BEL FUSE INC /NJ - Quarter Report: 2008 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended June
30,
2008
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-F11676
BEL
FUSE
INC.
(Exact
name of registrant as specified in its charter)
|
NEW
JERSEY
|
22-1463699
|
|
|
(State
of other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
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 and 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. x Yes ¨ No
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do not
check if a smaller reporting
company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨ Yes x No
At
August
6, 2008, there were 2,511,380 shares of Class A Common Stock, $0.10 par value,
outstanding and 9,374,593 shares of Class B Common Stock, $0.10 par value,
outstanding.
BEL
FUSE
INC.
INDEX
|
Page
|
|||
|
Part
I
|
Financial
Information
|
||
|
Item
1.
|
Financial
Statements
|
1
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008 and December 31,
2007
|
2-3
|
||
|
Condensed
Consolidated Statements of Operations for the Three and Six Months
Ended
June 30, 2008 and 2007
|
4
|
||
|
Condensed
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 2007 and the Six Months Ended June 30, 2008
|
5
|
||
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June
30,
2008 and 2007
|
6-7
|
||
|
Notes
to Condensed Consolidated Financial Statements
|
8-22
|
||
|
Item
1A.
|
Risk
Factors
|
23
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
24-36
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
37-38
|
|
|
Item
4.
|
Controls
and Procedures
|
39
|
|
|
Part
II
|
Other
Information
|
||
|
Item
1.
|
Legal
Proceedings
|
39
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
40
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
40
|
|
|
Item
6.
|
Exhibits
|
41
|
|
|
Signatures
|
42
|
||
PART
I.
Financial
Information
Item
1. Financial
Statements (Unaudited)
Certain
information and footnote disclosures required under accounting principles
generally accepted in the United States of America have been condensed or
omitted from the following condensed consolidated financial statements pursuant
to the rules and regulations of the Securities and Exchange Commission. It
is
suggested that the following condensed 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, 2007.
The
results of operations for the three and six months ended June 30, 2008 and
2007
are not necessarily indicative of the results for the entire fiscal year or
for
any other period.
-
1 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(dollars
in thousands)
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
88,126
|
$
|
83,875
|
|||
|
Marketable
securities
|
13,963
|
3,273
|
|||||
|
Short-term
investments
|
9,360
|
20,542
|
|||||
|
Accounts
receivable - less allowance for doubtful accounts of $1,045 and $977
at
June 30, 2008 and December 31, 2007, respectively
|
51,716
|
52,217
|
|||||
|
Inventories
|
46,295
|
39,049
|
|||||
|
Prepaid
expenses and other current assets
|
1,833
|
1,446
|
|||||
|
Refundable
income taxes
|
2,452
|
3,168
|
|||||
|
Deferred
income taxes
|
1,655
|
2,661
|
|||||
|
Total
Current Assets
|
215,400
|
206,231
|
|||||
|
Property,
plant and equipment - net
|
41,030
|
41,113
|
|||||
|
Restricted
cash
|
2,304
|
4,553
|
|||||
|
Long-term
investments
|
2,492
|
2,536
|
|||||
|
Deferred
income taxes
|
6,234
|
4,364
|
|||||
|
Intangible
assets - net
|
1,170
|
1,181
|
|||||
|
Goodwill
|
28,686
|
28,447
|
|||||
|
Other
assets
|
5,206
|
5,435
|
|||||
|
TOTAL
ASSETS
|
$
|
302,522
|
$
|
293,860
|
|||
See
notes
to condensed consolidated financial statements.
-
2 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(dollars
in thousands, except per share data)
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable
|
$
|
20,847
|
$
|
16,145
|
|||
|
Accrued
expenses
|
11,846
|
12,113
|
|||||
|
Income
taxes payable
|
3,881
|
4,007
|
|||||
|
Dividends
payable
|
834
|
795
|
|||||
|
Total
Current Liabilities
|
37,408
|
33,060
|
|||||
|
Long-term
Liabilities:
|
|||||||
|
Deferred
gain on sale of property
|
4,633
|
4,645
|
|||||
|
Liability
for uncertain tax positions
|
7,387
|
6,930
|
|||||
|
Minimum
pension obligation and unfunded pension liability
|
5,019
|
4,698
|
|||||
|
Total
Long-term Liabilities
|
17,039
|
16,273
|
|||||
|
Total
Liabilities
|
54,447
|
49,333
|
|||||
|
Commitments
and Contingencies
|
|||||||
|
Stockholders'
Equity:
|
|||||||
|
Preferred
stock, no par value, authorized 1,000,000 shares; none
issued
|
-
|
-
|
|||||
|
Class
A common stock, par value $.10 per share - authorized 10,000,000
shares;
outstanding 2,517,200 and 2,545,644 shares, respectively (net of
1,072,770
treasury shares)
|
252
|
255
|
|||||
|
Class
B common stock, par value $.10 per share - authorized 30,000,000
shares;
outstanding 9,374,593 and 9,286,627 shares, respectively (net of
3,218,310
treasury shares)
|
938
|
929
|
|||||
|
Additional
paid-in capital
|
29,355
|
29,107
|
|||||
|
Retained
earnings
|
216,947
|
214,580
|
|||||
|
Accumulated
other comprehensive income (loss)
|
583
|
(344
|
)
|
||||
|
Total
Stockholders' Equity
|
248,075
|
244,527
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
302,522
|
$
|
293,860
|
|||
See
notes
to condensed consolidated financial statements.
-
3 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars
in thousands, except per share data)
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
June
30,
|
June
30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Net
Sales
|
$
|
72,454
|
$
|
61,612
|
$
|
133,323
|
$
|
123,419
|
|||||
|
Costs
and expenses:
|
|||||||||||||
|
Cost
of sales
|
59,317
|
48,599
|
108,955
|
96,490
|
|||||||||
|
Selling,
general and administrative
|
9,284
|
9,178
|
18,217
|
18,661
|
|||||||||
|
Gain
on sale of property, plant and equipment
|
-
|
(880
|
)
|
-
|
(880
|
)
|
|||||||
|
68,601
|
56,897
|
127,172
|
114,271
|
||||||||||
|
Income
from operations
|
3,853
|
4,715
|
6,151
|
9,148
|
|||||||||
|
Interest
expense and other costs
|
(2
|
)
|
(2
|
)
|
(1
|
)
|
(124
|
)
|
|||||
|
(Impairment
charge) gain on sale of investment
|
(2,352
|
)
|
2,508
|
(2,633
|
)
|
2,508
|
|||||||
|
Interest
income
|
605
|
1,003
|
1,518
|
1,836
|
|||||||||
|
Earnings
before provision for income taxes
|
2,104
|
8,224
|
5,035
|
13,368
|
|||||||||
|
Income
tax provision
|
293
|
2,066
|
1,057
|
3,201
|
|||||||||
|
Net
earnings
|
$
|
1,811
|
$
|
6,158
|
$
|
3,978
|
$
|
10,167
|
|||||
|
Earnings
per Class A common share
|
|||||||||||||
|
Basic
|
$
|
0.14
|
$
|
0.49
|
$
|
0.31
|
$
|
0.81
|
|||||
|
Diluted
|
$
|
0.14
|
$
|
0.49
|
$
|
0.31
|
$
|
0.81
|
|||||
|
Weighted
average Class A common shares outstanding
|
|||||||||||||
|
Basic
|
2,524,978
|
2,661,589
|
2,528,693
|
2,682,400
|
|||||||||
|
Diluted
|
2,524,978
|
2,661,589
|
2,528,693
|
2,682,400
|
|||||||||
|
Earnings
per Class B common share
|
|||||||||||||
|
Basic
|
$
|
0.16
|
$
|
0.52
|
$
|
0.34
|
$
|
0.87
|
|||||
|
Diluted
|
$
|
0.16
|
$
|
0.52
|
$
|
0.34
|
$
|
0.86
|
|||||
|
Weighted
average Class B common shares outstanding
|
|||||||||||||
|
Basic
|
9,352,092
|
9,233,397
|
9,329,516
|
9,203,547
|
|||||||||
|
Diluted
|
9,352,609
|
9,261,587
|
9,333,082
|
9,234,319
|
|||||||||
See
notes
to condensed consolidated financial statements.
-
4 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars
in thousands)
|
|
Accumulated
|
|||||||||||||||||||||
|
Compre-
|
Other
|
Class
A
|
Class
B
|
Additional
|
||||||||||||||||||
|
hensive
|
Retained
|
Comprehensive
|
Common
|
Common
|
Paid-In
|
|||||||||||||||||
|
Total
|
Income
|
Earnings
|
Income
(loss)
|
Stock
|
Stock
|
Capital
|
||||||||||||||||
|
Balance,
January 1, 2007
|
|
$
|
222,150
|
$
|
190,953
|
$
|
(1,816
|
)
|
$
|
270
|
$
|
917
|
$
|
31,826
|
||||||||
|
Exercise
of stock options
|
1,452
|
6
|
1,446
|
|||||||||||||||||||
|
Tax
benefits arising from the disposition of non-qualified incentive
stock
options
|
149
|
149
|
||||||||||||||||||||
|
Cash
dividends declared on Class A common stock
|
(534
|
)
|
(534
|
)
|
||||||||||||||||||
|
Cash
dividends declared on Class B common stock
|
(2,175
|
)
|
(2,175
|
)
|
||||||||||||||||||
|
Issuance
of restricted common stock
|
-
|
7
|
(7
|
)
|
||||||||||||||||||
|
Termination
of restricted common stock
|
-
|
(1
|
)
|
1
|
||||||||||||||||||
|
Repurchase/retirement
of Class A common stock
|
(5,733
|
)
|
(15
|
)
|
(5,718
|
)
|
||||||||||||||||
|
Currency
translation adjustment
|
960
|
960
|
960
|
|||||||||||||||||||
|
Unrealized
holding gains on marketable securities arising during the year, net
of
taxes
|
2,077
|
2,077
|
2,077
|
|||||||||||||||||||
|
Reclassification
adjustment for gains included in net earnings, net of
taxes
|
(2,058
|
)
|
(2,058
|
)
|
(2,058
|
)
|
||||||||||||||||
|
Stock-based
compensation expense
|
1,410
|
1,410
|
||||||||||||||||||||
|
Change
in unfunded SERP liability, net of taxes
|
493
|
493
|
493
|
|||||||||||||||||||
|
Net
earnings
|
26,336
|
26,336
|
26,336
|
|||||||||||||||||||
|
Comprehensive
income
|
$
|
27,808
|
||||||||||||||||||||
|
Balance,
December 31, 2007
|
$
|
244,527
|
$
|
214,580
|
$
|
(344
|
)
|
$
|
255
|
$
|
929
|
$
|
29,107
|
|||||||||
|
Exercise
of stock options
|
312
|
3
|
309
|
|||||||||||||||||||
|
Tax
benefits arising from the disposition of non-qualified incentive
stock
options
|
40
|
40
|
||||||||||||||||||||
|
Cash
dividends declared on Class A common stock
|
(306
|
)
|
(306
|
)
|
||||||||||||||||||
|
Cash
dividends declared on Class B common stock
|
(1,305
|
)
|
(1,305
|
)
|
||||||||||||||||||
|
Issuance
of restricted common stock
|
-
|
6
|
(6
|
)
|
||||||||||||||||||
|
Repurchase/retirement
of Class A common stock
|
(766
|
)
|
(3
|
)
|
(763
|
)
|
||||||||||||||||
|
Currency
translation adjustment
|
804
|
804
|
804
|
|||||||||||||||||||
|
Unrealized
holding losses on marketable securities arising during the year,
net of
taxes
|
(1,336
|
)
|
(1,336
|
)
|
(1,336
|
)
|
||||||||||||||||
|
Reclassification
adjustment for impairment charge included in net earnings, net of
taxes
|
1,459
|
1,459
|
1,459
|
|||||||||||||||||||
|
Stock-based
compensation expense
|
668
|
668
|
||||||||||||||||||||
|
Net
earnings
|
3,978
|
3,978
|
3,978
|
|||||||||||||||||||
|
Comprehensive
income
|
$
|
4,905
|
||||||||||||||||||||
|
Balance,
June 30, 2008
|
$
|
248,075
|
$
|
216,947
|
$
|
583
|
$
|
252
|
$
|
938
|
$
|
29,355
|
||||||||||
See
notes
to condensed consolidated financial statements.
-
5 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars
in thousands)
|
Six
Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
earnings
|
$
|
3,978
|
$
|
10,167
|
|||
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|||||||
|
Depreciation
and amortization
|
3,601
|
3,850
|
|||||
|
Stock-based
compensation
|
668
|
683
|
|||||
|
Excess
tax benefits from share-based
|
|||||||
|
payment
arrangements
|
(40
|
)
|
(124
|
)
|
|||
|
Loss
(gain) on sale of property, plant and equipment
|
2
|
(880
|
)
|
||||
|
Impairment
charge (gain on sale) on investment
|
2,633
|
(2,508
|
)
|
||||
|
Unrealized
foreign exchange transaction gains
|
(123
|
)
|
-
|
||||
|
Other,
net
|
289
|
478
|
|||||
|
Deferred
income taxes
|
(1,059
|
)
|
(2,426
|
)
|
|||
|
Changes
in operating assets and liabilities (see below)
|
(1,245
|
)
|
2,558
|
||||
|
Net
Cash Provided by Operating Activities
|
8,704
|
11,798
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
Purchase
of property, plant and equipment
|
(3,144
|
)
|
(4,484
|
)
|
|||
|
Purchase
of intangible asset
|
(300
|
)
|
-
|
||||
|
Purchase
of marketable securities
|
(12,524
|
)
|
(11,801
|
)
|
|||
|
Proceeds
from sale of marketable securities
|
-
|
27,499
|
|||||
|
Proceeds
from sale of property, plant and equipment
|
2,290
|
2,192
|
|||||
|
Redemption
of investment
|
10,949
|
-
|
|||||
|
Net
Cash (Used In) Provided by Investing Activities
|
(2,729
|
)
|
13,406
|
||||
See
notes
to condensed consolidated financial statements.
-
6 -
BEL
FUSE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars
in thousands)
|
Six
Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from exercise of stock options
|
312
|
1,034
|
|||||
|
Dividends
paid to common shareholders
|
(1,572
|
)
|
(1,125
|
)
|
|||
|
Purchase
and retirement of Class A common stock
|
(766
|
)
|
(2,477
|
)
|
|||
|
Excess
tax benefits from share-based
|
|||||||
|
payment
arrangements
|
40
|
124
|
|||||
|
Net
Cash Used In Financing Activities
|
(1,986
|
)
|
(2,444
|
)
|
|||
|
Effect
of exchange rate changes on cash
|
262
|
83
|
|||||
|
Net
Increase in Cash and Cash Equivalents
|
4,251
|
22,843
|
|||||
|
Cash
and Cash Equivalents
|
|||||||
|
-
beginning of period
|
83,875
|
76,761
|
|||||
|
Cash
and Cash Equivalents
|
|||||||
|
-
end of period
|
$
|
88,126
|
$
|
99,604
|
|||
|
Changes
in operating assets and liabilities consist of:
|
|||||||
|
Decrease
in accounts receivable
|
$
|
907
|
$
|
1,158
|
|||
|
(Increase)
decrease in inventories
|
(6,990
|
)
|
2,337
|
||||
|
Increase
in prepaid expenses and other current assets
|
(360
|
)
|
(127
|
)
|
|||
|
Increase
in other assets
|
(75
|
)
|
(681
|
)
|
|||
|
Increase
(decrease) in accounts payable
|
4,604
|
(1,759
|
)
|
||||
|
Increase
in income taxes
|
982
|
803
|
|||||
|
(Decrease)
increase in accrued expenses
|
(313
|
)
|
827
|
||||
|
$
|
(1,245
|
)
|
$
|
2,558
|
|||
|
Supplementary
information:
|
|||||||
|
Cash
paid during the period for income taxes
|
$
|
854
|
$
|
4,757
|
|||
See
notes
to condensed consolidated financial statements.
-
7 -
BEL
FUSE
INC. AND SUBSIDIARIES
NOTES
TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS
OF
PRESENTATION AND ACCOUNTING POLICIES
The
condensed consolidated balance sheet as of June 30, 2008, and the condensed
consolidated statements of operations, stockholders' equity and cash flows
for
the periods presented herein have been prepared by Bel Fuse Inc. (the "Company"
or "Bel") 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, changes in stockholders' equity
and cash flows for all periods presented have been made. The results for the
three and six months ended June 30, 2008 should not be viewed as indicative
of
the Company’s annual results or the Company’s results for any other period. The
information for the condensed consolidated balance sheet as of December 31,
2007
was derived from audited financial statements. These financial statements should
be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Bel Form 10-K for the year ended December 31,
2007.
Certain
reclassifications have been made to prior period amounts to conform to the
current year presentation, principally in the detailed disclosures within the
footnotes pertaining to the business segment information and accrued
expenses.
2.
EARNINGS
PER SHARE
The
Company utilizes the two-class method to report its earnings per share. The
two-class method is an earnings allocation formula that determines earnings
per
share for each class of common stock according to dividends declared and
participation rights in undistributed earnings. The Company’s Certificate of
Incorporation, as amended, states that Class B common shares are entitled to
dividends at least 5% greater than dividends paid to Class A common shares,
resulting in the two-class method of computing earnings per share. In computing
earnings per share, the Company has allocated dividends declared to Class A
and
Class B based on amounts actually declared for each class of stock and 5% more
of the undistributed earnings have been allocated to Class B shares than to
the
Class A shares on a per share basis. Basic earnings per common share are
computed by dividing net earnings by the weighted average number of common
shares outstanding during the period. Diluted earnings per common share, for
each class of common stock, are computed by dividing net earnings by the
weighted average number of common shares and potential common shares outstanding
during the period. Potential common shares used in computing diluted earnings
per share relate to stock options for Class B common shares which, if exercised,
would have a dilutive effect on earnings per share.
-
8 -
The
earnings and weighted average shares outstanding used in the computation of
basic and diluted earnings per share are as follows (dollars in thousands,
except share and per share data):
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
June
30, 2008
|
June
30, 2008
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Numerator:
|
|||||||||||||
|
Net
earnings
|
$
|
1,811
|
$
|
6,158
|
$
|
3,978
|
$
|
10,167
|
|||||
|
Less
Dividends declared:
|
|||||||||||||
|
Class
A
|
152
|
108
|
306
|
215
|
|||||||||
|
Class
B
|
655
|
452
|
1,305
|
903
|
|||||||||
|
Undistributed
earnings
|
$
|
1,004
|
$
|
5,598
|
$
|
2,367
|
$
|
9,049
|
|||||
|
Undistributed
earnings allocation - basic:
|
|||||||||||||
|
Class
A undistributed earnings
|
$
|
205
|
$
|
1,206
|
$
|
486
|
$
|
1,966
|
|||||
|
Class
B undistributed earnings
|
799
|
4,392
|
1,881
|
7,083
|
|||||||||
|
Total
undistributed earnings
|
$
|
1,004
|
$
|
5,598
|
$
|
2,367
|
$
|
9,049
|
|||||
|
Undistributed
earnings allocation - diluted:
|
|||||||||||||
|
Class
A undistributed earnings
|
$
|
205
|
$
|
1,203
|
$
|
486
|
$
|
1,961
|
|||||
|
Class
B undistributed earnings
|
799
|
4,395
|
1,881
|
7,088
|
|||||||||
|
Total
undistributed earnings
|
$
|
1,004
|
$
|
5,598
|
$
|
2,367
|
$
|
9,049
|
|||||
|
Net
earnings allocation - basic:
|
|||||||||||||
|
Class
A allocated earnings
|
$
|
357
|
$
|
1,314
|
$
|
792
|
$
|
2,181
|
|||||
|
Class
B allocated earnings
|
1,454
|
4,844
|
3,186
|
7,986
|
|||||||||
|
Net
earnings
|
$
|
1,811
|
$
|
6,158
|
$
|
3,978
|
$
|
10,167
|
|||||
|
Net
earnings allocation - diluted:
|
|||||||||||||
|
Class
A allocated earnings
|
$
|
357
|
$
|
1,311
|
$
|
792
|
$
|
2,176
|
|||||
|
Class
B allocated earnings
|
1,454
|
4,847
|
3,186
|
7,991
|
|||||||||
|
Net
earnings
|
$
|
1,811
|
$
|
6,158
|
$
|
3,978
|
$
|
10,167
|
|||||
|
Denominator:
|
|||||||||||||
|
Weighted
average shares outstanding:
|
|||||||||||||
|
Class
A - basic and diluted
|
2,524,978
|
2,661,589
|
2,528,693
|
2,682,400
|
|||||||||
|
Class
B - basic
|
9,352,092
|
9,233,397
|
9,329,516
|
9,203,547
|
|||||||||
|
Dilutive
impact of stock options and unvested restricted stock
awards
|
517
|
28,190
|
3,566
|
30,772
|
|||||||||
|
Class
B - diluted
|
9,352,609
|
9,261,587
|
9,333,082
|
9,234,319
|
|||||||||
|
Earnings
per share:
|
|||||||||||||
|
Class
A - basic
|
$
|
0.14
|
$
|
0.49
|
$
|
0.31
|
$
|
0.81
|
|||||
|
Class
A - diluted
|
$
|
0.14
|
$
|
0.49
|
$
|
0.31
|
$
|
0.81
|
|||||
|
Class
B - basic
|
$
|
0.16
|
$
|
0.52
|
$
|
0.34
|
$
|
0.87
|
|||||
|
Class
B - diluted
|
$
|
0.16
|
$
|
0.52
|
$
|
0.34
|
$
|
0.86
|
|||||
During
the three and six months ended June 30, 2008 and during the three and six months
ended June 30, 2007, 53,000 and 14,000 outstanding options, respectively, were
not included in the foregoing computations for Class B common shares because
their effect would be antidilutive.
-
9 -
3. MARKETABLE
SECURITIES
At
June
30, 2008, the Company’s investment securities included privately placed units of
beneficial interests in the Columbia Strategic Cash Portfolio (the “Columbia
Portfolio”), which is an enhanced cash fund sold as an alternative to
money-market funds. During the latter half of 2007, the Company invested a
portion of its cash balances on hand in this fund. In December 2007, due to
adverse market conditions, the fund was overwhelmed with withdrawal requests
from investors and it was closed with a restriction placed upon the cash
redemption ability of its holders. As a result, the Company redesignated the
Columbia Portfolio units from cash equivalents (as previously classified during
the second and third quarters of 2007) to short-term investments or long-term
investments based upon the liquidation schedule provided by the fund. In
addition, the Company has recorded total impairment charges of $0.7 million
due
to the declining net asset value (NAV), $0.3 million of which was recorded
in
the first quarter of 2008. As the NAV of the Columbia Portfolio has remained
relatively constant during the second quarter of 2008, the Company has not
recorded any additional impairment charge during the three months ended June
30,
2008.
As
of
June 30, 2008, the Company has received total cash redemptions to date of $13.2
million (including $10.9 million in the six months ended June 30, 2008) at
a
weighted-average net asset value of $.9826 per unit. The additional realized
gains and losses associated with these redemptions were minimal. Information
and
the markets relating to these investments remain dynamic, and there may be
further declines in the value of these investments, the value of the collateral
held by these entities, and the liquidity of the Company’s investments. To the
extent that the Company determines that there is a further decline in fair
value, the Company may recognize additional impairment charges in future periods
up to the aggregate amount of these investments.
As
of
June 30, 2008, the Company owned a total of 1,840,919 shares, or approximately
1.9%,
of the
outstanding shares,
of the
common stock of Toko, Inc. (“Toko”) at a total cost of $5.6 million ($3.07 per
share). Toko had a market capitalization of approximately $174.5 million as
of
June 30, 2008. These shares are reflected on the Company’s condensed
consolidated balance sheets as marketable securities. These marketable
securities are considered to be available for sale under SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”. In
accordance with FASB Staff Position (“FSP”) 115-1, the Company periodically
reviews its marketable securities and determines whether the investments are
other-than-temporarily impaired. The Company reviewed various factors in making
its determination, including volatility of the Toko share price over the last
year, Toko’s recent financial results and the Company’s intention and ability to
hold the investment. The Toko share price has been extremely volatile over
the
last year, ranging from $1.22 - $2.79. While this stock is highly volatile,
the
Company’s cost basis in its remaining shares of Toko stock is $3.07 per share,
which is above the 52-week high of $2.79. While the Company has the intent
and
ability to hold this investment until it is in a gain position, there is no
indication that the Toko stock price will rise above the Company’s cost basis
within the foreseeable future. As a result, the Company has deemed this
investment to be other-than-temporarily impaired as of June 30, 2008 and has
recorded a pre-tax impairment charge of $2.4 million during the second quarter
of 2008 to write this investment to its fair value at June 30,
2008.
-
10 -
On
February 25, 2008, the Company announced that it had acquired 4,370,052 shares
of Power-One, Inc. (“Power-One”) common stock representing, to the Company’s
knowledge, 5% of Power-One’s outstanding common stock, at a total purchase price
of $10.1 million. Power-One’s common stock is quoted on the NASDAQ Global
Market. Power-One is a designer and manufacturer of power conversion and power
management products. As of June 30, 2008, the Company has recorded an unrealized
loss, net of income tax, of approximately $1.2 million which is included in
accumulated other comprehensive income in stockholders’ equity. As this stock
has been highly volatile during the short timeframe that the Company has held
this investment and, as management has the ability and intention to hold this
investment until the market improves, the Company does not believe that the
investment in Power-One is other-than-temporarily impaired as of June 30,
2008.
During
June 2008, the Company invested $2.4 million in certificates of deposit (CDs)
with Stephens, Inc., with whom the Company has an investment banking
relationship. This investment is part of the Certificate of Deposit Account
Registry Service (CDARS) program whereby the funds are allocated to various
banks in order to achieve FDIC insurance on the full invested amount. The CDs
have a 26-week maturity and an early redemption feature with a 30-day interest
penalty.
At
June
30, 2008 and December 31, 2007, respectively, marketable securities had a cost
of approximately $18.2 million and $5.6 million, an estimated fair value of
approximately $14.0 million and $3.3 million and gross unrealized losses of
approximately $1.8 million and $2.3 million. Such unrealized losses are
included, net of tax, in accumulated other comprehensive income (loss). During
the six months ended June 30, 2008, the Company recorded a pre-tax
other-than-temporary impairment charge of $2.4 million related to its investment
in Toko discussed above. The Company has realized losses of $0.2 million during
the six months ended June 30, 2008 related to the partial redemption of its
investment in the Columbia Portfolio. During the six months ended June 30,
2007,
the Company sold 4,034,000 shares of common stock of Toko on the open market
which resulted in a realized gain of $2.5 million. Included in other assets
at
June 30, 2008 and December 31, 2007 are marketable securities designated for
utilization in accordance with the Company’s SERP plan with a cost of
approximately $4.6 million and $4.6 million, respectively, and an estimated
fair
value of approximately $4.6 million and $4.9 million, respectively. Such
unrealized net gains (losses) are included, net of tax, in accumulated other
comprehensive loss.
Effective
January 1, 2008, the Company has adopted the provisions of SFAS 157 for its
financial assets and liabilities. Although this partial adoption of SFAS 157
had
no material impact on its financial condition, results of operations or cash
flows, the Company is now required to provide additional disclosures as part
of
its financial statements. SFAS 157 clarifies that fair value is an exit price,
representing the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at
the measurement date. The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability. SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes the inputs
used
in measuring fair value. These tiers include: Level 1, defined as observable
inputs such as quoted market prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly
or
indirectly observable; and Level 3, defined as unobservable inputs about which
little or no market data exists, therefore requiring an entity to develop its
own assumptions.
-
11 -
As
of
June 30, 2008, the Company held certain financial assets that are measured
at
fair value on a recurring basis. These consisted of the Company’s investments in
Toko and Power-One stock (categorized as available-for-sale securities) and
the
marketable securities designated for utilization in accordance with the
Company’s SERP plan (categorized as an other long-term investment). The fair
value of these investments is determined based on quoted market prices in public
market and are categorized as Level 1. The Company does not have any financial
assets measured at fair value on a recurring basis categorized as Level 2 or
Level 3, and there were no transfers in or out of Level 2 or Level 3 during
the
six months ended June 30, 2008.
The
following table sets forth by level within SFAS 157’s fair value hierarchy of
the Company’s financial assets accounted for at fair value on a recurring basis
as of June 30, 2008 (dollars in thousands).
|
Assets at Fair Value as of June 30, 2008
|
|||||||||||||
|
Total
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||
|
Available-for-sale
securities
|
$
|
13,957
|
$
|
13,957
|
-
|
-
|
|||||||
|
Other
long-term investments
|
4,625
|
4,625
|
-
|
-
|
|||||||||
|
Total
|
$
|
18,582
|
$
|
18,582
|
-
|
-
|
|||||||
The
following table sets forth by level within SFAS 157’s fair value hierarchy of
the Company’s financial assets accounted for at fair value on a nonrecurring
basis as of June 30, 2008 (dollars in thousands). These consisted of the
Company’s investment in the Columbia Portfolio (categorized as an other
investment in the table below). The fair value of these investments is
determined based on significant other observable inputs and are categorized
as
Level 2 (dollars in thousands).
|
Assets at Fair Value as of June 30, 2008
|
Total Gains (Losses)
|
||||||||||||||||||
|
Total
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Three Months
Ended
June 30, 2008
|
Six Months
Ended
June 30, 2008
|
||||||||||||||
|
Other
investments
|
$
|
11,852
|
-
|
$
|
11,852
|
-
|
$
|
3
|
($278
|
)
|
|||||||||
|
Total
|
$
|
11,852
|
-
|
$
|
11,852
|
-
|
$
|
3
|
($278
|
)
|
|||||||||
-
12 -
There
were no changes to the Company’s valuation techniques used to measure asset fair
values on a recurring or nonrecurring basis during the six months ended June
30,
2008 and the Company did not have any financial liabilities as of June 30,
2008.
4. INVENTORIES
The
components of inventories are as follows (dollars in thousands):
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
Raw materials
|
$
|
28,698
|
$
|
24,089
|
|||
|
Work
in progress
|
2,545
|
2,434
|
|||||
|
Finished
goods
|
15,052
|
12,526
|
|||||
|
$
|
46,295
|
$
|
39,049
|
||||
5. BUSINESS
SEGMENT INFORMATION
The
Company operates in one industry with three reportable segments. The segments
are geographic and include North America, Asia and Europe. The primary criteria
by which financial performance is evaluated and resources are allocated are
revenues and operating income. The following is a summary of key financial
data
(dollars in thousands):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
June 30,
|
June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Total
segment revenues
|
|||||||||||||
|
North
America
|
$
|
24,022
|
$
|
20,737
|
$
|
47,014
|
$
|
39,168
|
|||||
|
Asia
|
53,234
|
41,731
|
95,374
|
86,103
|
|||||||||
|
Europe
|
7,624
|
8,767
|
14,410
|
17,901
|
|||||||||
|
Total
segment revenues
|
84,880
|
71,235
|
156,798
|
143,172
|
|||||||||
|
Reconciling
items:
|
|||||||||||||
|
Intersegment
revenues
|
(12,426
|
)
|
(9,623
|
)
|
(23,475
|
)
|
(19,753
|
)
|
|||||
|
Net
sales
|
$
|
72,454
|
$
|
61,612
|
$
|
133,323
|
$
|
123,419
|
|||||
|
Income
from Operations:
|
|||||||||||||
|
North
America
|
$
|
1,647
|
$
|
1,009
|
$
|
2,745
|
$
|
2,111
|
|||||
|
Asia
|
1,464
|
3,231
|
2,304
|
6,387
|
|||||||||
|
Europe
|
742
|
475
|
1,102
|
650
|
|||||||||
|
$
|
3,853
|
$
|
4,715
|
$
|
6,151
|
$
|
9,148
|
||||||
6.
DEBT
Short-term
debt
On
April
30, 2008, the Company renewed its unsecured credit agreement in the amount
of
$20 million, which expires on June 10, 2011. There have not been any borrowings
under the credit agreement and as such, there was no balance outstanding as
of
June 30, 2008. At that date, the entire $20 million line of credit was available
to the Company to borrow. The credit agreement bears interest at LIBOR plus
0.75% to 1.25% based on certain financial statement ratios maintained by the
Company.
-
13 -
The
Company’s Hong Kong subsidiary had an unsecured line of credit of approximately
$2 million which was unused as of June 30, 2008. The line of credit expires
on
January 31, 2009. Any borrowing on the line of credit will be guaranteed by
the
U.S. parent. The line of credit bears interest at a rate determined by the
bank
as the financing is extended.
Included
in interest expense for the six months ended June 30, 2007 is the write-off
of
approximately $0.1 million of previously unamortized deferred financing charges
in connection with the Company’s prior credit facility.
7. INCOME
TAXES
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainties in Income Taxes (“FIN 48”), on January 1, 2007. Although the
implementation of FIN 48 did not impact the total amount of the Company’s
liabilities for uncertain tax positions, which amounted to $12.4 million at
January 1, 2007, the Company separately recognizes the liability for uncertain
tax positions on its balance sheet. Included in the liabilities for uncertain
tax positions at the date of adoption is $1.4 million for interest and
penalties.
At
June
30, 2008 and December 31, 2007, the Company has approximately $9.7 million
and
$9.2 million, respectively, of liabilities for uncertain tax positions
(including interest and penalties). Of these amounts, the current portions
of
$2.3 million and $2.3 million are included in income tax payable and the
noncurrent portions of $7.4 million and $6.9 million are included in liability
for uncertain tax positions. These liabilities for uncertain tax positions,
if
recognized, would reduce the Company’s effective tax rate.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and various states and foreign jurisdictions. The Company is no
longer subject to U.S. federal examinations by tax authorities for years before
2004 and for state examinations before 2003. Regarding foreign subsidiaries,
the
Company is no longer subject to examination by tax authorities for years before
2000. The Internal Revenue Service (“IRS”) commenced an examination of the
Company’s U.S. income tax returns for 2004 and reviewed 2003 and 2005 during the
fourth quarter of 2006. During April 2007, the IRS wrote a preliminary letter
to
the Company accepting the tax return as originally filed for 2004.
The
Company is currently being audited by the State of New Jersey, Department of
the
Treasury, Division of Taxation (“New Jersey”) for the years ended December 31,
2003 through 2006. The State of New Jersey is proposing a tax adjustment for
the
years 2003 through 2006 in the amount of $0.2 million. The assessment arises
from the method the Company utilized to account for home office charges from
the
parent company to its related entities. The Company intends to challenge the
state’s position on this matter. During the six months ended June 30, 2008, the
Company accrued the $0.2 million tax assessment.
During
February 2008, the Company received correspondence from the State of California
Franchise Tax Board. They requested copies of U.S. federal income tax returns
for the years 2005 and 2006 for further analysis to determine if the tax returns
will be selected for audit. On July 3, 2008 the Company received correspondence
from the State of California that the tax returns for the years 2005 and 2006
will not be audited at this time.
-
14 -
The
Inland Revenue Department (“IRD”) of Hong Kong commenced an examination of one
of the Company’s Hong Kong subsidiaries’ income tax returns for the years 2000
through 2005 and issued a notice of additional assessment during 2007 and demand
for tax in the amount of $3.8 million. This was paid in May and August 2007.
There is no interest or penalties in connection with this assessment. The IRD
proposed certain adjustments to the Company’s offshore income tax claim
position, with which Company management agreed.
Based
on
possible outcomes of the examinations mentioned above, or as a result of the
expiration of the statute of limitations for specific jurisdictions, it is
reasonably possible that the related unrecognized benefits for tax positions
taken regarding previously filed tax returns may change materially from those
recorded as liabilities for uncertain tax positions in the Company’s condensed
consolidated financial statements at June 30, 2008. Based on the number of
tax
years currently under audit by the relevant tax authorities, the Company
anticipates that several of these audits may be finalized in the next twelve
months. It is not possible to estimate the effect of changes, if any, that
will
be made to previously recorded uncertain tax positions over the next
year.
The
Company’s policy is to recognize interest and penalties related to uncertain tax
positions as a component of the current provision for income taxes. During
the
six months ended June 30, 2008 and 2007, the Company recognized approximately
$0.2 million and $0.2 million, respectively in interest and penalties in the
Condensed Consolidated Statements of Operations. The Company has approximately
$2.0 million and $1.8 million accrued for the payment of interest and penalties
at June 30, 2008 and December 31, 2007, respectively, which is included in
both
income taxes payable and liability for uncertain tax positions in the Condensed
Consolidated Balance Sheets.
8. ACCRUED
EXPENSES
Accrued
expenses consist of the following (dollars in thousands):
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
Sales
commissions
|
$
|
1,730
|
$
|
1,903
|
|||
|
Contract
labor
|
3,139
|
1,723
|
|||||
|
Salaries,
bonuses and
|
|||||||
|
related
benefits
|
4,205
|
4,082
|
|||||
|
Other
|
2,772
|
4,405
|
|||||
|
$
|
11,846
|
$
|
12,113
|
||||
9. RETIREMENT
FUND AND PROFIT SHARING PLAN
The
Company maintains a domestic profit sharing plan and a contributory stock
ownership and savings 401(K) plan, which combines stock ownership and individual
voluntary savings provisions to provide retirement benefits for plan
participants. The
expense for the six months ended June 30, 2008 and 2007 amounted to
approximately $0.2 million and $0.3 million, respectively. The expense for
the
three months ended June 30, 2008 and 2007 amounted to approximately $0.1 million
and $0.1 million, respectively. As of June 30, 2008, the plans owned 17,116
and
154,250 shares of Bel Fuse Inc. Class A and Class B common stock,
respectively.
-
15 -
The
Company's subsidiaries in Asia have a retirement fund covering substantially
all
of their Hong Kong based full-time employees. The
expense for the six months ended June 30, 2008 and 2007 amounted to
approximately $0.2 million and $0.2 million, respectively. The expense for
the
three months ended June 30, 2008 and 2007 amounted to approximately $0.1 million
and $0.1 million, respectively. As of June 30, 2008, the plan owned 3,323 and
17,756 shares of Bel Fuse Inc. Class A and Class B common stock,
respectively.
The
Supplemental Executive Retirement Plan (the "SERP" or the “Plan”) is designed to
provide a limited group of key management and highly compensated employees
of
the Company with
supplemental
retirement and death benefits.
The
components of SERP expense are as follows (dollars in thousands):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
June 30,
|
June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Service cost
|
$
|
73
|
$
|
147
|
$
|
146
|
$
|
287
|
|||||
|
Interest
cost
|
76
|
27
|
152
|
54
|
|||||||||
|
Amortization
of adjustments
|
33
|
24
|
66
|
42
|
|||||||||
|
Total
SERP expense
|
$
|
182
|
$
|
198
|
$
|
364
|
$
|
383
|
|||||
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
Balance sheet amounts:
|
|||||||
|
Minimum
pension obligation and
unfunded pension liability
|
$
|
5,019
|
$
|
4,698
|
|||
|
Accumulated
other comprehensive income (loss)
|
(1,154
|
)
|
(1,154
|
)
|
|||
Included
in other assets at June 30, 2008 and December 31, 2007 are marketable securities
designated for utilization in accordance with the Company’s SERP plan with a
cost of approximately $4.6 million and $4.6 million, respectively, and an
estimated fair value of approximately $4.6 million and $4.9 million,
respectively. Such unrealized net gains (losses) are included, net of tax,
in
accumulated other comprehensive income (loss). The
Company contributed $0.1 million to this investment during the six months ended
June 30, 2008.
10.
SHARE-BASED COMPENSATION
The
Company records compensation expense in its Condensed Consoldiated Statements
of
Operations related to employee stock-based options and awards in accordance
with
SFAS No. 123(R) “Share-Based Payment”. The aggregate pretax compensation cost
recognized in net earnings for stock-based compensation (including incentive
stock options and restricted stock, as further discussed below) amounted to
approximately $0.7 million and $0.7 million for the six months ended June 30,
2008 and 2007, respectively. For the three months ended June 30, 2008 and 2007
the aggregate compensation cost recognized in net earnings amounted to $0.4
million and $0.3 million, respectively. The Company did not use any cash to
settle any equity instruments granted under share-based arrangements during
the
six months ended June 30, 2008 and 2007.
-
16 -
Stock
Options
The
Company has an
equity
compensation program
(the
"Program")
which
provides for the granting of "Incentive Stock Options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended,
non-qualified stock options and restricted stock awards. No
stock
options were granted during the six months ended June 30, 2008 or
2007.
Information
regarding the Company’s stock
options
for the
six months ended June 30, 2008 is as follows. All of the stock options noted
below relate to options to purchase shares of the Company’s Class B common
stock.
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||
|
Options
|
Shares
|
Exercise Price
|
Term
|
Value (000's)
|
|||||||||
|
Outstanding
at January 1, 2008
|
70,000
|
$
|
28.42
|
||||||||||
|
Granted
|
-
|
||||||||||||
|
Exercised
|
(16,500
|
)
|
18.89
|
||||||||||
|
Forfeited
or expired
|
(500
|
)
|
18.89
|
||||||||||
|
Outstanding
at June 30, 2008
|
53,000
|
$
|
31.48
|
1.7
years
|
$
|
-
|
|||||||
|
Exercisable
at June 30, 2008
|
34,500
|
$
|
31.78
|
1.7
years
|
$
|
-
|
|||||||
During
the six months ended June 30, 2008 and 2007 the Company received $0.3 million
and $1.0 million, respectively, from the exercise of stock options and realized
minimal tax benefits during the six months ended June 30, 2008 and $0.1 million
in tax benefits during the six months ended June 30, 2007. The total intrinsic
value of options exercised during the six months ended June 30, 2008 and 2007
was $0.2 million and $0.7 million, respectively. Stock compensation expense
applicable to stock options was minimal for the six months ended June 30, 2008
and was approximately $0.2 million for the six months ended June 30, 2007.
-
17 -
A
summary
of the status of the Company's nonvested stock options as of December 31, 2007
and changes during the six months ended June 30, 2008 is presented
below:
|
Weighted-Average
|
|||||||
|
Grant-Date
|
|||||||
|
Nonvested Stock Options
|
Shares
|
Fair Value
|
|||||
|
|
|||||||
|
Nonvested
at December 31, 2007
|
33,500
|
$
|
30.28
|
||||
|
Granted
|
-
|
||||||
|
Vested
|
(15,000
|
)
|
29.50
|
||||
|
Forfeited
|
-
|
||||||
|
Nonvested
at June 30, 2008
|
18,500
|
$
|
30.92
|
||||
At
June
30, 2008, there was less than $0.1 million of total unrecognized cost related
to
nonvested stock options arrangements under the Program.
The
cost is expected to be recognized over a weighted average period of 0.75 months.
Currently, the Company believes that substantially all options will vest.
Restricted
Stock Awards
The
Company provides common stock awards to certain officers and key employees.
The
Company grants these awards, at its discretion, from the shares available under
the Program.
Unless otherwise provided at the date of grant or unless subsequently
accelerated, the
shares
awarded are earned in 25% increments on the second,
third, fourth and fifth anniversaries of the award,
respectively, and are distributed provided the employee has remained employed
by
the Company through such anniversary dates; otherwise the unearned shares are
forfeited. The market value of these shares at the date of award is recorded
as
compensation expense on the straight-line method over the five year
periods from the respective award dates, as adjusted for forfeitures of unvested
awards. During the six months ended June 30, 2008 and 2007, the Company issued
56,300 and 74,200 Class B common shares, respectively, under a restricted stock
plan to various employees. Pre-tax compensation expense was $0.7 million and
$0.6 million for the six months ended June 30, 2008 and 2007, respectively
and
$0.4 million and $0.3 million for the three months ended June 30, 2008 and
2007,
respectively.
-
18 -
A
summary
of the activity under the Restricted Stock Awards Plan as of January 1, 2008
and
for the six months ended June 30, 2008 is presented below:
|
Weighted
|
||||||||||
|
Weighted
|
Average
|
|||||||||
|
Average
|
Remaining
|
|||||||||
|
Restricted Stock
|
Award
|
Contractual
|
||||||||
|
Awards
|
Shares
|
Price
|
Term
|
|||||||
|
Outstanding
at January 1, 2008
|
195,400
|
$
|
35.31
|
3.43
years
|
||||||
|
Granted
|
56,300
|
24.47
|
||||||||
|
Vested
|
(4,500
|
)
|
30.67
|
|||||||
|
Forfeited
|
(7,250
|
)
|
33.74
|
|||||||
|
Outstanding
at June 30, 2008
|
239,950
|
$
|
32.90
|
3.39
years
|
||||||
As
of
June 30, 2008, there was $5.3 million of total pre-tax unrecognized compensation
cost included within additional paid-in-capital related to non-vested stock
based compensation arrangements granted under the restricted stock award plan;
that cost is expected to be recognized over a period of 4.9 years. The
Company's policy is to issue new shares to satisfy Restricted Stock Awards
and
incentive stock option exercises. In calculating the stock-based compensation
expense related to stock awards, the Company has estimated that 5% of the
outstanding unvested stock awards will forfeit each year related to employee
attrition.
11.
COMMON STOCK
During
2000, the Board of Directors of the Company authorized the purchase of up to
ten
percent of the Company’s outstanding common shares. As of June 30, 2008, the
Company had purchased and retired 23,600 Class B common shares at a cost of
approximately $0.8 million and had purchased and retired 185,529 Class A common
shares at a cost of approximately $6.5 million. No shares of Class B common
stock were repurchased during the six months ended June 30, 2008 and 25,496
shares of Class A common stock were repurchased during the six months ended
June
30, 2008 at a cost of $0.8 million.
As
of
June 30, 2008, there were two shareholders of the Company’s common stock with
ownership in excess of 10% of Class A outstanding shares with no ownership
of
the Company’s Class B common stock. In accordance with the Company’s certificate
of incorporation, the Class B Protection clause is triggered if a shareholder
owns 10% or more of the outstanding Class A common stock and does not own an
equal or greater percentage of all then outstanding shares (both Class A and
Class B common stock). If this clause is triggered, the shareholder must within
90 days of the trigger date, purchase Class B common shares, in an amount and
at
a price determined in accordance with a formula described in the Company’s
certificate of incorporation or forfeit its right to vote its Class A common
shares. As of June 30, 2008, to the Company's knowledge, these two such
shareholders had not purchased any Class B shares to comply with these
requirements. In order to vote their shares at Bel’s next shareholders’ meeting,
these shareholders must either purchase the required number of Class B common
shares or sell or otherwise transfer Class A common shares until their Class
A
holdings are under 10%. As of June 30, 2008, to the Company’s knowledge, these
shareholders owned 34.2% of the Company’s Class A common stock in the aggregate
and had not taken steps to either purchase the required number of Class B common
shares or sell or otherwise transfer Class A common shares until their Class
A
holdings fall below 10%.
-
19 -
There
are
no contractual restrictions on the Company's ability to pay dividends provided
the Company is not in default immediately before such payment and after giving
effect to such payment. On May 1, 2008, the Company paid a $0.07 per share
dividend to all shareholders of record of Class B Common Stock in the total
amount of $0.6 million and a $0.06 per share dividend to all shareholders of
record of Class A Common Stock in the total amount of $0.2 million.
12.
COMPREHENSIVE INCOME
Comprehensive
(loss) income for the three and six months ended June 30, 2008 and 2007 consists
of the following (dollars in thousands):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
June 30,
|
June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Net
earnings
|
$
|
1,811
|
$
|
6,158
|
$
|
3,978
|
$
|
10,167
|
|||||
|
Currency
translation adjustment
|
85
|
(24
|
)
|
804
|
334
|
||||||||
|
(Decrease)
increase in unrealized
|
|||||||||||||
|
gain
on marketable securities
|
|||||||||||||
|
-
net of taxes
|
(4,229
|
)
|
(3,344
|
)
|
(1,336
|
)
|
953
|
||||||
|
Reclassification
adjustment for
|
|||||||||||||
|
impairment
charge included in
|
|||||||||||||
|
net
earnings, net of tax
|
1,459
|
-
|
1,459
|
-
|
|||||||||
|
Comprehensive
(loss) income
|
$
|
(874
|
)
|
$
|
2,790
|
$
|
4,905
|
$
|
11,454
|
||||
13.
SALE
OF PROPERTY
During
May 2007, the Company sold a parcel of land located in Jersey City, New Jersey
for $6.0 million. The Company had previously estimated that approximately $0.8
million of the proceeds would be payable to the State of New Jersey, as a
portion of the property is subject to tideland claims. In December 2007, the
Tidelands Resource Council voted to approve the Bureau of Tideland’s
Management’s recommendation for a Statement of No Interest. On March 14, 2008,
the Commissioner of the Department of Environmental Protection signed a letter
to approve the Statement of No Interest. As final approval of the Statement
of
No Interest is still pending, the Company has continued to defer the estimated
gain on sale of the land, in the amount of $4.6 million. Of the $6.0 million
sales price, the Company received cash of $1.5 million before closing costs,
and
$4.6 million (including interest) was being held in escrow pending final
resolution of the State of New Jersey tideland claim and certain environmental
costs. During 2007, the Company paid $0.4 million related to environmental
costs, which approximated the maximum amount for which the Company is liable.
During May 2008, the title company released $2.3 million of the escrow and
as
such, $2.3 million still remains in escrow and has been classified as restricted
cash as of June 30, 2008. The Company anticipates resolution of this sale,
release of the remaining escrow and corresponding guarantees and recognition
of
the gain by the end of fiscal 2008. As the timing of the release of the
remaining escrow of $2.3 million is not under the Company’s control, it has been
classified in non-current assets as restricted cash and the deferred gain of
$4.6 million has been classified in deferred gain on the sale of property in
the
Condensed Consolidated Balance Sheet as of June 30, 2008 and December 31, 2007.
-
20 -
14. NEW
FINANCIAL ACCOUNTING STANDARDS
In
May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be
used
in the preparation of financial statements of nongovernmental entities that
are
presented in conformity with generally accepted accounting principles (GAAP)
in
the United States. This Statement is effective sixty days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The Company is currently evaluating the
potential impact, if any, of the adoption of SFAS No. 162 on its financial
statements.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”, an amendment of FASB Statement No. 133 (“SFAS No.
161”). The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company does not believe that SFAS No. 161 will have a material
impact on its financial statements.
15. LEGAL
PROCEEDINGS
The
Company is, from time to time, a party to litigation arising in the normal
course of its business, including various claims of patent infringement. See
the
Company’s Annual Report on Form 10-K for the details of pending lawsuits. The
Company cannot predict the outcome of the unresolved matters; however,
management believes that the ultimate resolution of these matters will not
have
a material impact on the Company's consolidated financial condition or results
of operations. As of June 30, 2008, no amounts have been accrued in connection
with these lawsuits, as the amounts are not determinable.
-
21 -
16. ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The
components of accumulated other comprehensive income (loss) as of June 30,
2008
and December 31, 2007 are summarized below (dollars in thousands):
|
June 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
Foreign
currency translation adjustment
|
$
|
2,905
|
$
|
2,101
|
|||
|
Unrealized
holding loss on available-for-sale securities under SFAS No. 115,
net of
taxes of $(712) and $(789) as of June 30, 2008 and December 31,
2007
|
(1,168
|
)
|
(1,291
|
)
|
|||
|
Unfunded
SERP liability, net of taxes of ($483) as of June 30, 2008 and December
31, 2007
|
(1,154
|
)
|
(1,154
|
)
|
|||
|
Accumulated
other comprehensive income (loss)
|
$
|
583
|
$
|
(344
|
)
|
||
17. RELATED
PARTY TRANSACTIONS
In
June
2008, the Company invested $2.0 million in a money market fund with GAMCO
Investors, Inc. (“GAMCO”). GAMCO is a current shareholder of the Company, with
holdings of its Class A stock in excess of 10%.
18.
SUBSEQUENT EVENT
On
July
31, 2008, the Company announced that it will cease manufacturing operations
at
its Bel Power Inc. facility in Westborough, Massachusetts by January 2009.
The
Company expects to incur severance and other costs related to the layoff of
approximately 50 associates over the next few months. The Company is currently
evaluating the accounting implications of the closure of this facility, which
will be recorded in the third quarter of 2008.
-
22 -
Item
1A.
Risk Factors
As
a result of protective provisions in the Company’s certificate of incorporation,
the voting power of certain officers, directors and principal shareholders
may
be increased at future meetings of the Company’s
shareholders.
An
investment in our common stock involves a high degree of risk. Investors should
carefully consider the risk described below, together with all other risk
factors contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007.
The
Company's certificate of incorporation provides that if a shareholder, other
than shareholders subject to specific exceptions, owns 10% or more of the
outstanding Class A common stock and does not own an equal or greater percentage
of all then outstanding shares (both Class A and Class B common stock),such
shareholder must within 90 days of the trigger date, purchase Class B common
shares, in an amount and at a price determined in accordance with a formula
described in the Company's certificate of incorporation, or forfeit its right
to
vote its Class A common shares. As of June 30, 2008, to the Company's knowledge,
there were two shareholders of the Company's common stock with ownership in
excess of 10% of Class A outstanding shares with no ownership of the Company's
Class B common stock and with no basis for exception from the operation of
the
above-mentioned provisions. In order to vote their shares at Bel's next
shareholders' meeting, these shareholders must either purchase the required
number of Class B common shares or sell or otherwise transfer Class A common
shares until their Class A holdings are under 10%. As of June 30, 2008, to
the
Company's knowledge, these shareholders owned 34.2% of the Company's Class
A
common stock in the aggregate and had not taken steps to either purchase the
required number of Class B common shares or sell or otherwise transfer Class
A
common shares until their Class A holdings fall below 10%.
To
the
extent that the voting rights of particular holders of Class A common stock
are
suspended as of times when the Company's shareholders vote due to non-compliance
with the above-mentioned provisions, such suspension will have the effect of
increasing the voting power of those holders of Class A common shares whose
voting rights are not suspended. As of June 30, 2008, Daniel Bernstein,
the Company's chief executive officer, beneficially owned 93,555 Class A common
shares (or 5.6%) of the Class A common shares whose voting rights were not
suspended, the Estate of Elliot Bernstein beneficially owned 251,132 Class
A
common shares (or 15.2%) of the Class A common shares whose voting rights were
not suspended and all directors and executive officers as a group (including
Daniel Bernstein) beneficially owned 243,484 Class A common shares (or 14.6%)
of
the Class A common shares whose voting rights were not
suspended.
-
23 -
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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, 2007. 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, 2007, 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
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. While
these products are deployed primarily in the computer, networking and
telecommunication industries, Bel’s expanding portfolio of products also finds
application in the automotive, medical and consumer electronics markets. Bel's
products are designed to protect, regulate, connect, isolate or manage a variety
of electronic circuits.
The
Company’s revenues are primarily driven by the designs of its products for
customer applications and by working closely with its customers’ engineering
staffs and aligning them with industry standards committees and various
integrated circuit (IC) manufacturers.
The
Company’s expenses are driven principally by the cost of labor where Bel’s
factories are located and the cost of the materials that it uses. The
Company has experienced a high turnover rate among workers in the People’s
Republic of China (“PRC”). Since
the
conclusion of the Lunar New Year holiday in early February, net new hires of
approximately 5,300 employees in Bel’s PRC facilities were required to meet a
40% increase in its Magnetics product backlog. The addition of new workers,
particularly surrounding the Lunar New Year, increased Bel’s training costs and
curtailed Bel’s output, as the new employees had lower productivity levels until
they became familiar with the Company’s methods of production. In addition, PRC
officials implemented an increase in wage rates effective April 1, 2008 in
the
areas where our products are manufactured, including double-time rates for
Saturdays and Sundays. During the second quarter of 2008, Bel’s employees worked
longer hours at those premium overtime rates. Furthermore, the U.S. dollar
continued to fall in value against the PRC yuan, the currency in which all
of
Bel’s PRC factory workers are paid. The combination of low efficiency of new
workers, higher wage rates, increased overtime hours worked and unfavorable
currency effects resulted in higher total labor costs. As of June 30, 2008,
although the backlog is still above prior year levels, the turnover level of
workers has returned to more normal levels and productivity levels are back
up
to 90% (as compared to productivity levels of 40-50% experienced during the
heavy transition period after the Lunar New Year). With
regard to material costs, the increasing cost of gold, copper and solder wire
have had a significant impact on the Company’s overall cost of sales.
-
24 -
The
Company’s sales increased by $10.8 million or 17.6% during the three months
ended June 30, 2008 as compared to the same period in 2007. The Company’s sales
increased by $9.9 million or 8.0% during the six months ended June 30, 2008
as
compared to the same period in 2007. The increase in sales is primarily due
to
an increase in module sales (including power products) of $6.2 million for
the
three months ended June 30, 2008 and $11.3 million for the six months ended
June
30, 2008, as compared to the comparable periods of 2007. Certain of the power
products went into production at the end of the first quarter of 2007, as
compared to a full six months of revenue stream associated with these new
products in 2008. In addition, the Company’s interconnect sales increased by
$3.2 million for the three months ended June 30, 2008 and $4.1 million for
the
six months ended June 30, 2008, as compared to the comparable periods of 2007.
The increase in sales for the six months ended June 30, 2008 were partially
offset by a decrease in the Company’s ICM sales of $3.4 million from the same
period of 2007 as a result of the production inefficiencies in the PRC referred
to above, which inhibited the Company’s ability to increase product shipments,
and together with increased orders resulted in an increase in backlog.
While
the
Company’s sales increased from 2007, gross profit margins decreased from 21.1%
for the three months ended June 30, 2007 to 18.1% for the three months ended
June 30, 2008. Gross profit margins for the six months ended June 30, 2008
were
18.3% as compared to 21.8% for the six months ended June 30, 2007. Direct labor
costs as a percent of sales increased by 3.7% during the three months ended
June
30, 2008 and by 2.3% for the six months ended June 30, 2008 as compared to
the
comparable periods of 2007. The rising labor costs resulted from increased
wage
rates, higher overtime rates and overtime hours worked and the productivity
issues experienced after the Lunar New Year, as discussed above. The remaining
reduction in margin resulted primarily from the increased cost of materials
such
as gold, copper and solder wire.
Net
earnings for this year's second quarter of $1,811,000 include a pre-tax charge
of $2,353,000 for the other-than-temporary impairment of Bel's holdings in
Toko
Inc. (TSE: 6801). See “Liquidity and Capital Resources” for further information
regarding this impairment charge.
Critical
Accounting Policies
The
Company’s discussion and analysis of its financial condition and results of
operations is 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, 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. For a discussion of the
Company’s critical accounting policies, see the Company’s Annual Report on Form
10-K for 2007.
-
25 -
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.
|
Percentage
of Net Sales
|
Percentage
of Net Sales
|
||||||||||||
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
June
30,
|
June
30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Net
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
|
Cost
of sales
|
81.9
|
78.9
|
81.7
|
78.2
|
|||||||||
|
Selling,
general and administrative expenses
|
12.8
|
14.9
|
13.7
|
15.1
|
|||||||||
|
Gain
on sale of property, plant and equipment
|
-
|
(1.4
|
)
|
-
|
(0.7
|
)
|
|||||||
|
(Impairment
charge) gain on sale of investment
|
(3.2
|
)
|
4.1
|
(2.0
|
)
|
2.0
|
|||||||
|
Interest
income, net of interest
|
|||||||||||||
|
and
financing expense
|
0.8
|
1.6
|
1.1
|
1.4
|
|||||||||
|
Earnings
before provision
|
|||||||||||||
|
for
income taxes
|
2.9
|
13.3
|
3.8
|
10.8
|
|||||||||
|
Income
tax provision
|
0.4
|
3.4
|
0.8
|
2.6
|
|||||||||
|
Net
earnings
|
2.5
|
10.0
|
3.0
|
8.2
|
|||||||||
-
26 -
The
following table sets forth the year over year percentage increase or decrease
of
certain items included in the Company's condensed consolidated statements of
operations.
|
Increase (decrease) from
|
Increase (decrease) from
|
||||||
|
Prior Period
|
Prior Period
|
||||||
|
Three Months Ended
|
Six Months Ended
|
||||||
|
June 30, 2008
|
June 30, 2008
|
||||||
|
Compared with
|
Compared with
|
||||||
|
Three Months Ended
|
Six Months Ended
|
||||||
|
June 30, 2007
|
June 30, 2007
|
||||||
|
Net
sales
|
17.6
|
%
|
8.0
|
%
|
|||
|
Cost
of sales
|
22.1
|
12.9
|
|||||
|
Selling,
general and administrative expenses
|
1.2
|
(2.4
|
)
|
||||
|
Net
earnings
|
(70.6
|
)
|
(60.9
|
)
|
|||
THREE
MONTHS ENDED JUNE 30, 2008 VERSUS THREE MONTHS ENDED JUNE 30,
2007
Sales
Net
sales
increased 17.6% from $61.6 million during the three months ended June 30, 2007
to $72.5 million during the three months ended June 30, 2008. The Company
attributes the increase to an increase in module sales of $6.2 million, an
increase in interconnect sales of $3.2 million and an increase in magnetic
sales
of $2.0 million, offset in part by a decrease in circuit protection sales of
$0.5 million. The main factor driving this net sales increase during the second
quarter related to a higher volume of products sold. While the Company has
announced recent price increases to its customers, these new rates will not
take
effect until the third quarter of 2008.
The
significant components of the Company's revenues for the three months ended
June
30, 2008 were magnetic products of $31.8 million (as compared with $29.8 million
during the three months ended June 30, 2007), interconnect products of $14.2
million (as compared with $11.0 million during the three months ended June
30,
2007), module products of $22.0 million (as compared with $15.8 million during
the three months ended June 30, 2007), and circuit protection products of $4.5
million (as compared with $5.0 million during the three months ended June 30,
2007).
Cost
of Sales
Cost
of
sales as a percentage of net sales increased from 78.9% during the three months
ended June 30, 2007 to 81.9% during the three months ended June 30, 2008. During
the three months ended June 30, 2007, the Company established a $1.2 million
warranty accrual for a defective part, including a $0.4 million inventory
write-off of materials on hand related to this matter which were deemed to
be
unusable. Excluding this anomaly, cost of sales as a percentage of net sales
increased 4.9% during the second quarter of 2008 as compared to the same quarter
of 2007. The increase in the cost of sales percentage is primarily attributable
to the following:
-
27 -
| ¨ |
The
Company experienced a significant increase in labor costs during
the three
months ended June 30, 2008 (16.1% of sales as compared to 12.4% of
sales
for the three months ended June 30, 2007). This increase was due
to a
variety of factors, including increased training costs and production
inefficiencies resulting from the hiring of 5,300 net new hires since
Lunar New Year, higher wage rates effective April 1, 2008 as mandated
by
PRC officials and an increase in overtime hours worked to reduce
our
backlog, with many of these hours being worked on Saturdays and Sundays
at
the new double-time rates. A significant number of new hires were
brought
on during the first quarter 2008 and the training period typically
takes
three months to become familiar with our production methods and achieve
an
acceptable level of productivity. As a result, the Company was still
experiencing production inefficiencies at the beginning of the second
quarter. In addition, the PRC yuan, in which all PRC workers are
paid, has
appreciated on average by 10.4% during the three months ended June
30,
2008 from the comparable period of 2007.
|
| ¨ |
The
Company incurred a 1.4% increase in material costs as a percentage
of net
sales. The increase in raw material costs is principally related
to
increased costs for raw materials such as gold, copper and solder
wire. In
addition, the shift in product mix has lead to increased manufacturing
of
value-added products, which have a higher raw material content than
the
Company’s other products. Increased transportation costs have also
contributed to the rising cost of materials. Since the majority of
the
manufacturing is conducted in Asia, the increased material costs
negatively impact the Company’s operating profits in
Asia.
|
| ¨ |
Sales
of the Company’s module products have increased. While these products are
strategic to Bel’s growth and important to total earnings, they return
lower gross profit percentage margins as a larger percentage of their
bills of materials are purchased components. As these sales continue
to
increase, the Company’s average gross profit percentage will likely
decrease.
|
Included
in cost of sales are research and development expenses of $2.0 million and
$1.6
million for the three months ended June 30, 2008 and 2007, respectively.
Selling,
General and Administrative Expenses
The
percentage relationship of selling, general and administrative expenses to
net
sales decreased from 14.9% during the three months ended June 30, 2007 to 12.8%
during the three months ended June 30, 2008. The decrease in the dollar amount
of selling, general and administrative expense for the three months ended June
30, 2008 compared to the three months ended June 30, 2007 was approximately
$0.1
million. The dollar decrease is principally attributed a $0.4 million decrease
in legal fees from the second quarter of 2007, primarily due to reduced legal
activity in the second quarter of 2008 and a $0.1 million reduction in external
accounting fees due to the implementation of an internal audit function. This
was largely offset by an increase in sales and marketing expenses of $0.4
million as compared to the second quarter of 2007 due to increased commissions
on the higher sales volume.
-
28 -
Gain
on Sale of Property, Plant and Equipment
During
the three months ended June 30, 2007, the Company realized gains from the sale
of real property in Hong Kong in the amount of $0.9 million.
(Impairment
Charge) Gain on Sale of Investment
During
the three months ended June 30, 2008, the Company recorded a pre-tax
other-than-temporary impairment charge of $2.4 million associated with its
investment in Toko, Inc. See “Liquidity and Capital Resources” for further
information. During the three months ended June 30, 2007, the Company realized
gains from the sale of Toko common stock in the amount of $2.5 million.
Interest
Income
Interest
income earned on cash and cash equivalents decreased by approximately $0.4
million during the three months ended June 30, 2008, as compared to the
comparable period in 2007. The decrease is due primarily to significantly lower
interest rates on invested balances during the three months ended June 30,
2008
as compared to 2007.
Provision
for Income Taxes
The
provision for income taxes for the three months ended June 30, 2008 was $0.3
million compared to a $2.1 million provision for the three months ended June
30,
2007. The Company's earnings before income taxes for the three months ended
June
30, 2008 are approximately $6.1 million lower than the same period in 2007.
The
Company’s effective tax rate, the income tax provision as a percentage of
earnings before provision for income taxes, was 13.9% and 25.1% for the three
months ended June 30, 2008 and June 30, 2007, respectively. The Company’s
effective tax rate will fluctuate based on the geographic segment the pretax
profits are earned in. 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 the Far East has the lowest tax rates. The decrease is
principally related to the tax benefit in the U.S. of $0.9 million associated
with the other than temporary impairment loss taken for financial statement
purposes, in connection with the Company’s investment in Toko during the second
quarter of 2008. During the three months ended June 30, 2007 there was a gain
in
the U.S. from the sale of TOKO stock in the amount of $2.5 million which
increased the effective tax rate. This was offset in part by higher U.S. and
European taxable income from operations to total pretax income during the three
months ended June 30, 2008 compared with June 30, 2007.
-
29 -
SIX
MONTHS ENDED JUNE 30, 2008 VERSUS SIX MONTHS ENDED JUNE 30,
2007
Sales
Net
sales
increased 8.0% from $123.4 million during the six months ended June 30, 2007
to
$133.3 million during the six months ended June 30, 2008. The Company attributes
the increase to an increase in module sales of $11.3 million and an increase
in
interconnect sales of $4.1 million, offset in part by a decrease in magnetic
sales of $4.6 million and a decrease in circuit protection sales of $0.9
million. The increase in module sales includes $6.2 million of additional power
products revenue during the six months ended June 30, 2008 as compared with
the
same period in 2007. Certain of the power products went into production at
the
end of the first quarter of 2007, as compared to a full six months of revenue
stream associated with these new products in 2008. The increase in module sales
was constrained by production inefficiencies associated with increased demand.
The partially offsetting decrease in magnetic sales is primarily due to a
decrease in the Company’s ICM sales of $3.4 million during the six months ended
June 30, 2008 as compared to the comparable period of 2007 as a result of
production inefficiencies in the PRC referred to above.
The
significant components of the Company's revenues for the six months ended June
30, 2008 were magnetic products of $56.7 million (as compared with $61.3 million
during the six months ended June 30, 2007), interconnect products of $26.2
million (as compared with $22.1 million during the six months ended June 30,
2007), module products of $41.9 million (as compared with $30.6 million during
the six months ended June 30, 2007), and circuit protection products of $8.5
million (as compared with $9.4 million during the six months ended June 30,
2007).
Cost
of Sales
Cost
of
sales as a percentage of net sales increased from 78.2% during the six months
ended June 30, 2007 to 81.7% during the six months ended June 30, 2008. During
the six months ended June 30, 2007, the Company established a $1.2 million
warranty accrual for a defective part, including a $0.4 million inventory
write-off of materials on hand related to this matter which were deemed to
be
unusable. Excluding this anomaly, cost of sales as a percentage of net sales
increased 4.5% during the six months ended June 30, 2008 as compared to the
same
period of 2007. The increase in the cost of sales percentage is primarily
attributable to the following:
| ¨ |
The
Company experienced a significant increase in labor costs during
the six
months ended June 30, 2008 (13.8% of sales as compared to 11.5% of
sales
for the six months ended June 30, 2007). This increase was due to
a
variety of factors, including increased training costs and production
inefficiencies resulting from the hiring of 5,300 net new hires since
Lunar New Year, higher wage rates effective April 1, 2008 as mandated
by
PRC officials and an increase in overtime hours worked to reduce
our
backlog, with many of these hours being worked on Saturdays and Sundays
at
the new double-time rates. In addition, the PRC yuan, in which all
PRC
workers are paid, has appreciated on average by 9.4% during the six
months
ended June 30, 2008 from the comparable period of 2007.
|
-
30 -
| ¨ |
The
Company incurred a 2.0% increase in material costs as a percentage
of net
sales. The increase in raw material costs is principally related
to
increased costs for raw materials such as gold, copper and solder
wire. In
addition, the shift in product mix has lead to increased manufacturing
of
value-added products, which have a higher raw material content than
the
Company’s other products. Increased transportation costs have also
contributed to the rising cost of materials. Since the majority of
the
manufacturing is conducted in Asia, the increased material costs
negatively impact the Company’s operating profits in
Asia.
|
| ¨ |
Sales
of the Company’s module products have increased. While these products are
strategic to Bel’s growth and important to total earnings, they return
lower gross profit percentage margins as a larger percentage of their
bills of materials are purchased components. As these sales continue
to
increase, the Company’s average gross profit percentage will likely
decrease.
|
Included
in cost of sales are research and development expenses of $3.9 million and
$3.1
million for the six months ended June 30, 2008 and 2007, respectively.
Selling,
General and Administrative Expenses
The
percentage relationship of selling, general and administrative expenses to
net
sales decreased from 15.1% during the six months ended June 30, 2007 to 13.7%
during the six months ended June 30, 2008. The decrease in the dollar amount
of
selling, general and administrative expense for the six months ended June 30,
2008 compared to the six months ended June 30, 2007 was approximately $0.4
million. The dollar decrease is principally attributed to the
following:
|
¨
|
Legal
and professional fees decreased by $0.9 million from the first six
months
of 2007 principally due to the implementation of an internal audit
and SOX
function which reduced audit and external consultant fees by approximately
$0.5 million and reduced legal activity during the second quarter
of 2008,
resulting in a decrease in legal fees of $0.4
million.
|
|
¨
|
Other
general and administrative costs decreased by $0.3 million during
the six
months ended June 30, 2008 as compared to the same period of 2007.
The
Company has reduced its discretionary bonus expense during the six
months
ended June 30, 2008 as a result of lower profitability in 2008. In
addition, the Company recorded a $0.1 million reduction of stock-based
compensation expense related to forfeitures of the restricted stock
awards. There were additional reductions in other general and
administrative costs that were not individually
significant.
|
Offsetting
these factors in part, sales and marketing expenses increased by $0.5 million
as
compared to the six months ended June 30, 2007 due to increased commissions
on
the higher sales volume. In addition, bad debt expense increased by $0.2 million
during the six months ended June 30, 2008 as compared to the same period of
2007. This increase resulted from a specific reserve on a large account in
Germany that was recorded during the first quarter of 2008.
-
31 -
Gain
on Sale of Property, Plant and Equipment
During
the six months ended June 30, 2007, the Company realized gains from the sale
of
real property in Hong Kong in the amount of $0.9 million.
(Impairment
Charge) Gain on Sale of Investment
During
the six months ended June 30, 2008, the Company recorded a pre-tax
other-than-temporary impairment charge of $2.4 million associated with its
investment in Toko, Inc. The Company also recorded an other-than-temporary
impairment charge of $0.3 million related to its investment in the Columbia
Strategic Cash Portfolio during the six months ended June 30, 2008. See
“Liquidity and Capital Resources” for further information on these impairment
charges. During the six months ended June 30, 2007, the Company realized gains
from the sale of Toko common stock in the amount of $2.5 million.
Interest
Income
Interest
income earned on cash and cash equivalents decreased by approximately $0.3
million during the six months ended June 30, 2008, as compared to the comparable
period in 2007. The decrease is due primarily to significantly lower interest
rates on invested balances during the six months ended June 30, 2008 as compared
to 2007.
Provision
for Income Taxes
The
provision for income taxes for the six months ended June 30, 2008 was $1.1
million compared to a $3.2 million provision for the six months ended June
30,
2007. The Company's earnings before income taxes for the six months ended June
30, 2008 are approximately $8.3 million lower than the same period in 2007.
The
Company’s effective tax rate, the income tax provision as a percentage of
earnings before provision for income taxes, was 21.0% and 23.9% for the six
months ended June 30, 2008 and June 30, 2007, respectively. The Company’s
effective tax rate will fluctuate based on the geographic segment the pretax
profits are earned in. 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 the Far East has the lowest tax rates. The decrease is
principally related to the tax benefit of $0.9 million in the U.S. associated
with the other than temporary impairment loss taken for financial statement
purposes, in connection with the Company’s investment in Toko during the second
quarter of 2008. During the six months ended June 30, 2007 there was a gain
in
the U.S. from the sale of TOKO stock in the amount of $2.5 million which
increased the effective tax rate. This was offset in part by an increase in
the
provision related to the State of New Jersey tax assessment in the amount of
$0.2 million during the six months ended June 30, 2008 and higher U.S. and
European taxable income from operations to total pretax income during the six
months ended June 30, 2008 compared with June 30, 2007.
-
32 -
Inflation
and Foreign Currency Exchange
During
the past two years, the effect of inflation on the Company's profitability
was
not material. Historically, fluctuations of the U.S. Dollar against other major
currencies have not significantly affected the Company's foreign operations
as
most sales have been denominated in U.S. Dollars or currencies directly or
indirectly linked to the U.S. Dollar. Most significant expenses, including
raw
materials, labor and manufacturing expenses, are either incurred in U.S. Dollars
or the currencies of the Hong Kong Dollar or the Chinese Renminbi. However,
the
Chinese Renminbi has appreciated in value significantly (approximately 9.4%)
during the six months ended June 30, 2008 as compared to the same period of
2007. Further appreciation of the Renminbi would result in the Company’s
incurring higher costs for all expenses incurred in the PRC. Commencing with
the
Company’s acquisition of its Passive Components Group in 2005, the Company's
European entity has sales transactions which are denominated principally in
Euros and British Pounds.
Conversion of these transactions into U.S. dollars has resulted in unrealized
exchange gains of $0.8 million and $0.3 million for the six months ended June
30, 2008 and June 30, 2007, respectively, relating
to the translation of foreign subsidiary financial statements which are included
in accumulated other comprehensive income. Realized currency gains (losses)
during the six months ended June 30, 2008 and June 30, 2007 were not material.
Any change in the linkage of the U.S. Dollar and the Hong Kong Dollar could
have
a material effect on the Company's consolidated financial position or results
of
operations.
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.
Management believes that the cash flow from operations after payments of
dividends combined with its existing capital base and the Company's available
lines 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
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 result in the loss of domestic and foreign credit
facilities and preclude the Company from raising debt or equity financing in
the
capital markets
on
affordable terms or otherwise.
On
April
30, 2008, the Company renewed its unsecured credit agreement in the amount
of
$20 million, which expires on June 10, 2011. There was no balance outstanding
as
of June 30, 2008. At that date, the entire $20 million line of credit was
available to the Company to borrow. The loan bears interest at LIBOR plus 0.75%
to 1.25% based on certain financial statement ratios maintained by the Company.
The
Company's Hong Kong subsidiary had an unsecured line of credit of approximately
$2 million, which was unused at June 30, 2008. The line of credit expires on
January 31, 2009. Borrowing on the line of credit was guaranteed by the U.S.
parent. The line of credit bears interest at a rate determined by the bank
as
the financing is extended.
For
information regarding further commitments under the Company's operating leases,
see Note 15 of Notes to the Company's Consolidated Financial Statements in
the
Company's 2007 Annual Report on Form 10-K.
-
33 -
During
May 2007, the Company sold a parcel of land located in Jersey City, New Jersey
for $6.0 million. The Company had previously estimated that approximately $0.8
million of the proceeds would be payable to the State of New Jersey as a portion
of the property is subject to tideland claims. In December 2007, the Tidelands
Resource Council voted to approve the Bureau of Tideland’s Management’s
recommendation for a Statement of No Interest. On March 14, 2008, the
Commissioner of the Department of Environmental Protection signed a letter
to
approve the Statement of No Interest. As final approval of the Statement of
No
Interest is still pending, the Company has continued to defer the estimated
gain
on sale of the land, in the amount of $4.6 million. Of the $6.0 million sales
price, the Company received cash of $1.5 million before closing costs, and
$4.6
million (including interest) was being held in escrow pending final resolution
of the State of New Jersey tideland claim and certain environmental costs.
During 2007, the Company paid $0.4 million related to environmental costs,
which
approximated the maximum amount for which the Company is liable. During May
2008, the title company released $2.3 million of the escrow and as such, $2.3
remains in escrow and has been classified as restricted cash as of June 30,
2008. The Company anticipates resolution of this sale, release of the remaining
escrow and corresponding guarantees and recognition of the gain by the end
of
fiscal 2008. As the timing of the release of the remaining escrow of $2.3
million is not under the Company’s control, it has been classified in
non-current assets as restricted cash and the deferred gain of $4.6 million
has
been classified in deferred gain on the sale of property in the Condensed
Consolidated Balance Sheet as of June 30, 2008.
At
June
30, 2008, the Company’s investment securities included privately placed units of
beneficial interests in the Columbia Strategic Cash Portfolio (the “Columbia
Portfolio”), which is an enhanced cash fund sold as an alternative to
money-market funds. During the latter half of 2007, the Company invested a
portion of its cash balances on hand in this fund. In December 2007, due to
adverse market conditions, the fund was overwhelmed with withdrawal requests
from investors and it was closed with a restriction placed upon the cash
redemption ability of its holders. As a result, the Company redesignated the
Columbia Portfolio units from cash equivalents (as previously classified during
the second and third quarters of 2007) to short-term investments or long-term
investments based upon the liquidation schedule provided by the fund. In
addition, the Company has recorded total impairment charges of $0.7 million
due
to the declining net asset value (NAV), $0.3 million of which was recorded
in
the first quarter of 2008. As the NAV of the Columbia Portfolio has remained
relatively constant during the second quarter of 2008, the Company has not
recorded any additional impairment charge during the three months ended June
30,
2008.
As
of
June 30, 2008, the Company has received total cash redemptions to date of $13.2
million (including $10.9 million in the six months ended June 30, 2008) at
a
weighted-average net asset value of $.9826 per unit. The additional realized
gains and losses associated with these redemptions were minimal. Information
and
the markets relating to these investments remain dynamic, and there may be
further declines in the value of these investments, the value of the collateral
held by these entities, and the liquidity of the Company’s investments. To the
extent that the Company determines that there is a further decline in fair
value, the Company may recognize additional impairment charges in future periods
up to the aggregate amount of these investments.
-
34 -
As
of
June 30, 2008, the Company owned a total of 1,840,919 shares, or approximately
1.9%,
of the
outstanding shares,
of the
common stock of Toko, Inc. (“Toko”) at a total cost of $5.6 million ($3.07 per
share). Toko had a market capitalization of approximately $174.5 million as
of
June 30, 2008. These shares are reflected on the Company’s condensed
consolidated balance sheets as marketable securities. These marketable
securities are considered to be available for sale under SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”. In
accordance with FSP 115-1, the Company periodically reviews its marketable
securities and determines whether the investments are other-than-temporarily
impaired. The Company reviewed various factors in making its determination,
including volatility of the Toko share price over the last year, Toko’s recent
financial results and the Company’s intention and ability to hold the
investment. The Toko share price has been extremely volatile over the last
year,
ranging from $1.22 - $2.79. While this stock is highly volatile, the Company’s
cost basis in its remaining shares of Toko stock is $3.07 per share, which
is
above the 52-week high of $2.79. While the Company has the intent and ability
to
hold this investment until it is in a gain position, there is no indication
that
the Toko stock price will rise above the Company’s cost basis within the
foreseeable future. As a result, the Company has deemed this investment
other-than-temporarily impaired as of June 30, 2008 and has recorded a pre-tax
impairment charge of $2.4 million during the second quarter of 2008 to write
this investment to its fair value at June 30, 2008.
On
February 25, 2008, the Company announced that it had acquired 4,370,052 shares
of Power-One, Inc. (“Power-One”) common stock representing, to the Company’s
knowledge, 5% of Power-One’s outstanding common stock, at a total purchase price
of $10.1 million. Power-One’s common stock is quoted on the NASDAQ Global
Market. Power-One is a designer and manufacturer of power conversion and power
management products. As of June 30, 2008, the Company has recorded an unrealized
loss, net of income tax, of approximately $1.2 million which is included in
accumulated other comprehensive income in stockholders’ equity. As this stock
has been highly volatile during the short timeframe that the Company has held
this investment and as management has the ability and intention to hold this
investment until the market improves, the Company does not believe that their
investment in Power-One is other-than-temporarily impaired as of June 30,
2008.
During
June 2008, the Company invested $2.4 million in certificates of deposit (CDs)
with Stephens, Inc., with whom the Company has an investment banking
relationship. This investment is part of the Certificate of Deposit Account
Registry Service (CDARS) program whereby the funds are allocated to various
banks in order to achieve FDIC insurance on the full invested amount. The CDs
have a 26-week maturity and an early redemption feature with a 30-day interest
penalty.
During
2000, the Board of Directors of the Company authorized the purchase of up to
ten
percent of the Company’s outstanding common shares. As of June 30, 2008, the
Company had purchased and retired 23,600 Class B common shares at a cost of
approximately $0.8 million and had purchased and retired 185,529 Class A common
shares at a cost of approximately $6.5 million. No shares of Class B common
stock were repurchased during the six months ended June 30, 2008 and 25,496
shares of Class A common stock were repurchased during the six months ended
June
30, 2008 at a cost of $0.8 million.
During
the six months ended June 30, 2008, the Company's cash and cash equivalents
increased by $4.3 million, reflecting approximately $8.7 million provided by
operating activities (principally as a result of net income of $4.0 million,
depreciation and amortization expense of $3.6 million, stock-based compensation
expense of $0.7 million and impairment charges, net of deferred tax provision,
of $1.6 million, offset in part by a $1.2 million decrease in operating assets
and liabilities), $10.9 million from the partial redemption of the Columbia
Portfolio and $2.3 million from the partial release of escrow related to the
sale of the Jersey City property, offset, in part, by $12.5 million used for
purchases of marketable securities, $3.1 million for the purchase of property,
plant and equipment, $0.8 million for the repurchase of the Company’s common
stock and $1.6 million for payments of dividends.
-
35 -
Cash
and
cash equivalents, marketable securities, short-term investments and accounts
receivable comprised approximately 53.9% and 54.4%
of the
Company's total assets at June 30, 2008 and December 31, 2007, respectively.
The
Company's current ratio (i.e., the ratio of current assets to current
liabilities) was 5.8 to 1 and 6.2 to 1 at June 30, 2008 and December 31, 2007,
respectively.
On
July
31, 2008, the Company announced that it will cease manufacturing operations
at
its Bel Power, Inc. facility in Westborough, Massachusetts by January 2009.
The
Company expects to incur severance and other costs related to the layoff
of
approximately 50 associates over the next few months. The Company is currently
evaluating the accounting implications of the closure of this facility, which
will be recorded in the third quarter of 2008.
New
Financial Accounting Standards
In
May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be
used
in the preparation of financial statements of nongovernmental entities that
are
presented in conformity with generally accepted accounting principles (GAAP)
in
the United States. This Statement is effective sixty days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The Company is currently evaluating the
potential impact, if any, of the adoption of SFAS No. 162 on its financial
statements.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”, an amendment of FASB Statement No. 133 (“SFAS No.
161”). The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company does not believe that SFAS No. 161 will have a material
impact on its financial statements.
-
36 -
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk
Fair
Value of Financial Instruments — The estimated fair values of financial
instruments have been determined by the Company using available market
information and appropriate valuation methodologies.
The
Company has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes. The Company does not currently
anticipate entering into interest rate swaps and/or similar
instruments.
The
Company's carrying values of cash, marketable securities, accounts receivable,
accounts payable and accrued expenses are a reasonable approximation of their
fair value. At
June
30, 2008, two of the Company’s investments - the Company’s investment in Toko
stock and the Company’s investment in the Columbia Strategic Cash Portfolio (the
“Columbia Portfolio”) - have been subject to recent market declines, triggering
impairment charges recorded during the six months ended June 30, 2008.
The
per
share fair market value of the remaining 1.8 million shares of Toko stock has
decreased by 22.5% since March 31, 2008 (a decline of $0.52 per share). This
investment has been in a loss position since April 2007. While the Company
has
the intent and ability to hold this investment until it is in a gain position,
there is no indication that the Toko stock price will rise above the Company’s
cost basis within the foreseeable future. As a result, the Company has deemed
this investment other-than-temporarily impaired as of June 30, 2008 and has
recorded an impairment charge of $2.4 million during the second quarter of
2008.
If Toko experiences further declines in their stock price, this could cause
the
Company to take additional impairment charges on this investment in the future.
The
Company’s investment in the Columbia Portfolio has also been sensitive to the
recent market decline. In December 2007, the Company was notified that its
$25.7
million investment in the Columbia Portfolio was being liquidated and that
the
fund was converting from a fixed net asset value (“NAV”) to a floating NAV,
which resulted in the Company’s recording a $0.3 million impairment charge
during the year ended December 31, 2007 and an additional impairment charge
of
$0.3 million was recorded in the three months ended March 31, 2008. See Note
3
of the Notes to the Company’s Condensed Consolidated Financial Statements. As of
June 30, 2008, the Company has a total of $11.9 million invested in the Columbia
Portfolio. While the NAV remained steady during the second quarter of 2008,
if
the NAV were to decline by $0.10 per unit (10% of the NAV of $0.9705 at June
30,
2008), the net impact to the Company’s results of operations and cash flows
would be a decrease of income before provision for income taxes and cash flows
from operating activities of approximately $1.2 million.
In
addition to the two investments discussed above, the Company’s investment in
Power-One, Inc. has also been subject to recent market declines. As of June
30,
2008, the pre-tax unrealized loss associated with this investment is $1.8
million. If the per share fair market value of the Power-One stock were to
decrease by $0.18 per share (10% of the June 30, 2008 Power-One stock price),
this would result in an additional unrealized loss of $0.8 million. The
Company’s cost in this investment was $2.32 per share and from the time of
purchase in late February 2008 through the end of the second quarter, the
closing stock price ranged from $1.81 - $3.70 per share, with the average
closing stock price for the period at $2.79 per share. The Company has the
intent and ability to hold this stock for the period of time it takes for the
market to recover. As a result of these factors, management believes that the
investment in Power-One is not other-than-temporarily impaired as of June 30,
2008.
-
37 -
The
Company enters into transactions denominated in U.S. Dollars, Hong Kong Dollars,
the Chinese Renminbi, Euros, British Pounds and the Czech Koruna. Fluctuations
in the U.S. dollar exchange rate against these currencies could significantly
impact the Company's consolidated results of operations.
The
Company believes that a change in interest rates of 1% or 2% would not have
a
material effect on the Company's condensed consolidated statement of operations
or balance sheet.
-
38 -
Item
4.
Controls
and Procedures
|
a)
|
Disclosure
controls and procedures.
As of the end of the Company’s most recently completed fiscal quarter
covered by this report, the Company carried out an evaluation, with
the
participation of the Company’s management, including the Company’s chief
executive officer and vice president of finance, of the effectiveness
of
the Company’s disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s chief
executive officer and vice president of finance concluded that the
Company’s disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified
in
the SEC’s rules and forms.
|
|
b.)
|
Changes
in internal controls over financial reporting:
There have been no changes in the Company's internal controls over
financial reporting that occurred during the Company's last fiscal
quarter
to which this report relates that have materially affected, or are
reasonable likely to materially affect, the Company’s internal control
over financial reporting.
|
PART
II.
Other Information
Item
1. Legal
Proceedings
The
Company is, from time to time, a party to litigation arising in the normal
course of its business, including various claims of patent infringement. See
the
Company’s Annual Report on Form 10-K for the details of pending lawsuits. The
Company cannot predict the outcome of the unresolved matters; however,
management believes that the ultimate resolution of these matters will not
have
a material impact on the Company's consolidated financial condition or results
of operations. As of June 30, 2008, no amounts have been accrued in connection
with these lawsuits, as the amounts are not determinable.
-
39 -
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
The
following table sets forth certain information regarding the Company's purchase
of shares of its Class A Common Stock during each calendar month in the quarter
ended June 30, 2008:
|
Period
|
Total Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan
|
|||||||||
|
April
1 - April 30, 2008
|
-
|
$
|
-
|
-
|
80,809
|
||||||||
|
May
1 - May 31, 2008
|
9,610
|
27.98
|
9,610
|
70,238
|
|||||||||
|
June
1 - June 30, 2008
|
3,679
|
28.57
|
3,679
|
66,191
|
|||||||||
|
Total
|
13,289
|
$
|
28.14
|
13,289
|
66,191
|
||||||||
As
of
June 30, 2008, the Company had cumulatively purchased and retired 23,600 shares
of the Company’s Class B Common Stock. No shares of Class B common stock were
repurchased during the six months ended June 30, 2008. The maximum number of
shares of Class B common stock that may yet be purchased under the plan as
of
April 30, 2008, May 31, 2008 and June 30, 2008 were 908,569, 914,099 and
913,859, respectively.
Item
4.
Submission of Matters to a Vote of Security Holders
The
Company’s annual meeting of security holders was held on May 9, 2008. At the
meeting the Board’s nominees were elected to the Board of Directors for terms of
three years. The votes were cast as follows:
|
For
|
Withheld
|
||||||
|
Avi
Eden
|
2,326,776
|
92,680
|
|||||
|
Robert
H. Simandl
|
2,120,159
|
299,297
|
|||||
With
respect to the ratification of the designation of Deloitte & Touche LLP to
audit the Company’s books and accounts for 2008, the votes were cast as
follows:
|
For
|
Against
|
Abstain
|
||||||
|
2,381,417
|
12,765
|
25,274
|
||||||
-
40 -
Item
6.
Exhibits
(a)
Exhibits:
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of the Vice President of Finance pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the Sarbanes
-
Oxley Act of 2002.
|
|
32.2
|
Certification
of the Vice-President of Finance pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
-
41 -
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 and
|
|
|
Chief
Executive Officer
|
|
|
By:
|
/s/
Colin Dunn
|
|
Colin
Dunn, Vice President of Finance
|
|
Dated:
August 8, 2008
-
42 -
EXHIBIT
INDEX
Exhibit
31.1 - Certification of the Chief Executive Officer pursuant to Section 302
of
the Sarbanes-Oxley Act of 2002.
Exhibit
31.2 - Certification of the Vice President of Finance pursuant to Section 302
of
the Sarbanes-Oxley Act of 2002.
Exhibit
32.1 - Certification of the Chief Executive Officer pursuant to Section 906
of
the Sarbanes-Oxley Act of 2002.
Exhibit
32.2 - Certification of the Vice President of Finance pursuant to Section 906
of
the Sarbanes-Oxley Act of 2002.
-
43 -