UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
(MARK ONE)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2014
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or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ____________
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Commission File No. 0-11676
_____________________
BEL FUSE INC.
206 Van Vorst Street
Jersey City, NJ 07302
(201) 432-0463
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
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NEW JERSEY
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22-1463699
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Yes [X]
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No [ ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes [X]
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No [ ]
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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.
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Large accelerated filer [ ]
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Accelerated filer [X]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [ ]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
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Yes [ ]
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No [X]
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Title of Each Class
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Number of Shares of Common Stock Outstanding
as of August 1, 2014
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Class A Common Stock ($0.10 par value)
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2,174,912 |
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Class B Common Stock ($0.10 par value)
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9,702,877 |
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INDEX
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Page
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Part I
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Item 1.
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1
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2
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3
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4
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5 - 6
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7 - 20
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Item 2.
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21 - 29
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Item 3.
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29
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Item 4.
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29
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Part II
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Item 1.
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29
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Item 6.
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30
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31
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Item 1. Financial Statements (Unaudited)
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from the following condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The following condensed consolidated financial statements should 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, 2013.
The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results for the entire fiscal year or for any other period.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(dollars in thousands, except share and per share data)
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(Unaudited)
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June 30,
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December 31,
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2014
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2013
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$ |
87,769 |
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$ |
62,123 |
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Accounts receivable - less allowance for doubtful accounts of $1,900
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and $941 at June 30, 2014 and December 31, 2013, respectively
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97,507 |
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63,849 |
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Inventories
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98,706 |
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70,019 |
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Prepaid expenses and other current assets
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7,486 |
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3,519 |
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Refundable income taxes
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2,446 |
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1,650 |
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Deferred income taxes
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4,963 |
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2,995 |
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Total Current Assets
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298,877 |
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204,155 |
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Property, plant and equipment - net
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67,051 |
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40,896 |
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Deferred income taxes
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3,537 |
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1,680 |
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Intangible assets - net
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49,689 |
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29,472 |
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Goodwill
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55,644 |
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18,490 |
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Other assets
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20,045 |
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13,448 |
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TOTAL ASSETS
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$ |
494,843 |
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$ |
308,141 |
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
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Accounts payable
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$ |
58,369 |
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$ |
29,518 |
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Accrued expenses
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40,435 |
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22,442 |
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Short-term borrowings under revolving credit line
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- |
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12,000 |
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Current maturities of long-term debt
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7,250 |
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Notes payable
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479 |
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739 |
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Income taxes payable
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1,562 |
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1,496 |
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Dividends payable
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843 |
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786 |
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Total Current Liabilities
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108,938 |
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66,981 |
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Long-term Liabilities:
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Long-term debt, noncurrent
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137,750 |
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- |
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Liability for uncertain tax positions
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1,687 |
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1,218 |
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Minimum pension obligation and unfunded pension liability
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11,376 |
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10,830 |
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Other long-term liabilities
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508 |
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410 |
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Total Long-term Liabilities
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151,321 |
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12,458 |
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Total Liabilities
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260,259 |
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79,439 |
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Commitments and Contingencies
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Stockholders' Equity:
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Preferred stock, no par value, 1,000,000 shares authorized; none issued
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- |
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- |
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Class A common stock, par value $.10 per share, 10,000,000 shares
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authorized; 2,174,912 shares outstanding at each date (net of
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1,072,769 treasury shares)
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217 |
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217 |
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Class B common stock, par value $.10 per share, 30,000,000 shares
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authorized; 9,330,877 and 9,335,677 shares outstanding, respectively
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(net of 3,218,307 treasury shares)
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933 |
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933 |
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Additional paid-in capital
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20,089 |
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18,914 |
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Retained earnings
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211,994 |
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207,993 |
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Accumulated other comprehensive income
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1,351 |
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645 |
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Total Stockholders' Equity
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234,584 |
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228,702 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ |
494,843 |
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$ |
308,141 |
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See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(dollars in thousands, except share and per share data)
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(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2014
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2013
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2014
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2013
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Net Sales
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$ |
99,439 |
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$ |
93,981 |
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$ |
182,085 |
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$ |
157,009 |
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Costs and expenses:
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Cost of sales
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81,493 |
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78,717 |
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150,069 |
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132,649 |
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Selling, general and administrative
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13,176 |
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12,342 |
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24,365 |
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22,741 |
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Restructuring charges
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1,056 |
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1,263 |
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1,056 |
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1,387 |
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95,725 |
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92,322 |
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175,490 |
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156,777 |
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Income from operations
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3,714 |
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1,659 |
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6,595 |
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232 |
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Interest expense
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(225 |
) |
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(5 |
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(255 |
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(8 |
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Interest income and other, net
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49 |
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69 |
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100 |
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107 |
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Earnings before provision (benefit) for income taxes
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3,538 |
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1,723 |
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6,440 |
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331 |
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Provision (benefit) for income taxes
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473 |
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34 |
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872 |
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(800 |
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Net earnings
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$ |
3,065 |
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$ |
1,689 |
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$ |
5,568 |
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$ |
1,131 |
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Earnings per share:
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Class A common share - basic and diluted
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$ |
0.25 |
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$ |
0.14 |
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$ |
0.45 |
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$ |
0.09 |
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Class B common share - basic and diluted
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$ |
0.27 |
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$ |
0.15 |
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$ |
0.49 |
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$ |
0.10 |
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Weighted-average shares outstanding:
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Class A common share - basic and diluted
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2,174,912 |
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2,174,912 |
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2,174,912 |
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2,174,912 |
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Class B common share - basic and diluted
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9,331,982 |
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9,213,178 |
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9,333,460 |
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9,217,119 |
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Dividends paid per share:
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Class A common share
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$ |
0.06 |
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$ |
0.06 |
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$ |
0.12 |
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$ |
0.12 |
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Class B common share
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$ |
0.07 |
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$ |
0.07 |
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$ |
0.14 |
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$ |
0.14 |
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See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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(dollars in thousands)
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(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2014
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2013
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2014
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2013
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Net earnings
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$ |
3,065 |
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$ |
1,689 |
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$ |
5,568 |
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$ |
1,131 |
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Other comprehensive income:
|
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|
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|
|
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Currency translation adjustment, net of taxes of $89, $5, $123 and ($216), respectively
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|
368 |
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|
231 |
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|
537 |
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(1,182 |
) |
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Unrealized holding losses on marketable securities arising during the period,
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net of taxes of $48, ($63), $65 and ($11), respectively
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|
78 |
|
|
|
(103 |
) |
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|
106 |
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(18 |
) |
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Change in unfunded SERP liability, net of taxes of $14, $24, $28 and ($4), respectively
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|
32 |
|
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|
53 |
|
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|
63 |
|
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(8 |
) |
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Other comprehensive income (loss)
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|
478 |
|
|
|
181 |
|
|
|
706 |
|
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(1,208 |
) |
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Comprehensive income (loss)
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$ |
3,543 |
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$ |
1,870 |
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$ |
6,274 |
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$ |
(77 |
) |
| |
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| |
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See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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(dollars in thousands)
|
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|
(Unaudited)
|
|
| |
|
Six Months Ended
|
|
| |
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June 30,
|
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| |
|
2014
|
|
|
2013
|
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Cash flows from operating activities:
|
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|
|
|
|
|
|
Net earnings
|
|
$ |
5,568 |
|
|
$ |
1,131 |
|
|
Adjustments to reconcile net earnings to net
|
|
|
|
|
|
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|
|
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,507 |
|
|
|
5,397 |
|
|
Stock-based compensation
|
|
|
1,143 |
|
|
|
934 |
|
|
Gain on disposal of property, plant and equipment
|
|
|
- |
|
|
|
(13 |
) |
|
Other, net
|
|
|
269 |
|
|
|
471 |
|
|
Deferred income taxes
|
|
|
(475 |
) |
|
|
(1,120 |
) |
|
Changes in operating assets and liabilities (see page 6)
|
|
|
(318 |
) |
|
|
(10,661 |
) |
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
12,694 |
|
|
|
(3,861 |
) |
| |
|
|
|
|
|
|
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|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Increase in cash equivalents within Rabbi Trust
|
|
|
(2,936 |
) |
|
|
- |
|
|
Purchase of company-owned life insurance (COLI)
|
|
|
(2,820 |
) |
|
|
- |
|
|
Purchase of property, plant and equipment
|
|
|
(2,969 |
) |
|
|
(3,088 |
) |
|
Payment for acquisition, net of cash acquired (see page 6)
|
|
|
(109,879 |
) |
|
|
(20,932 |
) |
|
Proceeds from surrender of COLI
|
|
|
5,756 |
|
|
|
- |
|
|
Proceeds from disposal of property, plant and equipment
|
|
|
20 |
|
|
|
13 |
|
|
Net Cash Used in Investing Activities
|
|
|
(112,828 |
) |
|
|
(24,007 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Dividends paid to common shareholders
|
|
|
(1,511 |
) |
|
|
(1,512 |
) |
|
Deferred financing costs
|
|
|
(5,422 |
) |
|
|
- |
|
|
Repayments under revolving credit line
|
|
|
(12,000 |
) |
|
|
- |
|
|
(Decrease) increase in notes payable
|
|
|
(255 |
) |
|
|
149 |
|
|
Proceeds from long-term debt
|
|
|
145,000 |
|
|
|
- |
|
|
Purchase and retirement of Class B common stock
|
|
|
- |
|
|
|
(3,356 |
) |
|
Net Cash Provided by (Used In) Financing Activities
|
|
|
125,812 |
|
|
|
(4,719 |
) |
| |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(32 |
) |
|
|
(76 |
) |
| |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
25,646 |
|
|
|
(32,663 |
) |
|
Cash and Cash Equivalents - beginning of period
|
|
|
62,123 |
|
|
|
71,262 |
|
|
Cash and Cash Equivalents - end of period
|
|
$ |
87,769 |
|
|
$ |
38,599 |
|
| |
|
|
|
|
|
|
|
|
|
(Continued)
|
|
|
See notes to unaudited condensed consolidated financial statements.
|
|
|
BEL FUSE INC. AND SUBSIDIARIES
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
|
|
|
(dollars in thousands)
|
|
|
(Unaudited)
|
|
| |
|
Six Months Ended
|
|
| |
|
June 30,
|
|
| |
|
2014
|
|
|
2013
|
|
| |
|
|
|
|
|
|
|
Changes in operating assets and liabilities consist of:
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
$ |
(4,235 |
) |
|
$ |
(7,894 |
) |
|
Decrease (increase) in inventories
|
|
|
4,539 |
|
|
|
(4,497 |
) |
|
Increase in prepaid expenses and other current assets
|
|
|
(701 |
) |
|
|
(1,071 |
) |
|
Increase in other assets
|
|
|
(312 |
) |
|
|
(27 |
) |
|
Increase in accounts payable
|
|
|
2,692 |
|
|
|
2,487 |
|
|
Decrease in accrued expenses
|
|
|
(2,298 |
) |
|
|
(428 |
) |
|
Increase in other liabilities
|
|
|
6 |
|
|
|
29 |
|
|
Increase in accrued restructuring costs
|
|
|
- |
|
|
|
1,069 |
|
|
Decrease in income taxes payable
|
|
|
(9 |
) |
|
|
(329 |
) |
| |
|
$ |
(318 |
) |
|
$ |
(10,661 |
) |
| |
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds received
|
|
$ |
1,387 |
|
|
$ |
651 |
|
|
Interest
|
|
|
60 |
|
|
|
6 |
|
| |
|
|
|
|
|
|
|
|
|
Details of acquisitions:
|
|
|
|
|
|
|
|
|
|
Fair value of identifiable net assets acquired
|
|
$ |
93,258 |
|
|
$ |
28,108 |
|
|
Goodwill
|
|
|
37,534 |
|
|
|
1,240 |
|
|
Fair value of net assets acquired
|
|
$ |
130,792 |
|
|
$ |
29,348 |
|
| |
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$ |
130,792 |
|
|
$ |
29,348 |
|
|
Less: Cash acquired in acquisition
|
|
|
(20,913 |
) |
|
|
(8,388 |
) |
|
Deferred consideration
|
|
|
- |
|
|
|
(28 |
) |
|
Cash paid for acquisitions, net of cash acquired
|
|
$ |
109,879 |
|
|
$ |
20,932 |
|
|
See notes to unaudited condensed consolidated financial statements.
|
|
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
|
The condensed consolidated balance sheet as of June 30, 2014, and the condensed consolidated statements of operations, comprehensive income 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 and cash flows for all periods presented have been made. The results for the three and six months ended June 30, 2014 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, 2013 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 Fuse Annual Report on Form 10-K for the year ended December 31, 2013.
On March 9, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of GigaCom Interconnect AB (“GigaCom”). On July 31, 2012, the Company consummated its acquisition of 100% of the issued and outstanding capital stock of Fibreco Ltd. (“Fibreco”). On September 12, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Powerbox Italia S.r.L (“Powerbox”). The acquisitions of GigaCom, Fibreco and Powerbox may hereafter be referred to collectively as either the “2012 Acquisitions” or the “2012 Acquired Companies”. Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values. The accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2013 have been restated to reflect immaterial measurement period adjustments related to the applicable 2012 Acquisitions.
On March 29, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Transpower Technologies (HK) Limited (“Transpower”) and certain other tangible and intangible assets related to the Transpower magnetics business of TE Connectivity (“TRP”). On August 20, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Array Connector Corporation (“Array”). The acquisitions of TRP and Array may hereafter be referred to collectively as either the “2013 Acquisitions” or the “2013 Acquired Companies”. Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values. The Company’s condensed consolidated results of operations include the operating results of the 2013 Acquisitions since their respective acquisition dates. The accompanying condensed consolidated financial statements as of December 31, 2013 and for the three and six months ended June 30, 2013 have been restated to reflect measurement period adjustments, as further described in Note 3, related to the TRP acquisition.
On June 19, 2014, the Company completed its acquisition of 100% of the issued and outstanding capital stock of the Power-One Power Solutions business (“Power Solutions”) of ABB Ltd. The Company’s condensed consolidated results of operations for the three and six months ended June 30, 2014 include the operating results of Power Solutions from the acquisition date through June 30, 2014.
Recent Accounting Pronouncements
The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. There were no significant changes to these accounting policies during the six months ended June 30, 2014.
Recently Adopted Standards
In July 2013, the FASB issued revised guidance to address the diversity in practice related to the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The Company adopted this guidance as of January 1, 2014, on a prospective basis. The adoption did not have a material impact on the Company’s financial statements.
Standards Issued Not Yet Adopted
In April 2014, the FASB issued guidance for the reporting of discontinued operations, which also contains new disclosure requirements for both discontinued operations and other disposals that do not meet the definition of a discontinued operation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Management believes that the adoption of this guidance will not have a material impact on the Company’s financial statements.
In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Entities can choose to apply the guidance using either the full retrospective approach or a modified retrospective approach. Management is currently evaluating the impact that this guidance will have on the Company’s financial statements, if any, including which transition method it will adopt.
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. There were no potential common shares outstanding during the three or six months ended June 30, 2014 or June 30, 2013 which would have had a dilutive effect on earnings per share.
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,
|
|
|
June 30,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
3,065 |
|
|
$ |
1,689 |
|
|
$ |
5,568 |
|
|
$ |
1,131 |
|
|
Less Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
131 |
|
|
|
131 |
|
|
|
261 |
|
|
|
261 |
|
|
Class B
|
|
|
653 |
|
|
|
643 |
|
|
|
1,307 |
|
|
|
1,275 |
|
|
Undistributed earnings (loss)
|
|
$ |
2,281 |
|
|
$ |
915 |
|
|
$ |
4,000 |
|
|
$ |
(405 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings (loss) allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A undistributed earnings (loss)
|
|
$ |
414 |
|
|
$ |
168 |
|
|
$ |
726 |
|
|
$ |
(74 |
) |
|
Class B undistributed earnings (loss)
|
|
|
1,867 |
|
|
|
747 |
|
|
|
3,274 |
|
|
|
(331 |
) |
|
Total undistributed earnings (loss)
|
|
$ |
2,281 |
|
|
$ |
915 |
|
|
$ |
4,000 |
|
|
$ |
(405 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A net earnings
|
|
$ |
545 |
|
|
$ |
299 |
|
|
$ |
987 |
|
|
$ |
187 |
|
|
Class B net earnings
|
|
|
2,520 |
|
|
|
1,390 |
|
|
|
4,581 |
|
|
$ |
944 |
|
|
Net earnings
|
|
$ |
3,065 |
|
|
$ |
1,689 |
|
|
$ |
5,568 |
|
|
$ |
1,131 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common share - basic and diluted
|
|
|
2,174,912 |
|
|
|
2,174,912 |
|
|
|
2,174,912 |
|
|
|
2,174,912 |
|
|
Class B common share - basic and diluted
|
|
|
9,331,982 |
|
|
|
9,213,178 |
|
|
|
9,333,460 |
|
|
|
9,217,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common share - basic and diluted
|
|
$ |
0.25 |
|
|
$ |
0.14 |
|
|
$ |
0.45 |
|
|
$ |
0.09 |
|
|
Class B common share - basic and diluted
|
|
$ |
0.27 |
|
|
$ |
0.15 |
|
|
$ |
0.49 |
|
|
$ |
0.10 |
|
3. ACQUISITIONS
2014 Acquisition:
On June 19, 2014, the Company completed its acquisition of Power Solutions for $110.0 million, net of cash acquired. Power Solutions is a leading provider of high-efficiency and high-density power conversion products for server, storage and networking equipment, industrial applications and power systems. Power Solutions offers a premier line of standard, modified-standard and custom designed AC/DC, DC/DC and other specific power conversion products for a variety of technologies in data centers, telecommunications and industrial applications. The acquisition of Power Solutions brings a complementary, industry-leading power product portfolio to Bel’s existing line of power products, expands our current customer base in the areas of server, storage and networking equipment and adds industrial and additional transportation applications to the Company’s product offering.
During the three and six months ended June 30, 2014, the Company incurred $1.0 million and $1.0 million, respectively, of acquisition-related costs associated with the acquisition of Power Solutions. These costs are included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2014.
While the initial accounting related to the acquisition of Power Solutions is not complete as of the filing date of this Quarterly Report on Form 10-Q, the following table depicts the Company’s current estimate of the respective acquisition date fair values of the consideration paid and identifiable net assets acquired (in thousands):
| |
|
|
|
|
| |
|
Acquisition-Date
|
|
|
| |
|
Fair Values
|
|
|
|
Cash and cash equivalents
|
|
$ |
20,913 |
|
|
|
Accounts receivable
|
|
|
29,388 |
|
|
|
Inventories
|
|
|
33,156 |
|
(a)
|
|
Other current assets
|
|
|
5,387 |
|
|
|
Property, plant and equipment
|
|
|
28,176 |
|
(b)
|
|
Intangible assets
|
|
|
21,188 |
|
(c)
|
|
Other assets
|
|
|
536 |
|
|
|
Total identifiable assets
|
|
|
138,744 |
|
|
| |
|
|
|
|
|
|
Accounts payable
|
|
|
(26,180 |
) |
|
|
Accrued expenses
|
|
|
(20,290 |
) |
|
|
Income taxes payable
|
|
|
223 |
|
|
|
Deferred income tax liability, noncurrent
|
|
|
860 |
|
|
|
Other long-term liabilities
|
|
|
(99 |
) |
|
|
Total liabilities assumed
|
|
|
(45,486 |
) |
|
|
Net identifiable assets acquired
|
|
|
93,258 |
|
|
|
Goodwill
|
|
|
37,534 |
|
(d)
|
|
Net assets acquired
|
|
$ |
130,792 |
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Cash paid
|
|
$ |
130,792 |
|
|
|
Deferred consideration
|
|
|
- |
|
|
|
Fair value of consideration transferred
|
|
$ |
130,792 |
|
|
|
(a)
|
The determination of fair value related to the inventory acquired was still in progress as of the date of this filing. The amount above represents only the carrying value of the inventory on Power Solutions’ balance sheet as of the acquisition date.
|
|
(b)
|
The appraisals related to machinery and equipment acquired were incomplete as of this filing date and, as such, the amount noted above represents only the carrying value of those assets on Power Solutions’ balance sheet as of the acquisition date.
|
|
(c)
|
The Company has identified certain intangible assets related to the Power Solutions acquisition, including trademarks and trade names, developed technology and potential in-process research and development, license agreements, non-compete agreements, an investment in a 49%-owned joint venture and customer relationships, which are being valued by a third-party appraiser. These appraisals were not complete as of the date of this filing.
|
|
(d)
|
The amount of goodwill is provisional as of the filing date, as the fair value determination of inventory acquired, and appraisals related to property, plant and equipment, various intangible assets and certain liabilities such as lease liabilities are still underway. As the final amount of goodwill has not yet been determined or allocated by segment, the Company is unable to determine at this time the portion of goodwill, if any, that will be deductible for tax purposes.
|
The results of operations of Power Solutions have been included in the Company’s consolidated financial statements for the period subsequent to the June 19, 2014 acquisition date. During each of the three and six months ended June 30, 2014, the Power Solutions acquisition contributed revenue of $7.2 million and a net loss of approximately $0.8 million to the Company’s consolidated financial results. The net loss resulted primarily from severance payments incurred by the Company immediately subsequent to the acquisition date.
The following unaudited pro forma information presents a summary of the combined results of operations of the Company and the aggregate results of TRP, Array and Power Solutions for the periods presented as if the 2013 Acquisitions had occurred on January 1, 2012 and the acquisition of Power Solutions had occurred on January 1, 2013, along with certain pro forma adjustments. These pro forma adjustments give effect to the amortization of certain definite-lived intangible assets, adjusted depreciation based upon estimated fair value of assets acquired, interest expense and amortization of deferred financing costs related to the financing of the business combinations, and related tax effects. The 2014 unaudited pro forma net earnings were adjusted to exclude $10.2 million ($6.9 million after tax) of non-recurring expenses which were incurred in connection with the Power Solutions business combination. The 2013 unaudited pro forma net earnings were adjusted to include these charges in addition to an estimated non-recurring expense related to a fair value adjustment to acquisition-date inventory of $1.8 million and $4.4 million ($1.1 million and $2.7 million after tax) during the three and six months ended June 30, 2013, respectively. The pro forma results do not reflect the realization of any potential cost savings, or any related integration costs. Certain cost savings may result from the acquisition of Power Solutions; however, there can be no assurance that these cost savings will be achieved. The unaudited pro forma results are presented for illustrative purposes only and are not necessarily indicative of the results that would have actually been obtained if the acquisitions had occurred on the assumed dates, nor is the pro forma data intended to be a projection of results that may be obtained in the future (in thousands):
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30,
|
|
|
June 30,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
136,984 |
|
|
$ |
161,481 |
|
|
$ |
278,451 |
|
|
$ |
305,250 |
|
|
Net earnings
|
|
|
(3,336 |
) |
|
|
1,382 |
|
|
|
233 |
|
|
|
(5,977 |
) |
|
Earnings per Class A common share - basic and diluted
|
|
|
(0.28 |
) |
|
|
0.11 |
|
|
|
0.01 |
|
|
|
(0.51 |
) |
|
Earnings per Class B common share - basic and diluted
|
|
|
(0.29 |
) |
|
|
0.12 |
|
|
|
0.02 |
|
|
|
(0.53 |
) |
2013 Acquisitions:
On March 29, 2013, the Company completed its acquisition of TRP for $21.0 million, net of cash acquired. The Company’s purchase of TRP consisted of the integrated connector module (“ICM”) family of products, including RJ45, 10/100 Gigabit, 10G, PoE/PoE+, MRJ21 and RJ.5, a line of modules for smart-grid applications, and discrete magnetics.
On August 20, 2013, the Company completed its acquisition of Array, a manufacturer of aerospace and mil-spec connector products based in Miami, Florida, for $10.0 million in cash. The acquisition of Array expands the Company’s portfolio of connector products that can be offered to the combined customer base, and provides an opportunity to sell other products that Bel manufactures to Array’s customers. Array has become part of Bel’s Cinch Connector business.
During the three and six months ended June 30, 2014, the Company incurred $0.1 million and $0.1 million, respectively, of acquisition-related costs associated with 2012 and 2013 Acquisitions. During the three and six months ended June 30, 2013, the Company incurred acquisition costs of $0.3 million and $0.7 million, respectively, related to the 2012 and 2013 Acquisitions. These costs are included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013.
The purchase price allocations for TRP and Array were finalized during the first quarter of 2014. The following table depicts the finalized respective acquisition date fair values of the consideration paid and identifiable net assets acquired (in thousands):
| |
|
TRP
|
|
|
Array
|
|
|
2013 Acquisitions
|
|
| |
|
|
|
|
Measurement
|
|
|
March 29,
|
|
|
|
|
|
Measurement
|
|
|
August 20,
|
|
|
Acquisition-Date
|
|
| |
|
March 29,
|
|
|
Period
|
|
|
2013
|
|
|
August 20,
|
|
|
Period
|
|
|
2013
|
|
|
Fair Values
|
|
| |
|
2013
|
|
|
Adjustments
|
|
|
(As finalized)
|
|
|
2013
|
|
|
Adjustments
|
|
|
(As finalized)
|
|
|
(As finalized)
|
|
|
Cash
|
|
$ |
8,388 |
|
|
$ |
- |
|
|
$ |
8,388 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,388 |
|
|
Accounts receivable
|
|
|
11,580 |
|
|
|
(39 |
) |
|
|
11,541 |
|
|
|
994 |
|
|
|
- |
|
|
|
994 |
|
|
|
12,535 |
|
|
Inventories
|
|
|
6,258 |
|
|
|
1,097 |
|
|
|
7,355 |
|
|
|
2,588 |
|
|
|
(1,595 |
) |
|
|
993 |
|
|
|
8,348 |
|
|
Other current assets
|
|
|
1,953 |
|
|
|
(334 |
) |
|
|
1,619 |
|
|
|
83 |
|
|
|
345 |
|
|
|
428 |
|
|
|
2,047 |
|
|
Property, plant and equipment
|
|
|
4,693 |
|
|
|
1,097 |
|
|
|
5,790 |
|
|
|
2,285 |
|
|
|
1,225 |
|
|
|
3,510 |
|
|
|
9,300 |
|
|
Intangible assets
|
|
|
- |
|
|
|
6,110 |
|
|
|
6,110 |
|
|
|
- |
|
|
|
1,470 |
|
|
|
1,470 |
|
|
|
7,580 |
|
|
Other assets
|
|
|
1,151 |
|
|
|
198 |
|
|
|
1,349 |
|
|
|
84 |
|
|
|
1,663 |
|
|
|
1,747 |
|
|
|
3,096 |
|
|
Total identifiable assets
|
|
|
34,023 |
|
|
|
8,129 |
|
|
|
42,152 |
|
|
|
6,034 |
|
|
|
3,108 |
|
|
|
9,142 |
|
|
|
51,294 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(8,565 |
) |
|
|
331 |
|
|
|
(8,234 |
) |
|
|
(677 |
) |
|
|
1 |
|
|
|
(676 |
) |
|
|
(8,910 |
) |
|
Accrued expenses
|
|
|
(4,003 |
) |
|
|
(462 |
) |
|
|
(4,465 |
) |
|
|
(206 |
) |
|
|
(79 |
) |
|
|
(285 |
) |
|
|
(4,750 |
) |
|
Other current liabilities
|
|
|
(25 |
) |
|
|
(734 |
) |
|
|
(759 |
) |
|
|
(214 |
) |
|
|
214 |
|
|
|
- |
|
|
|
(759 |
) |
|
Noncurrent liabilities
|
|
|
- |
|
|
|
(586 |
) |
|
|
(586 |
) |
|
|
(643 |
) |
|
|
(1,105 |
) |
|
|
(1,748 |
) |
|
|
(2,334 |
) |
|
Total liabilities assumed
|
|
|
(12,593 |
) |
|
|
(1,451 |
) |
|
|
(14,044 |
) |
|
|
(1,740 |
) |
|
|
(969 |
) |
|
|
(2,709 |
) |
|
|
(16,753 |
) |
|
Net identifiable assets acquired
|
|
|
21,430 |
|
|
|
6,678 |
|
|
|
28,108 |
|
|
|
4,294 |
|
|
|
2,139 |
|
|
|
6,433 |
|
|
|
34,541 |
|
|
Goodwill
|
|
|
8,278 |
|
|
|
(7,038 |
) |
|
|
1,240 |
|
|
|
5,666 |
|
|
|
(2,094 |
) |
|
|
3,572 |
|
|
|
4,812 |
|
|
Net assets acquired
|
|
$ |
29,708 |
|
|
$ |
(360 |
) |
|
$ |
29,348 |
|
|
$ |
9,960 |
|
|
$ |
45 |
|
|
$ |
10,005 |
|
|
$ |
39,353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$ |
22,400 |
|
|
$ |
6,948 |
|
|
$ |
29,348 |
|
|
$ |
9,960 |
|
|
$ |
45 |
|
|
$ |
10,005 |
|
|
$ |
39,353 |
|
|
Assumption of severance payment
|
|
|
109 |
|
|
|
(109 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Fair value of consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred
|
|
|
22,509 |
|
|
|
6,839 |
|
|
|
29,348 |
|
|
|
9,960 |
|
|
|
45 |
|
|
|
10,005 |
|
|
|
39,353 |
|
|
Deferred consideration
|
|
|
7,199 |
|
|
|
(7,199 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total consideration paid
|
|
$ |
29,708 |
|
|
$ |
(360 |
) |
|
$ |
29,348 |
|
|
$ |
9,960 |
|
|
$ |
45 |
|
|
$ |
10,005 |
|
|
$ |
39,353 |
|
The measurement period adjustments noted above primarily relate to adjustments to fair value based on the appraisals on inventory, property, plant and equipment, and intangible assets. In addition, various other asset and liability accounts had measurement period adjustments related to deferred taxes.
The results of operations of the 2013 Acquired Companies have been included in the Company’s consolidated financial statements for the period subsequent to their respective acquisition dates. During the three and six months ended June 30, 2014, the 2013 Acquired Companies contributed revenue of $19.7 million and $37.6 million, respectively, and net earnings of $3.7 million and $4.8 million, respectively, to the Company’s consolidated financial results. During each of the three and six months ended June 30, 2013, the 2013 Acquired Companies contributed revenue of $22.2 million and net earnings of $3.3 million to the Company’s consolidated financial results.
4. FAIR VALUE MEASUREMENTS
Fair value is defined as 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 based upon the best use of the asset or liability at the measurement date. Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 – Observable inputs such as quoted market prices in active markets
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 – Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
As of June 30, 2014 and December 31, 2013, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of securities that are among the Company’s investments in a Rabbi Trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations, and other marketable securities described below. The securities that are held in the Rabbi Trust are categorized as available-for-sale securities and are included as other assets in the accompanying condensed consolidated balance sheets at June 30, 2014 and December 31, 2013. The gross unrealized gains associated with the investment securities held in the Rabbi Trust were $0.6 million and $0.4 million at June 30, 2014 and December 31, 2013, respectively. Such unrealized gains are included, net of tax, in accumulated other comprehensive income.
As of June 30, 2014 and December 31, 2013, the Company had other marketable securities with a combined fair value of less than $0.1 million at each date, and gross unrealized gains of less than $0.1 million at each date. Such unrealized gains are included, net of tax, in accumulated other comprehensive income. The fair value of the equity securities is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during the first six months of 2014. There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the first six months of 2014.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 (dollars in thousands).
| |
|
|
|
|
Assets at Fair Value Using
|
|
| |
|
Total
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
As of June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Rabbi Trust
|
|
$ |
3,485 |
|
|
$ |
3,485 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Marketable securities
|
|
|
4 |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,489 |
|
|
$ |
3,489 |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Rabbi Trust
|
|
$ |
3,313 |
|
|
$ |
3,313 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Marketable securities
|
|
|
3 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,316 |
|
|
$ |
3,316 |
|
|
$ |
- |
|
|
$ |
- |
|
The Company has other financial instruments, such as cash equivalents, cash equivalents held within the Rabbi Trust, accounts receivable, notes receivable, accounts payable, notes payable and accrued expenses, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The fair value of the Company’s long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities. At June 30, 2014, the estimated fair value of long-term debt was $144.8 million compared to a carrying amount of $145.0 million. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2014 or December 31, 2013.
Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment on the occurrence of a triggering event or, in the case of goodwill and indefinite-lived intangible assets, on at least an annual basis. There were no triggering events that occurred during the six months ended June 30, 2014 or 2013 that would warrant interim impairment testing.
5. INVENTORIES
The components of inventories are as follows (dollars in thousands):
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
Raw materials
|
|
$ |
48,873 |
|
|
$ |
29,428 |
|
|
Work in progress
|
|
|
12,261 |
|
|
|
8,783 |
|
|
Finished goods
|
|
|
37,572 |
|
|
|
31,808 |
|
| |
|
$ |
98,706 |
|
|
$ |
70,019 |
|
At June 30, 2014, Power Solutions inventory with a book value of $33.4 million is included in the table above.
|
6.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consist of the following (dollars in thousands):
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
Land
|
|
$ |
3,315 |
|
|
$ |
3,229 |
|
|
Buildings and improvements
|
|
|
31,156 |
|
|
|
25,216 |
|
|
Machinery and equipment
|
|
|
107,032 |
|
|
|
82,420 |
|
|
Construction in progress
|
|
|
5,291 |
|
|
|
4,042 |
|
| |
|
|
146,794 |
|
|
|
114,907 |
|
|
Accumulated depreciation
|
|
|
(79,743 |
) |
|
|
(74,011 |
) |
| |
|
$ |
67,051 |
|
|
$ |
40,896 |
|
At June 30, 2014, Power Solutions property, plant and equipment with a book value of $28.2 million is included in the table above.
7. BUSINESS SEGMENT INFORMATION
The Company operates in one industry with three reportable operating segments, which are geographic in nature. The segments consist of North America, Asia and Europe. The primary criteria by which financial performance is evaluated and resources are allocated are sales and income from operations. The following is a summary of key financial data (dollars in thousands):
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30,
|
|
|
June 30,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Total segment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
39,405 |
|
|
$ |
32,301 |
|
|
$ |
70,859 |
|
|
$ |
61,523 |
|
|
Asia
|
|
|
61,968 |
|
|
|
64,036 |
|
|
|
111,860 |
|
|
|
96,760 |
|
|
Europe
|
|
|
16,550 |
|
|
|
10,591 |
|
|
|
27,441 |
|
|
|
20,716 |
|
|
Total segment sales
|
|
|
117,923 |
|
|
|
106,928 |
|
|
|
210,160 |
|
|
|
178,999 |
|
|
Reconciling item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
(18,484 |
) |
|
|
(12,947 |
) |
|
|
(28,075 |
) |
|
|
(21,990 |
) |
|
Net sales
|
|
$ |
99,439 |
|
|
$ |
93,981 |
|
|
$ |
182,085 |
|
|
$ |
157,009 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
(1,617 |
) |
|
$ |
(2,012 |
) |
|
$ |
(734 |
) |
|
$ |
(3,495 |
) |
|
Asia
|
|
|
4,715 |
|
|
|
3,776 |
|
|
|
6,388 |
|
|
|
3,112 |
|
|
Europe
|
|
|
616 |
|
|
|
(105 |
) |
|
|
941 |
|
|
|
615 |
|
| |
|
$ |
3,714 |
|
|
$ |
1,659 |
|
|
$ |
6,595 |
|
|
$ |
232 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
| |
|
|
2014 |
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
175,953 |
|
|
$ |
117,261 |
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
202,476 |
|
|
|
148,780 |
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
78,880 |
|
|
|
42,100 |
|
|
|
|
|
|
|
|
|
| |
|
|
457,309 |
|
|
|
308,141 |
|
|
|
|
|
|
|
|
|
|
Unallocated Goodwill
|
|
|
37,534 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
| |
|
$ |
494,843 |
|
|
$ |
308,141 |
|
|
|
|
|
|
|
|
|
Recent Acquisitions – At June 30, 2014, Power Solutions’ total assets of $181.4 million are included in the table above.
The acquisitions of TRP in March 2013, Array in August 2013 and Power Solutions in June 2014 contributed to Bel’s segment sales, income from operations and total assets as follows:
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30,
|
|
|
June 30,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Sales to External Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Array
|
|
$ |
1,903 |
|
|
$ |
- |
|
|
$ |
3,544 |
|
|
$ |
- |
|
|
Power Solutions
|
|
|
5,037 |
|
|
|
- |
|
|
|
5,037 |
|
|
|
- |
|
| |
|
|
6,940 |
|
|
|
- |
|
|
|
8,581 |
|
|
|
- |
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRP
|
|
|
17,227 |
|
|
|
21,788 |
|
|
|
32,831 |
|
|
|
21,788 |
|
|
Power Solutions
|
|
|
357 |
|
|
|
- |
|
|
|
357 |
|
|
|
- |
|
| |
|
|
17,584 |
|
|
|
21,788 |
|
|
|
33,188 |
|
|
|
21,788 |
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRP
|
|
|
555 |
|
|
|
392 |
|
|
|
1,186 |
|
|
|
392 |
|
|
Power Solutions
|
|
|
1,839 |
|
|
|
- |
|
|
|
1,839 |
|
|
|
- |
|
| |
|
|
2,394 |
|
|
|
392 |
|
|
|
3,025 |
|
|
|
392 |
|
|
Net sales from 2013-2014 acquisitions
|
|
|
26,918 |
|
|
|
22,180 |
|
|
|
44,794 |
|
|
|
22,180 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Array
|
|
|
(175 |
) |
|
|
- |
|
|
|
(682 |
) |
|
|
- |
|
|
Power Solutions
|
|
|
(1,125 |
) |
|
|
- |
|
|
|
(1,125 |
) |
|
|
- |
|
| |
|
|
(1,300 |
) |
|
|
- |
|
|
|
(1,807 |
) |
|
|
- |
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRP
|
|
|
3,710 |
|
|
|
3,596 |
|
|
|
5,110 |
|
|
|
3,587 |
|
|
Power Solutions
|
|
|
(162 |
) |
|
|
- |
|
|
|
(162 |
) |
|
|
- |
|
| |
|
|
3,548 |
|
|
|
3,596 |
|
|
|
4,948 |
|
|
|
3,587 |
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRP
|
|
|
128 |
|
|
|
104 |
|
|
|
228 |
|
|
|
104 |
|
|
Power Solutions
|
|
|
297 |
|
|
|
- |
|
|
|
297 |
|
|
|
- |
|
| |
|
|
425 |
|
|
|
104 |
|
|
|
525 |
|
|
|
104 |
|
|
Total income from operations from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013-2014 acquisitions
|
|
$ |
2,673 |
|
|
$ |
3,700 |
|
|
$ |
3,666 |
|
|
$ |
3,691 |
|
Segment Sales – Segment sales are attributed to individual segments based on the geographic source of the billing for such customer sales. Transfers between geographic areas include finished products and semi-finished components manufactured in any one of the geographic segments and transferred to any of the other geographic segments for sale or further processing. Income from operations represents net sales less operating costs and expenses.
8. INCOME TAXES
At June 30, 2014 and December 31, 2013, the Company has approximately $2.5 million and $2.2 million, respectively, of liabilities for uncertain tax positions ($0.8 million and $1.0 million, respectively, included in income taxes payable and $1.7 million and $1.2 million, respectively, included in liability for uncertain tax positions) all of which, 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 2010 and for state examinations before 2007. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2008 in Asia and generally 2006 in Europe.
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, 2014. A total of $0.8 million of previously recorded liabilities for uncertain tax positions relates principally to the 2010 tax year. The statute of limitations related to these liabilities is scheduled to expire on September 15, 2014.
The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits arising from uncertain tax positions as a component of the current provision for income taxes. During each of the six months ended June 30, 2014 and 2013, the Company recognized an immaterial amount of interest and penalties in the condensed consolidated statements of operations. The Company has approximately $0.2 million accrued for the payment of such interest and penalties at June 30, 2014 and December 31, 2013, a portion of which is included in each of income taxes payable and liability for uncertain tax positions in the accompanying condensed consolidated balance sheets at each date.
Upon completion of the acquisition of Power Solutions, it had deferred tax assets of $3.0 million, arising from various temporary differences, which are included in the condensed consolidated balance sheet at June 30, 2014. At June 30, 2014, the fair market value reports have not been completed and therefore the Company had no additional deferred tax amounts relating to this acquisition.
The Company intends to make elections to step up the tax basis of the 2014 acquisitions to fair value under IRC Section 338(g).
Upon the acquisition of TRP, TRP had a deferred tax asset in the amount of $2.2 million arising from various timing differences related to depreciation and accrued expenses. Upon the acquisition of Array, Array had a deferred tax liability of $0.7 million arising from timing differences related to depreciation and a deferred tax asset of $2.1 million arising from the NOL acquired. In connection with the 2013 Acquisitions, the Company was required to complete a fair market value report of property, plant and equipment and intangibles. As a result of that report, the Company established deferred tax liabilities at the date of acquisition in the amount of $0.6 million and $1.0 million respectively for the TRP and Array acquisitions. At June 30, 2014, a net deferred tax asset of $1.5 million remains on the condensed consolidated balance sheet.
The Company does not intend to make any election to step up the tax basis of the 2013 acquisitions to fair value under IRC Section 338(g).
On December 31, 2013, under the “American Taxpayer Relief Act” (“ATRA”), the Research and Experimentation credit (“R&E”) expired. The Company did not recognize any R&E credits during the six months ended June 30, 2014. If the R&E credit is extended back to January 1, 2014, the Company will recognize the R&E credit at that time. The annual R&E credit is approximately $0.4 million. During the first quarter of 2013, the Company recognized a $0.4 million R&E credit from 2012 as an increase in the March 31, 2013 quarterly benefit for income taxes.
The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.
9. ACCRUED EXPENSES
Accrued expenses consist of the following (dollars in thousands):
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
Sales commissions
|
|
$ |
1,903 |
|
|
$ |
1,431 |
|
|
Subcontracting labor
|
|
|
2,218 |
|
|
|
2,406 |
|
|
Salaries, bonuses and related benefits
|
|
|
24,609 |
|
|
|
13,674 |
|
|
Litigation reserve
|
|
|
726 |
|
|
|
723 |
|
|
Warranty accrual
|
|
|
3,667 |
|
|
|
- |
|
|
Other
|
|
|
7,312 |
|
|
|
4,208 |
|
| |
|
$ |
40,435 |
|
|
$ |
22,442 |
|
Warranty Accrual - Power Solutions generally offers its customers a standard two-year warranty on power products sold, although warranty periods may vary by product type and application. The Company reviews its warranty liability quarterly based on an analysis of actual expenses and failure rates by specific product lines and estimated future costs and projected failure rate trends by specific product lines. Factors taken into consideration when evaluating the Company's warranty reserve are (i) historical claims for each product, (ii) the maturity of the product within its life cycle, (iii) volume increases, (iv) life of warranty, (v) historical warranty repair costs and (vi) other factors. To the extent that actual experience differs from our estimate, the provision for product warranties will be adjusted in future periods. Actual warranty repair costs are charged against the reserve balance as incurred.
A tabular presentation of the activity within the warranty accrual account for the period from the acquisition date of Power Solutions through June 30, 2014 is presented below (in thousands):
| |
|
June 30,
|
|
| |
|
2014
|
|
|
Beginning balance as of June 19, 2014
|
|
$ |
4,111 |
|
|
Charges and costs accrued
|
|
|
45 |
|
|
Adjustments related to pre-existing warranties (including changes in estimates)
|
|
|
- |
|
|
Less repair costs incurred
|
|
|
(521 |
) |
|
Change due to foreign currency
|
|
|
32 |
|
|
Ending balance as of June 30, 2014
|
|
$ |
3,667 |
|
At December 31, 2013, the Company maintained a $30 million line of credit with Bank of America (the “Credit Agreement”), which was due to expire on October 14, 2016. At December 31, 2013, the borrowings under the line of credit amounted to $12.0 million and the balance available under the Credit Agreement was $18.0 million. The Credit Agreement bore interest at LIBOR plus 1.00% to 1.50% based on certain financial statement ratios maintained by the Company. The interest rate in effect on the borrowings outstanding at December 31, 2013 was 1.4%. The Company incurred interest expense of less than $0.1 million related to the borrowings under the Credit Agreement during the six months ended June 30, 2014. There was no interest expense related to the line of credit during the six months ended June 30, 2013 as there were no borrowings outstanding during that period. Under the terms of the Credit Agreement, the Company was required to maintain certain financial ratios and comply with other financial conditions. During the six months ended June 30, 2014, the Company repaid the full $12.0 million balance outstanding and terminated the Credit Agreement.
On June 19, 2014, the Company entered into a senior Credit and Security Agreement with KeyBank National Association (“KeyBank”), as administrative agent and lender, which was amended on June 30, 2014 principally to add a syndicate of additional lenders (as so amended, the “New Secured Credit Agreement”). The maturity date of the New Secured Credit Agreement is June 18, 2019.
The New Secured Credit Agreement consists of (i) a $50 million revolving credit facility (“Revolver”), (ii) a $145 million term loan facility (“Term Loan”) and (iii) a $70 million delayed draw term loan (“DDTL”). Under the terms of the New Secured Credit Agreement, the Company is entitled, subject to the satisfaction of certain conditions, to request additional commitments under the revolving credit facility or term loans in the aggregate principal amount of up to $100 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans.
The obligations of the Company under the New Secured Credit Agreement are guaranteed by certain of the Company's material U.S. subsidiaries (together with the Company, the “Loan Parties”) and are secured by a first priority security interest in substantially all of the existing and future personal property of the Loan Parties, certain material real property of the Loan Parties and certain of the Loan Parties’ material U.S. subsidiaries, including 65% of the voting capital stock of certain of the Loan Parties’ direct foreign subsidiaries.
The borrowings under the New Secured Credit Agreement will bear interest at a rate equal to, at the Company's option, either (1) LIBOR, plus a margin ranging from 1.75% per annum to 3.00% per annum depending on the Company’s leverage ratio, or (2)(a) an “Alternate Base Rate,” which is the highest of (i) the federal funds rate plus 0.50%, (ii) KeyBank’s prime rate and (iii) the LIBOR rate with a maturity of one month plus 1.00%, plus (b) a margin ranging from 0.75% per annum to 2.00% per annum, depending on the Company’s leverage ratio. The interest rate in effect at June 30, 2014 was 3.0%, which consists of LIBOR of 0.25% plus the Company’s margin of 2.75%.
The New Secured Credit Agreement contains customary representations and warranties, covenants and events of default and financial covenants that measure (i) the ratio of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company’s consolidated EBITDA, as defined, (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s consolidated fixed charges (“Fixed Charge Coverage Ratio”). If an event of default occurs, the lenders under the New Secured Credit Agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At June 30, 2014, the Company was in compliance with its most restrictive covenant, the Leverage Ratio. The unused credit available under the credit facility at June 30, 2014 was $120 million, of which we had the ability to incur total additional indebtedness of $100.1 million without violating our Leverage Ratio covenant based on the Company’s existing consolidated EBITDA.
Concurrent with its entry into the New Secured Credit Agreement on June 19, 2014, the Company borrowed $145.0 million under the Term Loan to complete its acquisition of Power Solutions. During the three and six months ended June 30, 2014, the Company recorded $5.4 million in deferred financing costs, which will be amortized over the five-year term, and incurred $0.2 million of interest expense. At June 30, 2014, borrowings outstanding related solely to the $145.0 million Term Loan. The $70.0 million DDTL and $50.0 million Revolver were fully available at June 30, 2014.
Scheduled principal payments of the long-term debt outstanding at June 30, 2014 are as follows (in thousands):
|
2014
|
|
$ |
3,625 |
|
|
2015
|
|
|
9,063 |
|
|
2016
|
|
|
10,875 |
|
|
2017
|
|
|
12,687 |
|
|
2018
|
|
|
16,313 |
|
|
Thereafter
|
|
|
92,437 |
|
|
Total long-term debt
|
|
|
145,000 |
|
|
Less: Current maturities of long-term debt
|
|
|
(7,250 |
) |
|
Noncurrent portion of long-term debt
|
|
$ |
137,750 |
|
See Note 14 for discussion of additional borrowings under the New Secured Credit Agreement subsequent to the June 30, 2014 quarter-end.
11. RETIREMENT FUND AND PROFIT SHARING PLAN
The Company maintains the Bel Fuse Inc. Employees’ Savings Plan (the “U.S. Plan”), a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a) and (k) of the IRC. The U.S. Plan allows eligible employees to voluntarily contribute a percentage of their eligible compensation, subject to Code limitations, which contributions are matched by the Company. The Company’s matching contributions are equal to 100% of the first 1% of compensation contributed by participants, and 50% of the next 5% of compensation contributed by participants. The expense for the three months ended June 30, 2014 and 2013 amounted to approximately $0.1 million in each period. The expense for the six months ended June 30, 2014 and 2013 amounted to approximately $0.3 million in each period. Prior to January 1, 2012, the U.S. Plan’s structure provided for a Company match and discretionary profit sharing contributions that were made in the form of the Company’s common stock. As of June 30, 2014, the U.S. Plan owned 14,886 and 182,539 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company also has a retirement fund in Asia (the “Asia Plan”) which covers substantially all of its Hong Kong-based full-time employees. Eligible employees contribute up to 5% of salary to the fund. In addition, the Company must contribute a minimum of 5% of eligible salary, as determined by Hong Kong government regulations. The Company currently contributes 7% of eligible salary in cash or Company stock. The expense for the three months ended June 30, 2014 and 2013 amounted to approximately $0.1 million in each period. The expense for the six months ended June 30, 2014 and 2013 amounted to approximately $0.1 million in each period. As of June 30, 2014, the Asia Plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company maintains a SERP, which 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,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Service cost
|
|
$ |
138 |
|
|
$ |
139 |
|
|
$ |
276 |
|
|
$ |
278 |
|
|
Interest cost
|
|
|
135 |
|
|
|
112 |
|
|
|
270 |
|
|
|
224 |
|
|
Amortization of adjustments
|
|
|
46 |
|
|
|
77 |
|
|
|
92 |
|
|
|
154 |
|
|
Total SERP expense
|
|
$ |
319 |
|
|
$ |
328 |
|
|
$ |
638 |
|
|
$ |
656 |
|
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
Balance sheet amounts:
|
|
|
|
|
|
|
|
Minimum pension obligation
|
|
|
|
|
|
|
|
and unfunded pension liability
|
|
$ |
11,376 |
|
|
$ |
10,830 |
|
| |
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated
|
|
|
|
|
|
|
|
|
|
other comprehensive loss, pretax:
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$ |
1,140 |
|
|
$ |
1,230 |
|
|
Net loss
|
|
|
1,004 |
|
|
|
1,004 |
|
| |
|
$ |
2,144 |
|
|
$ |
2,234 |
|
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income at June 30, 2014 and December 31, 2013 are summarized below (dollars in thousands):
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
| |
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes of $200 and $77
|
|
|
|
|
|
|
|
at June 30, 2014 and December 31, 2013
|
|
$ |
2,441 |
|
|
$ |
1,904 |
|
|
Unrealized holding gains on available-for-sale
|
|
|
|
|
|
|
|
|
|
securities, net of taxes of $234 and $169 as of
|
|
|
|
|
|
|
|
|
|
June 30, 2014 and December 31, 2013
|
|
|
388 |
|
|
|
282 |
|
|
Unfunded SERP liability, net of taxes of ($665) and ($693) as
|
|
|
|
|
|
|
|
|
|
of June 30, 2014 and December 31, 2013
|
|
|
(1,478 |
) |
|
|
(1,541 |
) |
| |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$ |
1,351 |
|
|
$ |
645 |
|
Changes in accumulated other comprehensive loss by component during the six months ended June 30, 2014 are as follows. All amounts are net of tax (dollars in thousands).
| |
|
|
|
|
Unrealized Holding
|
|
|
|
|
|
|
|
|
| |
|
Foreign Currency
|
|
|
Gains on
|
|
|
|
|
|
|
|
|
| |
|
Translation
|
|
|
Available-for-
|
|
|
Unfunded
|
|
|
|
|
|
| |
|
Adjustment
|
|
|
Sale Securities
|
|
|
SERP Liability
|
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
$ |
1,904 |
|
|
$ |
282 |
|
|