Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BELFA > SEC Filings for BELFA > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for BEL FUSE INC /NJ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BEL FUSE INC /NJ


9-May-2013

Quarterly Report


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, 2012. 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, 2012, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company's SEC filings.

Overview

Our Company

The Company designs, manufactures and markets a broad array of magnetics, modules, circuit protection devices and interconnect products. Bel's products are primarily used in the networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries. Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets.

Bel's business is operated through three geographic segments: North America, Asia and Europe. During the three months ended March 31, 2013, 42% of the Company's revenues were derived from North America, 42% from Asia and 16% from its Europe operating segment. Sales of the Company's interconnect products represented approximately 41% of its total net sales during the three months ended March 31, 2013. The remaining revenues related to sales of the Company's magnetic products (34%), module products (21%) and circuit protection products (4%).

The Company's expenses are driven principally by the cost of labor where the factories that Bel uses are located, the cost of the materials that it uses and its ability to efficiently manage overhead costs. As labor and material costs vary by product line, any significant shift in product mix can have an associated impact on the Company's costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. The Company's products are manufactured at various facilities in: the People's Republic of China ("PRC"); Glen Rock, Pennsylvania; Inwood, New York; McAllen, Texas; Haina, Dominican Republic; Reynosa and Cananea, Mexico; Louny, Czech Republic; and Worksop and Great Dunmow, England. The Company ceased manufacturing at the Vinita, Oklahoma manufacturing facility during the first quarter of 2013.

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

-18-

Return to Index

Trends Affecting our Business

The Company believes the key factors affecting Bel's three months ended March 31, 2013 and/or future results include the following:

· Recent Acquisitions - The Company completed three small acquisitions in 2012. Fibreco and Powerbox, both acquired in 2012, contributed a combined $2.9 million of sales and added $0.9 million of income from operations to Bel's consolidated results for the first quarter of 2013. On March 29, 2013, the Company completed its purchase of the Transpower magnetics business and other tangible and intangible assets of TE Connectivity ("TRP"). The TRP business, which had 2012 sales of approximately $75 million, will contribute to Bel's consolidated sales beginning in the second quarter of 2013 and is expected to be accretive to Bel's results by the second half of 2013. This statement constitutes a Forward-Looking Statement. Actual results could vary significantly from this projection based upon our ability to integrate the new entity into our business and the other risk factors that typically impact our results of operations.

· 2012 Restructuring Program - The Company substantially completed its plan to effect operational efficiencies by the end of 2012. The Company continued its efforts in the first quarter of 2013 to bring the new manufacturing facility in McAllen, Texas up to full operating capacity, but faced some challenges in meeting customer demand. Unanticipated costs of approximately $1.7 million related to additional overtime, scrap, a higher volume of purchased materials and expedited freight charges among other start-up costs. While certain of the costs were one-time items contained to the first quarter, other costs, such as additional overtime, are expected to continue into the second quarter to meet customer needs. Management believes that the overall annual savings of $5.6 million related to the Company's restructuring initiatives will still be realized, though the savings related to the Cinch transition may not be visible until the third quarter. This statement constitutes a Forward-Looking Statement. Actual results could vary significantly from this projection, primarily based upon the length of time required and actual costs incurred by the Company in achieving an efficient workforce at the newly-established McAllen, Texas manufacturing facility, in addition to other uncertainties associated with the Company modifying its approaches to operations.

· Revenues - Excluding the revenue contributions from recent acquisitions as described above, the Company's revenues for the first quarter of 2013 decreased by $5.5 million as compared to the first quarter of 2012. The decrease in sales was primarily due to reduced orders of module products from one customer in North America. We believe the order volume for this customer has leveled off and we do not anticipate any increase in volume from this customer until 2014. Revenue reductions resulting from manufacturing inefficiencies associated with the restructuring of Cinch operations described above were partially offset by increases in Bel's magnetics and DC-DC product groups. Bel is in the process of implementing price increases for certain products as our current pricing structure does not reflect the rising labor costs in the PRC as discussed below. Management expects the majority of these changes to be in effect by August 1, 2013.

· Product Mix - Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the Company's gross margin percentage. During the first quarter of 2013, the Company experienced a favorable shift in the mix of products sold as compared to the same period of 2012, which partially mitigated the effects of reduced sales and operational inefficiencies at our Texas facility.

· Pricing and Availability of Materials - Component pricing and availability have been stable for most of the Company's product lines, although lead times on electrical components are still extended. With regard to commodities, the Company has experienced some price decreases related to precious metals during the latter part of 2012 and that trend has continued into the first quarter of 2013. Costs for certain commodities, including gold and copper, were lower in the first quarter of 2013 as compared to the first quarter of 2012. Any fluctuations in component prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on Bel's profit margins.

· Labor Costs - Labor costs during the first quarter of 2013 were lower than the first quarter of 2012, due to additional recruiting, training and overtime incurred in the PRC following the 2012 Lunar New Year holiday, which did not recur in 2013. However, the impact of rising labor costs on our overall profit margin continues to be a concern. Approximately one-third of Bel's total sales are generated from labor intensive magnetic products, which are primarily manufactured in the PRC. Wage rates in the PRC, which are mandated by the government, now have higher minimum wage and overtime requirements and have been steadily increasing. In February 2013, the PRC government issued a 19% increase to the minimum wage in regions where the factories that Bel uses are located. This increase will be effective May 1, 2013. Fluctuation in the exchange rate related to the Chinese Renminbi has been further increasing the cost of labor in terms of U.S. dollars. Finally, there has been a shift in product mix such that Bel's labor-intensive MagJack® products represented a larger proportion of the Company's total sales during the first quarter of 2013 as compared to the same period of 2012.

· Impact of Pending Lawsuits - As further described in Note 11 to the accompanying condensed consolidated financial statements, there has been additional legal activity in 2013 related to the SynQor and Molex lawsuits. Ongoing legal costs related to these lawsuits will impact the profit margins of future quarters.

-19-

Return to Index
· Acquisition-Related Costs - The acquisition of TRP in 2013 and the valuations of the 2012 Acquired Companies gave rise to acquisition-related costs of $0.4 million during the first quarter of 2013. Bel's continuing strategy to actively consider potential acquisitions could result in additional legal and other professional costs in future periods.

· Effective Tax Rate - The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments. The change in the effective tax rate during the first quarter of 2013 is primarily attributable to the recognition under the new tax law, ATRA, of $0.4 million in R&E credits, related to the year ended December 31, 2012, which the Company recognized during the three months ended March 31, 2013. In addition, the Company incurred a loss in the North America segment for the three months ended March 31, 2013, compared to a pretax profit for the same period in 2012, as well as a lower pretax loss in Asia, for the three months ended March 31, 2013 compared to three months ended March 31, 2012, with no tax benefit. Additionally, the Company reversed a portion of the liability for uncertain tax positions related to the results of the Internal Revenue Service audit which resulted in a reduction to the tax provision for the three months ended March 31, 2012.

With the completion of the three acquisitions in 2012, and the acquisition of TRP during the first quarter of 2013, management is optimistic that the opportunities created by these acquisitions will fuel the growth of our core product groups in future periods. Bel finalized the closure of its facility in Vinita, Oklahoma by the end of the first quarter and is working to build an efficient workforce at its new manufacturing facility in McAllen, Texas. Management believes that the difficulties experienced during the first quarter related to the transition of Cinch's manufacturing operations will be largely resolved by the end of the second quarter and we look forward to seeing the benefits of these active measures during the second half of 2013. Statements regarding future results constitute Forward-Looking Statements and could be materially adversely affected by the risk factors identified by the Company in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Summary by Reportable Operating Segment

Net sales to external customers by reportable operating segment for the three
months ended March 31, 2013 and 2012 were as follows (dollars in thousands):

                                              Three Months Ended
                                                   March 31,
                                          2013                   2012
                   North America   $ 26,817        42 %   $ 33,437        51 %
                   Asia              26,415        42 %     24,477        37 %
                   Europe             9,796        16 %      7,647        12 %
                                   $ 63,028       100 %   $ 65,561       100 %

-20-

Return to Index

Net sales and (loss) income from operations by reportable operating segment for the three months ended March 31, 2013 and 2012 were as follows (dollars in thousands):

                                                  Three Months Ended
                                                       March 31,
                                                  2013          2012
               Total segment sales:
                  North America                 $  29,222     $  36,525
                  Asia                             32,725        34,847
                  Europe                           10,125         7,990
               Total segment sales                 72,072        79,362
               Reconciling item:
                  Intersegment sales               (9,044 )     (13,801 )
               Net sales                        $  63,028     $  65,561

               (Loss) income from operations:
                 North America                  $  (1,482 )   $   2,310
                 Asia                                (666 )      (1,562 )
                 Europe                               728           686
                                                $  (1,420 )   $   1,434

Sales in the Company's Europe operating segment were favorably impacted by the acquisitions of Fibreco and Powerbox which occurred in the second half of 2012. These two acquisitions contributed sales of $2.9 million and income from operations of $0.9 million during the first quarter of 2013. The decrease in sales in North America primarily related to reduced demand in 2013 for Bel's module products which are manufactured in China. Thus, the decrease in North American sales caused a corresponding decrease in intersegment sales of module products from Asia to North America. North America sales during the first quarter of 2013 were also impacted by the transition of operations from Cinch's manufacturing facility in Vinita, Oklahoma to its new manufacturing facility in McAllen, Texas. Manufacturing inefficiencies resulted in reduced production levels and lower overall sales of Cinch products during the quarter. In addition, various other costs associated with the Cinch reorganization further reduced our income from operations in North America during the first quarter of 2013.

Overview of Financial Results

Sales for the first quarter of 2013 decreased by 3.9% to $63.0 million from $65.6 million for the first quarter of 2012. Costs incurred related to the transition of Cinch operations to the new manufacturing facility in Texas heavily impacted our profit margin in the first quarter of 2013. Margins in our traditional connector, magnetic and circuit protection businesses continued to be affected by higher material and labor costs, while pricing to customers has not kept pace. Selling, general and administrative expense was $1.5 million higher in the first quarter of 2013 as compared to the same period of 2012, primarily due to the inclusion of expenses from the 2012 acquisitions and higher acquisition-related costs, legal and professional fees in 2013. These factors led to a net loss of $0.6 million for the first quarter of 2013 as compared to net earnings of $0.9 million for the first quarter of 2012. Additional details related to these factors affecting the first quarter results are described in the Results of Operations section below.

Critical Accounting Policies

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

Recent Accounting Pronouncements

The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1. "Basis of Presentation and Accounting Policies" included in Part I, Item 1. "Financial Statements (unaudited)."

-21-

Return to Index
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
                                                      Three Months Ended
                                                          March 31,
                                                    2013           2012

        Net sales                                     100.0   %      100.0  %
        Cost of sales                                  85.6           84.1
        Selling, general and administrative
        ("SG&A") expenses                              16.5           13.4
        Restructuring charge                            0.2            0.2
        Interest income and other, net                  0.1            0.1
        (Loss) earnings before provision for
        income taxes                                   (2.2)           2.3
        (Benefit) provision for income taxes           (1.3)           1.0
        Net (loss) earnings                            (0.9)           1.3

The following table sets forth the year over year percentage increase (decrease) of certain items included in the Company's condensed consolidated statements of operations.

                                       Increase (Decrease) from
                                             Prior Period
                                          Three Months Ended
                                            March 31, 2013
                                             Compared with
                                          Three Months Ended
                                            March 31, 2012

                  Net sales                              (3.9)  %
                  Cost of sales                          (2.2)
                  SG&A expenses                           17.4
                  Net loss/earnings                    (163.1)

Sales

Net sales decreased 3.9% from $65.6 million during the three months ended March
31, 2012 to $63.0 million during the three months ended March 31, 2013. The
Company's net sales by major product line for the three months ended March 31,
2013 and 2012 were as follows (dollars in thousands):

                                                    Three Months Ended
                                                         March 31,
                                                2013                   2012
           Interconnect products         $ 26,112        41 %   $ 27,241        42 %
           Magnetic products               21,257        34 %     19,200        29 %
           Module products                 13,370        21 %     16,715        25 %
           Circuit protection products      2,289         4 %      2,405         4 %
                                         $ 63,028       100 %   $ 65,561       100 %

The Company's magnetic product line, which includes Bel's MagJack and other integrated connector module (ICM) products, had a strong first quarter of 2013 as the workforce return rate after the Lunar New Year holiday in the PRC was higher than that of the prior year, resulting in more efficient operations in Asia. Revenue in Bel's interconnect product line in the first quarter of 2013 was down slightly from the comparable period of 2012, as the $2.0 million of Fibreco sales were more than offset by reduced shipments of Cinch products during the quarter. Sales in the Company's module product line continued to decline in the first quarter of 2013 due to reduced order volume of one customer, partially offset by higher sales of DC-DC and AC-DC module products.

-22-

Return to Index
Cost of Sales

The Company's cost of sales as a percentage of consolidated net sales for the
three months ended March 31, 2013 and 2012 was comprised of the following:

                                                 Three Months Ended
                                                     March 31,
                                                 2013         2012
             Material costs                        46.3%        45.5%
             Labor costs                           12.6%        13.8%
             Research and development expenses      4.7%         4.9%
             Other expenses                        22.0%        19.9%
               Total cost of sales                 85.6%        84.1%

The most significant factor contributing to the increase in cost of sales as a percentage of sales primarily related to operational inefficiencies and other start-up costs at the new manufacturing facility in Texas. The increase in material costs as a percentage of sales was primarily due to high material costs at the Texas facility resulting from third-party purchases, at premium prices, of machined parts. In addition, high volumes of scrap, rejected materials and freight were experienced at the Cinch factory in the first quarter of 2013. These additional material costs were partially offset by the 20% reduction in sales of module products, which have a higher material content than Bel's other product lines. Labor costs as a percentage of sales were lower in the first quarter of 2013 as compared to the same period of 2012, as the Company incurred excessive recruiting, training and overtime costs following the 2012 Lunar New Year holiday in Asia, which did not recur in 2013. Other expenses contained in cost of sales were higher as a percentage of sales during the first quarter of 2013 due to the inclusion of support labor and fringe costs of the 2012 Acquired Companies, an increase in SERP and stock-based compensation expense, unfavorable fluctuations in the fair market value of the Company's COLI policies, and duplication of indirect labor costs during the transition of Cinch operations from Vinita, Oklahoma to McAllen, Texas. These increases in other expenses during the first quarter of 2013 were partially offset by a reduction in support labor and fringe costs at other Bel locations due to restructuring actions that took place in 2012.

Included in cost of sales are research and development (R&D) expenses of $3.0 million and $3.2 million for the three-month periods ended March 31, 2013 and 2012, respectively. During the first quarter of 2012, the Company relocated its European R&D headquarters for integrated electronic modules to a new high-technology center in Maidstone, England.

Selling, General and Administrative Expenses ("SG&A")

The dollar amount of SG&A expenses was $1.5 million higher during the three months ended March 31, 2013 as compared to the same period of 2012. The increase primarily related to the inclusion of SG&A expenses related to the 2012 Acquired Companies, which totaled $0.6 million during the first quarter of 2013, in addition to $0.4 million of acquisition-related costs in 2013 associated with TRP and the valuations of the 2012 Acquired Companies. Other notable variances in overall SG&A expense include a $0.2 million increase in other legal and professional fees, additional freight costs related to the Cinch transition of $0.2 million, a $0.2 million increase in the bad debt provision and losses of $0.2 million related to exchange rate fluctuations in the Euro and British Pound during the first quarter of 2013.

Provision for Income Taxes

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

The (benefit) provision for income taxes for the three months ended March 31, 2013 was ($0.8) million compared to $0.6 million for the three months ended March 31, 2012. The Company's (loss) earnings before income taxes for the three months ended March 31, 2013 are approximately $2.9 million lower than the same period in 2012. The Company's effective tax rate, the income tax (benefit) provision as a percentage of earnings before provision for income taxes, was (60.6%) and 42.0% for the three-month periods ended March 31, 2013 and 2012, respectively. The change in the effective tax rate during the three months ended March 31, 2013 compared to the first quarter of 2012 is primarily attributed to the recognition under the new tax law, ATRA, of $0.4 million in R&E credit, related to the year ended December 31, 2012, which the Company recognized during the three months ended March 31, 2013. In addition, the Company incurred a loss in the North America segment for the three months ended . . .

  Add BELFA to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BELFA - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.