 2012 as compared to the same period of 2011, primarily due to the net reversal of liabilities for uncertain tax positions and lower pretax earnings in the North America and European segments. The higher effective rate in 2011 was primarily due to litigation charges and other factors which resulted in losses in Asia with minimal income tax benefit.

With the completion of three acquisitions so far this year, and another potential acquisition representing annual sales in excess of $60 million currently under consideration by the Company, management is optimistic that the opportunities created by these acquisitions will fuel the growth of our existing product groups in future periods. Bel also made significant progress on its Restructuring Program during the third quarter with the goal of being complete by year-end. Management believes that Bel is well positioned for the future as a result of these active measures. Statements regarding future results constitute Forward-Looking Statements and could be materially adversely affected by the risk factors identified by the Company in its Annual Report on Form 10-K for the year ended December 31, 2011 and other public statements made by the Company.

Summary by Reportable Operating Segment Net sales to external customers by reportable operating segment for the three and nine months ended September 30, 2012 and 2011 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 North America $ 31,370 41 % $ 34,298 45 % $ 96,866 45 % $ 102,229 45 % Asia 36,074 48 % 33,308 44 % 94,963 44 % 98,484 44 % Europe 8,615 11 % 8,297 11 % 23,013 11 % 25,766 11 % $ 76,059 100 % $ 75,903 100 % $ 214,842 100 % $ 226,479 100 % Net sales and income from operations by reportable operating segment for the three and nine months ended September 30, 2012 and 2011 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Total segment sales: North America $ 34,370 $ 37,842 $ 106,349 $ 113,195 Asia 47,238 46,501 125,881 136,638 Europe 8,983 8,577 24,200 26,742 Total segment sales 90,591 92,920 256,430 276,575 Reconciling item: Intersegment sales (14,532 ) (17,017 ) (41,588 ) (50,096 ) Net sales $ 76,059 $ 75,903 $ 214,842 $ 226,479 Income (loss) from operations: North America $ (189 ) $ 1,785 $ 4,074 $ 6,061 Asia 1,046 (143 ) 7 (1,272 ) Europe 168 296 741 1,523 $ 1,025 $ 1,938 $ 4,822 $ 6,312 20-------------------------------------------------------------------------------- Return to Index While sales volumes were down across all operating segments in the nine-month period ended September 30, 2012 as compared to the same period of 2011, sales rebounded in the third quarter of 2012 in the Company's Asia and Europe operating segments as compared to the third quarter of 2011. The improvement in Asia sales was led by an increase of more than 45% in MagJack sales during the third quarter of 2012 as compared to the same period of 2011. The Company's recent acquisitions of Fibreco and Powerbox contributed a combined $0.9 million in sales to the Company's Europe operating segment during the third quarter of 2012. The decrease in sales in North America primarily related to reduced demand in 2012 for Bel's module products which are manufactured in China. Thus, the decrease in North American sales caused a corresponding decrease in intersegment sales of module products from Asia to North America.

Overview of Financial Results Sales for the third quarter of 2012 increased slightly to $76.1 million as compared to $75.9 million for the third quarter of 2011. Bel's operating profit for the three months ended September 30, 2012 was $1.0 million, a reduction of $0.9 million from the operating profit reported for the third quarter of 2011. Selling, general and administrative expense in the third quarter of 2012 was consistent with the comparable period of 2011. Factors impacting the third quarter results included $1.8 million of restructuring charges, $0.7 million of acquisition-related costs and an impairment charge of $0.3 million related to an investment, offset by an income tax benefit of $1.8 million, which included $1.3 million related to the settlement of the IRS audit and expiration of certain statutes of limitations. Net earnings were $2.6 million for the third quarter of 2012 as compared to $1.0 million for the third quarter of 2011. Additional details related to these factors affecting the third quarter results are described in the Results of Operations section below.

Sales for the nine months ended September 30, 2012 decreased by 5.1% to $214.8 million from $226.5 million for the first nine months of 2011. Bel's operating profit for the nine months ended September 30, 2012 was $4.8 million as compared to $6.3 million reported for the same period of 2011. Selling, general and administrative expense was $2.2 million lower in the first nine months of 2012 as compared to the same period of 2011, primarily due to reduced legal costs. Other factors impacting the nine-month results included $2.2 million of restructuring charges and a $0.8 million impairment charge on one of the Company's investments, offset by a tax benefit of $0.7 million for reasons discussed above. Net earnings were $4.9 million for the nine months ended September 30, 2012 as compared to $3.7 million for the same period of 2011. Additional details related to these factors affecting the results for the nine months ending September 30, 2012 are described in the Results of Operations section below.

Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, goodwill, intangible assets, investments, SERP expense, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Recent Accounting Pronouncements The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1. "Basis of Presentation and Accounting Policies" included in Part I, Item 1. "Financial Statements (unaudited)." Results of Operations The following table sets forth, for the periods presented, the percentage relationship to net sales of certain items included in the Company's condensed consolidated statements of operations.

21-------------------------------------------------------------------------------- Return to Index Percentage of Net Sales Percentage of Net Sales Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 83.4 84.1 83.6 82.3 Selling, general and administrative ("SG&A") expense 13.0 13.0 13.1 13.4 Restructuring charge 2.3 - 1.0 1.5 Litigation charges - 0.3 - - Loss on disposal of property, plant and equipment - - 0.1 - Impairment of investment (0.4) - (0.4) - Gain on sale of investment - - - 0.1 Interest income and other, net 0.1 0.2 0.1 0.1 Earnings before (benefit) provision for income taxes 1.0 2.7 2.0 3.0 (Benefit) provision for income taxes (2.4) 1.4 (0.3) 1.3 Net earnings 3.4 1.3 2.3 1.6 The following table sets forth the year over year percentage decrease of certain items included in the Company's condensed consolidated statements of operations.

Increase (Decrease) Increase (Decrease) from Prior Period from Prior Period Three Months Ended Nine Months Ended September 30, 2012 September 30, 2012 Compared with Compared with Three Months Ended Nine Months Ended September 30, 2011 September 30, 2011 Net sales 0.2 % (5.1) % Cost of sales (0.7) (3.6) SG&A expense (0.1) (7.2) Net earnings 156.9 34.1 Sales Net sales increased slightly to $76.1 million during the three months ended September 30, 2012 as compared to $75.9 million during the same period of 2011. Net sales decreased 5.1% from $226.5 million during the nine months ended September 30, 2011 to $214.8 million during the nine months ended September 30, 2012. The Company's net sales by major product line for the three and nine months ended September 30, 2012 and 2011 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Interconnect products $ 28,424 38 % $ 27,204 36 % $ 83,033 39 % $ 83,004 37 % Magnetic products 29,799 39 % 23,024 30 % 73,557 34 % 65,698 29 % Module products 15,367 20 % 23,186 31 % 50,690 24 % 69,592 31 % Circuit protection products 2,469 3 % 2,489 3 % 7,562 3 % 8,185 3 % $ 76,059 100 % $ 75,903 100 % $ 214,842 100 % $ 226,479 100 % Revenue in Bel's interconnect product line in the first nine months of 2012 was essentially flat with the prior year, as growth in Cinch's commercial aerospace business in North America in addition to new sales volume from Fibreco was fully offset by decreases in passive connectors. Sales of magnetic products, which include Bel's MagJacks, have been steadily increasing since the 2012 Lunar New Year holiday. Backlog for Bel's magnetics product group increased by approximately $6.0 million by the end of the third quarter of 2012 from $17.8 million at December 31, 2011. Module sales were down in the first nine months of 2012 compared to the same period last year due to a change in the ordering pattern of two major customers.

22 -------------------------------------------------------------------------------- Return to Index Cost of Sales The Company's cost of sales as a percentage of consolidated net sales for the three and nine months ended September 30, 2012 and 2011 was comprised of the following: Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Material costs 46.7% 51.9% 46.0% 50.7% Labor costs 15.3% 11.0% 14.9% 10.3% Research and development expenses 3.7% 3.9% 4.3% 3.9% Other expenses 17.7% 17.3% 18.4% 17.4% Total cost of sales 83.4% 84.1% 83.6% 82.3% The most significant factor contributing to the increase in cost of sales as a percentage of sales relates to higher labor costs in Asia during 2012, as discussed in "Trends Affecting our Business" above. The increase in other expenses noted in the table above primarily relates to reorganization costs at certain of the manufacturing facilities, offset by savings associated with cost reduction measures in Asia during the third quarter of 2012. These increases in cost of sales as a percentage of sales were partially offset by a reduction in material costs as a percentage of sales. As the Company's module product line has high material content, the reduction in module sales during 2012 resulted in a lower percentage of material costs as compared to 2011.

Included in cost of sales are research and development ("R&D") expenses of $2.8 million and $2.9 million for the three-month periods ended September 30, 2012 and 2011, respectively and $9.1 million and $8.9 million for the nine-month periods ended September 30, 2012 and 2011, respectively. The majority of the increase relates to the inclusion of GigaCom and Fibreco R&D expenses, which have been included in Bel's results since their respective acquisitions. The Company also incurred expenses during the first quarter of 2012 related to the relocation of Bel's European R&D headquarters for integrated modules to a new high-technology center in Maidstone, England.

Selling, General and Administrative Expense ("SG&A") While SG&A expense for the three months ended September 30, 2012 was flat compared to the same period of 2011, there were some notable offsetting variances. The Company incurred an increase of $0.7 million in acquisition-related costs and a $0.5 million increase in incentive compensation during 2012, offset by favorable fluctuations in foreign exchange rates of $0.8 million, a $0.3 million increase in the cash surrender value of the Company's COLI (corporate-owned life insurance) policies and a $0.1 million reduction in legal fees as compared to 2011.

For the nine months ended September 30, 2012, the dollar amount of SG&A expense was $2.2 million lower as compared to the same period of 2011. The decrease primarily related to a $1.4 million reduction in legal and professional fees in the first nine months of 2012. There was heightened legal activity in 2011 due to the SynQor and Halo lawsuits. As these lawsuits were largely resolved by the end of 2011, associated legal costs were significantly lower in 2012. Other variances in overall SG&A expense include favorable fluctuations in foreign exchange rates of $0.8 million, a $0.4 million increase in the cash surrender value of the Company's COLI policies and a $0.3 million reduction in bad debt expense, offset by a $0.5 million increase in acquisition-related costs.

Litigation Charges During the nine months ended September 30, 2011, the Company recorded a $2.6 million litigation charge related to its lawsuit with Halo and an additional litigation charge of $0.8 million related to the SynQor lawsuit, as further described in Item 3, "Legal Proceedings" in the Company's 2011 Annual Report on Form 10-K. Of the amount related to the SynQor lawsuit, $0.2 million was recorded during the third quarter of 2011.

Restructuring Charge The Company recorded restructuring charges of $1.8 million and $2.2 million during the three and nine months ended September 30, 2012, respectively. See "2012 Restructuring Program" below for further discussion.

Impairment of Investment During the three and nine months ended September 30, 2012, the Company recorded an other-than-temporary impairment charge of $0.3 million and $0.8 million, respectively, related to its remaining investment in Pulse Electronics ("Pulse") common stock.

23-------------------------------------------------------------------------------- Return to Index Gain on Sale of Investment During the nine months ended September 30, 2011, the Company recorded a $0.1 million gain on the sale of a portion of its investment in Pulse common stock.

Provision for Income Taxes The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments.

The (benefit) provision for income taxes for the three months ended September 30, 2012 was ($1.8) million compared to $1.0 million for the three months ended September 30, 2011. The Company's earnings before income taxes for the three months ended September 30, 2012 were approximately $1.3 million lower than the same period in 2011. The Company's effective tax rate, the income tax provision as a percentage of earnings before provision for income taxes, was (228.7%) and 50.8% for the three-month periods ended September 30, 2012 and 2011, respectively. The decrease in the effective tax rate during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 is primarily attributable to the net reversal of liabilities for uncertain tax positions during the quarter September 30, 2012 compared to no reversal of liabilities for uncertain tax positions during the quarter ended September 30, 2011, as the Company was being audited by the IRS during that period. Additionally, the majority of pretax income for the quarter ended September 30, 2012 was earned in the Asia segment, with minimal tax effect compared to a loss during the quarter ended September 30, 2011, along with a loss in the U.S. segment due to restructuring expenses compared to a profit during the quarter September 30, 2011, The (benefit) provision for income taxes for the nine months ended September 30, 2012 and 2011 was ($0.7) million and $3.0 million, respectively. The Company's earnings before income taxes for the nine months ended September 30, 2012 were approximately $2.4 million lower than the same period in 2011. The Company's effective tax rate was (15.9%) and 45.1% for the nine months ended September 30, 2012 and September 30, 2011, respectively. The decrease in the effective tax rate during the nine months ended September 30, 2012 is primarily attributable to the net reversal of liabilities for uncertain tax positions described above and lower pretax income in the U.S. segment and Europe segment during the nine months ended September 30, 2012 compared to the same period in 2011 offset, in part, by higher pretax income in the Asia segment for the nine months ended September 30, 2012 compared to the same period in 2011, as the Asia segment incurred litigation charges in the second quarter of 2011 with minimal tax benefit.

Liquidity and Capital Resources Historically, the Company has financed its capital expenditures primarily through cash flows from operating activities and has financed acquisitions both through cash flows from operating activities and borrowings, as well as through the issuance of Bel Fuse Inc. common stock. Management believes that the cash flow from operations after payments of dividends combined with its existing capital base and the Company's available line of credit will be sufficient to fund its operations for at least the next twelve months. Such statement constitutes a Forward-Looking Statement. Factors which could cause the Company to require additional capital include, among other things, a softening in the demand for the Company's existing products, an inability to respond to customer demand for new products, potential acquisitions (as discussed below) requiring substantial capital, future expansion of the Company's operations and net losses that would result in net cash being used in operating, investing and/or financing activities which result in net decreases in cash and cash equivalents. Net losses may impact availability under our credit facility and preclude the Company from raising debt or equity financing in the capital markets on affordable terms or otherwise.

At September 30, 2012 and December 31, 2011, $43.4 million and $40.2 million, respectively, of cash and cash equivalents was held by foreign subsidiaries of the Company. Management's intention is to permanently reinvest the majority of these funds outside the U.S. and there are no current plans that would indicate a need to repatriate them to fund the Company's U.S. operations. In the event these funds were needed for Bel's U.S. operations, the Company would be required to accrue and pay U.S. taxes to repatriate these funds.

The Company has an unsecured credit agreement in the amount of $30 million, which expires on June 30, 2014. There have not been any borrowings under the credit agreement during 2012 or 2011 and, as a result, there was no balance outstanding as of September 30, 2012 or December 31, 2011. The credit agreement bears interest at LIBOR plus 0.75% to 1.25% based on certain financial statement ratios maintained by the Company. As a result of the Company's recent acquisitions, which resulted in a lower cash balance and increased intangible assets, the Company was not in compliance with its tangible net worth debt covenant as of September 30, 2012. In the event the Company seeks borrowings under this credit agreement, a waiver would need to be obtained from the lender.

24 -------------------------------------------------------------------------------- Return to Index 2012 Restructuring Program During 2012, the Company identified a series of initiatives aimed at streamlining operations, reducing overhead costs, and improving Bel's overall profitability (the "Program"). In relation to the restructuring steps identified to date, the Company anticipates the total costs associated with the overall Program to be approximately $5.1 million, with anticipated annualized savings of $5.5 million once the Program is fully implemented. The Company has recorded $1.8 million and $2.2 million during the three and nine months ended September 30, 2012, respectively, related to the Program. The anticipated amount of annualized savings from the Program represents a Forward-Looking Statement.

On July 12, 2012, as part of the Program, Bel announced that it will close its Cinch North American manufacturing facility in Vinita, Oklahoma by year end, and move the operation to a new facility in McAllen, Texas. The new facility is just across the Mexican border from Bel's existing Reynosa factory, where some of the processes for many of the Vinita parts are currently performed. Management believes that having the facilities closer together will lower transportation and logistics costs and improve service for customers by reducing manufacturing cycle times. In May 2012, the Company entered into a new facility lease in McAllen, Texas in conjunction with this transition. The Company's overall commitment under the terms of the lease is approximately $1.9 million, and will be incurred over the term of the lease, which commenced in September 2012 and is due to expire in March 2023. The estimated costs associated with the transition out of Vinita, Oklahoma account for $4.2 million of the total costs noted above and include estimated severance costs related to the 140+ people currently employed at the Vinita facility, as well as transportation costs and, depending upon the manner of disposition of assets in Vinita which has not yet been determined, impairment charges of up to $1.0 million related to property, plant and equipment at the Vinita facility. Management anticipates annualized savings of $3.3 million related to the Vinita portion of the Program.

During the third quarter of 2012, the Company identified and implemented additional streamlining measures in its Asia operations, resulting in headcount reductions of approximately 100 associates. The Asia portion of the Program resulted in severance costs of $0.6 million, which were recorded during the third quarter of 2012, and is expected to result in annualized savings of $1.3 million.

Actual savings from the Program in general and the relocation from Vinita could materially differ from the amounts that the Company has projected, due principally to uncertainties associated with modifying existing approaches to operations.

Acquisitions On March 9, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of GigaCom Interconnect AB ("GigaCom Interconnect") with a cash payment of approximately $2.7 million (£1.7 million).

GigaCom Interconnect, located in Gothenburg, Sweden, is a supplier of expanded beam fiber optic technology and a participant in the development of next-generation commercial aircraft components. GigaCom Interconnect has become part of Bel's Cinch Connector business. Management believes that GigaCom's offering of expanded beam fiber optic products will enhance the Company's position within the growing aerospace and military markets.

On July 31, 2012, the Company consummated its acquisition of 100% of the issued and outstanding capital stock of Fibreco Ltd. ("Fibreco") with a cash payment, net of $2.7 million of cash acquired, of approximately $13.7 million (£8.7 million). Fibreco, located in the United Kingdom, is a supplier of a broad range of expanded beam fiber optic components for use in military communications, outside broadcast and offshore exploration applications. Fibreco will become part of Bel's interconnect product group under the Cinch Connector business.

Management believes that the addition of Fibreco's fiber optic-based product line to Cinch's broad range of copper-based products will increase Cinch's presence in emerging fiber applications within the military, aerospace and industrial markets. In addition, management believes the acquisition provides access to a range of customers for the recently acquired GigaCom Interconnect EBOSA® product.

On September 12, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Powerbox Italia S.r.L. and its subsidiary, Powerbox Design (collectively "Powerbox Italy"), with a cash payment, net of $0.2 million of cash acquired, of approximately $2.8 million in addition to a working capital adjustment of $0.2 million. The working capital adjustment was finalized and paid in November 2012 and will be recorded as a measurement period adjustment in the fourth quarter of 2012. The Company also granted 30,000 restricted shares of the Company's Class B common stock in connection with this acquisition. Compensation expense equal to the grant date fair value of these restricted shares of $0.6 million will be recorded ratably through September 2014. Powerbox Italy, located near Milan, Italy, develops high-power AC-DC power conversion solutions targeted at the broadcasting market. The acquisition of Powerbox Italy will allow Bel to expand its portfolio of power product offerings to include AC-DC products. This will also establish a European design center located close to several of Bel's existing customers.

The Company is actively pursuing additional acquisition candidates, including an acquisition representing in excess of $60 million in annual revenue currently under consideration by management.

25-------------------------------------------------------------------------------- Return to Index Stock Buyback Program In July 2012, the Company's Board of Directors authorized the repurchase, from time to time, of up to $10 million of the Company's outstanding Class B common shares in open market, privately negotiated or block transactions at the discretion of Bel's management. During the third quarter of 2012, the Company repurchased and retired 89,991 shares of its Class B common stock at an aggregate cost of $1.7 million.

Impact of Hurricane Sandy In late October 2012, Hurricane Sandy caused damage and business interruption to the Company's corporate headquarters in Jersey City, New Jersey and its manufacturing operations in Inwood, New York. The Company is still in the early stages of assessing the financial and operational impacts of the storm and is, therefore, unable to estimate its full financial and operational impact. The Company would be responsible for a deductible of up to $0.5 million before any possible insurance recovery related to these damages.

Cash Flows During the nine months ended September 30, 2012, the Company's cash and cash equivalents decreased by $18.7 million. This resulted primarily from a $13.7 million payment for the acquisition of Fibreco, a $2.8 million payment for the acquisition of Powerbox, a $2.7 million payment for the acquisition of GigaCom, $3.4 million paid for the purchase of property, plant and equipment, $2.4 million for payments of dividends and $1.7 million for the repurchase of 89,991 shares of the Company's Class B common stock, offset by $7.8 million provided by operating activities. As compared to the nine months ended September 30, 2011, cash provided by operating activities decreased by $13.9 million. During the nine months ended September 30, 2012, accounts receivable increased by $3.6 million due to a $7.4 million increase in sales during the third quarter of 2012 as compared to fourth quarter 2011 sales. This compares to a decrease in accounts receivable of $7.6 million during the first nine months of 2011, accounting for $11.1 million of the reduction in cash provided by operations during the first nine months of 2012 as compared to 2011. In addition, the Company experienced a $1.7 million increase in inventory levels during the nine months ended September 30, 2012 related to heightened demand for certain products, as compared to a decrease in inventory of $2.9 million during the nine months ended September 30, 2011.

Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 42.6% and 48.0% of the Company's total assets at September 30, 2012 and December 31, 2011, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 4.0 to 1 and 4.9 to 1 at September 30, 2012 and December 31, 2011, respectively.

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.