UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

FORM 10-Q
(MARK ONE)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2019
or
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ____________

Commission File 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)

NEW JERSEY
 
22-1463699
(State of incorporation)
 
(I.R.S. Employer Identification No.)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [   ]
     
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X]
No [   ]
     
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated 
filer [    ]
Accelerated 
filer [X]
Non-accelerated 
filer [    ]
Smaller reporting 
company [X]
Emerging growth
company [    ]
   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[   ]
 
 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
 Trading Symbol
 
Name of Exchange on Which Registered
Class A Common Stock ($0.10 par value)
   BELFA
 
Nasdaq Global Select Market
Class B Common Stock ($0.10 par value)
   BELFB  
Nasdaq Global Select Market

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [   ]
 No [X]



Title of Each Class
 
Number of Shares of Common Stock Outstanding
 as of August 1, 2019
Class A Common Stock ($0.10 par value)
 
2,174,912
Class B Common Stock ($0.10 par value)
  10,141,602


BEL FUSE INC.
       
INDEX
       
     
Page
Part I
 
Financial Information
 
       
 
Item 1.
2
       
     
   
2
       
     
   
3
       
     
   
4
       
     
   
5
       
     
   
7
       
   
8 - 18
       
 
Item 2.
 
   
19 - 25
       
 
Item 3.
 
   
25
       
 
Item 4.
25
       
Part II
 
Other Information
 
       
 
Item 1.
25
       
 
Item 1A.
25
       
 
Item 6.
26
       
   
27

Return to Index

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION

The terms the “Company,” “Bel,” “we,” “us,” and “our” as used in this report refer to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in Item 1A of our 2018 Annual Report on Form 10-K. 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, consolidated financial condition, operating results, and common stock prices.  Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (“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.  Forward-Looking Statements are necessarily subject to risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from these statements. Forward-Looking Statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods.  All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are Forward-Looking Statements.  These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 2018 Annual Report on Form 10-K, 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 hereof or to reflect the occurrence of unanticipated events.  Any Forward-Looking Statement made by the Company is based only on information currently available to us and speaks only as of the date on which it is made.


1

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PART I.  Financial Information

Item 1.  Financial Statements (Unaudited)
BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
(unaudited)
 
             
   
June 30,
   
December 31,
 
   
2019
   
2018
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
 
$
58,395
   
$
53,911
 
Accounts receivable, net of allowance for doubtful accounts of $1,694
               
 and $1,638, respectively
   
84,248
     
91,939
 
Inventories
   
118,209
     
120,068
 
Unbilled receivables
   
11,470
     
15,799
 
Other current assets
   
9,090
     
8,792
 
    Total current assets
   
281,412
     
290,509
 
                 
Property, plant and equipment, net
   
42,344
     
43,932
 
Right-of-use assets
   
17,885
     
-
 
Intangible assets, net
   
59,476
     
62,689
 
Goodwill
   
20,017
     
19,817
 
Deferred income taxes
   
1,194
     
496
 
Other assets
   
27,347
     
26,081
 
    Total assets
 
$
449,675
   
$
443,524
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
42,764
   
$
56,171
 
Accrued expenses
   
30,092
     
32,290
 
Current portion of long-term debt
   
3,997
     
2,508
 
Operating lease liability, current
   
6,238
     
-
 
Other current liabilities
   
4,060
     
15,061
 
    Total current liabilities
   
87,151
     
106,030
 
                 
Long-term Liabilities:
               
Long-term debt
   
108,960
     
111,705
 
Operating lease liability, long-term
   
12,121
     
-
 
Liability for uncertain tax positions
   
28,379
     
27,553
 
Minimum pension obligation and unfunded pension liability
   
19,126
     
18,683
 
Deferred income taxes
   
1,061
     
1,161
 
Other liabilities
   
12,601
     
1,922
 
    Total liabilities
   
269,399
     
267,054
 
                 
Commitments and contingencies
               
                 
Stockholders' Equity:
               
Preferred stock, no par value, 1,000,000 shares authorized; none issued
   
-
     
-
 
Class A common stock, par value $.10 per share, 10,000,000 shares
               
    authorized; 2,174,912 shares outstanding at each date (net of
               
    1,072,769 treasury shares)
   
217
     
217
 
Class B common stock, par value $.10 per share, 30,000,000 shares
               
     authorized; shares outstanding: 10,141,602 in 2019 and 10,092,352
               
     in 2018 (net of 3,218,307 treasury shares)
   
1,014
     
1,009
 
Additional paid-in capital
   
32,983
     
31,387
 
Retained earnings
   
171,583
     
168,695
 
Accumulated other comprehensive loss
   
(25,521
)
   
(24,838
)
    Total stockholders' equity
   
180,276
     
176,470
 
    Total liabilities and stockholders' equity
 
$
449,675
   
$
443,524
 
See accompanying notes to unaudited condensed consolidated financial statements.
 

2

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BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share data)
 
(unaudited)
 
 
                       
  
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
                       
Net sales
 
$
127,416
   
$
140,710
   
$
252,805
   
$
258,961
 
Cost of sales
   
107,532
     
111,696
     
209,361
     
208,814
 
Gross profit
   
19,884
     
29,014
     
43,444
     
50,147
 
 
                               
Selling, general and administrative expenses
   
18,764
     
18,306
     
38,564
     
38,998
 
Gain on sale of property
   
(4,257
)
   
-
     
(4,257
)
   
-
 
Restructuring charges
   
424
     
41
     
1,370
     
45
 
Income from operations
   
4,953
     
10,667
     
7,767
     
11,104
 
 
                               
Interest expense
   
(1,381
)
   
(1,349
)
   
(2,820
)
   
(2,527
)
Interest income and other, net
   
(184
)
   
(285
)
   
(389
)
   
(521
)
Earnings before provision for income taxes
   
3,388
     
9,033
     
4,558
     
8,056
 
 
                               
Provision for income taxes
   
421
     
2,399
     
460
     
2,724
 
Net earnings available to common stockholders
 
$
2,967
   
$
6,634
   
$
4,098
   
$
5,332
 
 
                               
 
                               
Net earnings per common share:
                               
Class A common share - basic and diluted
 
$
0.23
   
$
0.52
   
$
0.31
   
$
0.41
 
Class B common share - basic and diluted
 
$
0.24
   
$
0.56
   
$
0.34
   
$
0.45
 
 
                               
Weighted-average number of shares outstanding:
                               
Class A common share - basic and diluted
   
2,175
     
2,175
     
2,175
     
2,175
 
Class B common share - basic and diluted
   
10,112
     
9,844
     
10,100
     
9,850
 
 
                               
See accompanying notes to unaudited condensed consolidated financial statements.
 

3

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BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
(dollars in thousands)
 
(unaudited)
 
 
                       
  
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
                       
Net earnings available to common stockholders
 
$
2,967
   
$
6,634
   
$
4,098
   
$
5,332
 
 
                               
Other comprehensive income (loss):
                               
Currency translation adjustment, net of taxes of $16 in the three months
                               
   ended June 30, 2019, $37 in the three months ended June 30, 2018, ($1) in
                               
   the six months ended June 30, 2019 and $12 in the six months ended
                               
    June 30, 2018
   
(834
)
   
(7,448
)
   
(294
)
   
(3,431
)
Unrealized losses on marketable securities arising during the period,
                               
net of taxes of $0 in the three months ended June 30, 2019, $0 in the
                               
three months ended June 30, 2018, $0 in the six months ended June 30,
                               
2019 and ($20) in the six months ended June 30, 2018
   
-
     
-
     
-
     
(31
)
Change in unfunded SERP liability, net of taxes of $11 in the three months
                               
ended June 30, 2019, $25 in the three months ended June 30, 2018, $22 in
                               
the six months ended June 30, 2019 and $51 in the six months ended
                               
 June 30, 2018
   
37
     
85
     
74
     
171
 
Other comprehensive loss
   
(797
)
   
(7,363
)
   
(220
)
   
(3,291
)
 
                               
Comprehensive income (loss)
 
$
2,170
   
$
(729
)
 
$
3,878
   
$
2,041
 
 
                               
 
                               
See accompanying notes to unaudited condensed consolidated financial statements.
 

4

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BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
(in thousands)
 
 (unaudited)  

                                   
                                     
               
Accumulated
                   
               
Other
   
Class A
   
Class B
   
Additional
 
         
Retained
   
Comprehensive
   
Common
   
Common
   
Paid-In
 
Three Months Ended June 30, 2019
 
Total
   
Earnings
   
(Loss) Income
   
Stock
   
Stock
   
Capital
 
                                     
Balance at March 31, 2019
 
$
178,153
   
$
169,451
   
$
(24,724
)
 
$
217
   
$
1,008
   
$
32,201
 
Net earnings
   
2,967
     
2,967
     
-
     
-
     
-
     
-
 
Dividends declared:
                                               
Class A Common Stock, $0.06/share
   
(131
)
   
(131
)
   
-
     
-
     
-
     
-
 
Class B Common Stock, $0.07/share
   
(704
)
   
(704
)
   
-
     
-
     
-
     
-
 
Issuance of restricted common stock
   
-
     
-
     
-
     
-
     
7
     
(7
)
Forfeiture of restricted common stock
   
-
     
-
     
-
     
-
     
(1
)
   
1
 
Foreign currency translation adjustment, net of taxes of $16
   
(834
)
   
-
     
(834
)
   
-
     
-
     
-
 
Stock-based compensation expense
   
788
     
-
     
-
     
-
     
-
     
788
 
Change in unfunded SERP liability, net of taxes of ($11)
   
37
     
-
     
37
     
-
     
-
     
-
 
                                                 
Balance at June 30, 2019
   
180,276
     
171,583
     
(25,521
)
   
217
     
1,014
     
32,983
 
                                                 
                                                 
                   
Accumulated
                         
                   
Other
   
Class A
   
Class B
   
Additional
 
           
Retained
   
Comprehensive
   
Common
   
Common
   
Paid-In
 
Three Months Ended June 30, 2018
 
Total
   
Earnings
   
(Loss) Income
   
Stock
   
Stock
   
Capital
 
                                                 
                                                 
Balance at March 31, 2018
 
$
164,175
   
$
149,171
   
$
(15,553
)
 
$
217
   
$
985
   
$
29,355
 
Net loss
   
6,634
     
6,634
     
-
     
-
     
-
     
-
 
Dividends declared:
                                               
Class A Common Stock, $0.06/share
   
(131
)
   
(131
)
   
-
     
-
     
-
     
-
 
Class B Common Stock, $0.07/share
   
(689
)
   
(689
)
   
-
     
-
     
-
     
-
 
Forfeiture of restricted common stock
   
-
     
-
     
-
     
-
     
(1
)
   
1
 
Foreign currency translation adjustment, net of taxes of $37
   
(7,448
)
   
-
     
(7,448
)
   
-
     
-
     
-
 
Stock-based compensation expense
   
671
     
-
     
-
     
-
     
-
     
671
 
Change in unfunded SERP liability, net of taxes of ($25)
   
85
     
-
     
85
     
-
     
-
     
-
 
                                                 
Balance at June 30, 2018
 
$
163,297
   
$
154,985
   
$
(22,916
)
 
$
217
   
$
984
   
$
30,027
 
                                                 
See accompanying notes to unaudited condensed consolidated financial statements.
 

5

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BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
(in thousands)
 
(unaudited)
 
 
                                   
 
             
Accumulated
                   
 
             
Other
   
Class A
   
Class B
   
Additional
 
 
       
Retained
   
Comprehensive
   
Common
   
Common
   
Paid-In
 
Six Months Ended June 30, 2019
 
Total
   
Earnings
   
(Loss) Income
   
Stock
   
Stock
   
Capital
 
                                     
Balance at December 31, 2018
 
$
176,470
   
$
168,695
   
$
(24,838
)
 
$
217
   
$
1,009
   
$
31,387
 
Net earnings
   
4,098
     
4,098
     
-
     
-
     
-
     
-
 
Dividends declared:
                                               
Class A Common Stock, $0.12/share
   
(261
)
   
(261
)
   
-
     
-
     
-
     
-
 
Class B Common Stock, $0.14/share
   
(1,412
)
   
(1,412
)
   
-
     
-
     
-
     
-
 
Issuance of restricted common stock
   
-
     
-
     
-
     
-
     
7
     
(7
)
Forfeiture of restricted common stock
   
-
     
-
     
-
     
-
     
(2
)
   
2
 
Foreign currency translation adjustment, net of taxes of ($1)
   
(294
)
   
-
     
(294
)
   
-
     
-
     
-
 
Stock-based compensation expense
   
1,601
     
-
     
-
     
-
     
-
     
1,601
 
Change in unfunded SERP liability, net of taxes of ($22)
   
74
     
-
     
74
     
-
     
-
     
-
 
Effect of adoption of ASU 2018-02 (Topic 220)
   
-
     
463
     
(463
)
   
-
     
-
     
-
 
 
                                               
Balance at June 30, 2019
   
180,276
     
171,583
     
(25,521
)
   
217
     
1,014
     
32,983
 
 
                                               
 
                                               
 
                 
Accumulated
                         
 
                 
Other
   
Class A
   
Class B
   
Additional
 
 
         
Retained
   
Comprehensive
   
Common
   
Common
   
Paid-In
 
Six Months Ended June 30, 2018
 
Total
   
Earnings
   
(Loss) Income
   
Stock
   
Stock
   
Capital
 
 
                                               
 
                                               
Balance at December 31, 2017
 
$
157,960
   
$
147,807
   
$
(19,625
)
 
$
217
   
$
986
   
$
28,575
 
Net earnings
   
5,332
     
5,332
     
-
     
-
     
-
     
-
 
Dividends declared:
                                               
Class A Common Stock, $0.12/share
   
(261
)
   
(261
)
   
-
     
-
     
-
     
-
 
Class B Common Stock, $0.14/share
   
(1,390
)
   
(1,390
)
   
-
     
-
     
-
     
-
 
Forfeiture of restricted common stock
   
-
     
-
     
-
     
-
     
(2
)
   
2
 
Foreign currency translation adjustment, net of taxes of $12
   
(3,431
)
   
-
     
(3,431
)
   
-
     
-
     
-
 
Unrealized holding losses on marketable securities
                                               
  arising during the year, net of taxes of $20
   
(31
)
   
-
     
(31
)
   
-
     
-
     
-
 
Stock-based compensation expense
   
1,450
     
-
     
-
     
-
     
-
     
1,450
 
Change in unfunded SERP liability, net of taxes of ($51)
   
171
     
-
     
171
     
-
     
-
     
-
 
Effect of adoption of ASU 2014-09 (Topic 606)
   
3,497
     
3,497
     
-
     
-
     
-
     
-
 
 
                                               
Balance at June 30, 2018
 
$
163,297
   
$
154,985
   
$
(22,916
)
 
$
217
   
$
984
   
$
30,027
 
 
                                               
See accompanying notes to unaudited condensed consolidated financial statements.
 
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BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollars in thousands)
 
(unaudited)
 
  
 
Six Months Ended
 
 
 
June 30,
 
 
 
2019
   
2018
 
 
           
Cash flows from operating activities:
           
Net earnings
 
$
4,098
   
$
5,332
 
Adjustments to reconcile net earnings to net
               
 cash provided by operating activities:
               
Depreciation and amortization
   
8,216
     
9,320
 
Stock-based compensation
   
1,601
     
1,450
 
Amortization of deferred financing costs
   
232
     
294
 
Deferred income taxes
   
(1,002
)
   
1,780
 
Net unrealized losses on foreign currency revaluation
   
123
     
(871
)
Gain on sale of property
   
(4,257
)
   
-
 
Other, net
   
1,316
     
613
 
Changes in operating assets and liabilities:
               
Accounts receivable, net
   
7,734
     
(10,541
)
Unbilled receivables
   
4,329
     
(1,051
)
Inventories
   
1,799
     
(10,629
)
Account payable
   
(13,350
)
   
12,082
 
Accrued expenses
   
(2,052
)
   
(1,251
)
Other operating assets/liabilities, net
   
(1,032
)
   
(5,286
)
      Net cash provided by operating activities
   
7,755
     
1,242
 
 
               
Cash flows from investing activities:
               
Purchases of property, plant and equipment
   
(5,329
)
   
(5,870
)
Proceeds from disposal/sale of property, plant and equipment
   
5,784
     
53
 
       Net cash provided by (used in) investing activities
   
455
     
(5,817
)
 
               
Cash flows from financing activities:
               
Dividends paid to common stockholders
   
(1,600
)
   
(1,589
)
Borrowings under revolving credit line
   
12,000
     
-
 
Repayments of revolving credit line
   
(12,000
)
   
-
 
Repayments of long-term debt
   
(1,487
)
   
(7,525
)
       Net cash used in financing activities
   
(3,087
)
   
(9,114
)
 
               
Effect of exchange rate changes on cash and cash equivalents
   
(639
)
   
65
 
 
               
Net increase (decrease) in cash and cash equivalents
   
4,484
     
(13,624
)
Cash and cash equivalents - beginning of period
   
53,911
     
69,354
 
Cash and cash equivalents - end of period
 
$
58,395
   
$
55,730
 
 
               
 
               
Supplementary information:
               
Cash paid during the period for:
               
    Income taxes, net of refunds received
 
$
2,805
   
$
5,073
 
    Interest payment
 
$
2,533
   
$
2,260
 
 
               
See accompanying notes to unaudited condensed consolidated financial statements.
 

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BEL FUSE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The condensed consolidated balance sheets, statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated 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, 2019 are not necessarily indicative of the results to be expected for the full year.  These condensed consolidated 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, 2018.

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, including the interim reporting requirements, of the U.S. Securities and Exchange Commission (“SEC”).  The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

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, 2018.  There were no significant changes to these accounting policies during the six months ended June 30, 2019, except as discussed in “Recently Adopted Accounting Standards” below.

All amounts included in the tables to these notes to condensed consolidated financial statements, except per share amounts, are in thousands.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), to provide a new comprehensive model for lease accounting.  Under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance sheet leases.  Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. This guidance was effective for annual periods and interim periods within those annual periods beginning after December 15, 2018.  The amendments also require certain quantitative and qualitative disclosures about leasing arrangements.
 
The Company adopted ASU 2016-02 as amended effective January 1, 2019 using the modified retrospective approach.  In connection with the adoption, we elected to utilize the Comparatives Under 840 Option whereby the Company will continue to present prior period financial statements and disclosures under ASC 840.  In addition, we elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs.  Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.  We implemented a new lease system to facilitate the requirements of the new standard and completed the necessary changes to our accounting policies, processes, disclosures and internal control over financial reporting.

Adoption of the new standard resulted in the recording of right-of-use assets in the amount of $20.7 million and lease liabilities related to our operating leases in the amount of $21.0 million on our consolidated balance sheet as of January 1, 2019.  The standard did not materially affect the Company’s consolidated net earnings or have any impact on cash flows.  See Note 12, Leases, for Topic 842 disclosures in connection with the adoption of ASU 2016-02.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act, which was enacted on December 22, 2017.  This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is recognized.  This guidance was adopted by the Company effective January 1, 2019.  In accordance with this guidance, the Company reclassified $0.5 million of stranded tax effects from accumulated other comprehensive income to retained earnings within the equity section of the condensed consolidated balance sheet as of January 1, 2019.  The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

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In May 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services.  This guidance will better align the treatment of share-based payments to nonemployees with the requirements for such share-based payments granted to employees.  This guidance is effective for all public entities for fiscal years beginning after December 15, 2018, including interim periods within that year.  This guidance was adopted by the Company effective January 1, 2019 and did not have a material impact on the Company’s condensed consolidated financial statements.


Accounting Standards Issued But Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  The new guidance will broaden the information that an entity must consider in developing its expected credit loss estimates related to its financial instruments and adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses.  The amendment is currently effective for public entities for annual reporting periods beginning after December 15, 2019, with early adoption permitted.  Management is currently assessing the impact of ASU 2016-13, but it is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company is required to adopt ASU 2017-04 for its annual or any interim goodwill impairment tests for annual periods beginning after December 15, 2019, and the guidance is to be applied on a prospective basis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.  The updated guidance improves the disclosure requirements on fair value measurements.  The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for any removed or modified disclosures.  The Company is currently assessing the timing and impact of adopting the updated provisions.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”).  This guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures.  The standard is effective for fiscal years ending after December 15, 2020.  The amendments in ASU 2018-14 would need to be applied on a retrospective basis.  The Company is currently assessing the impact the new guidance will have on its disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Cost.  This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted.  The Company is currently evaluating the impacts that adoption of this ASU will have on its consolidated financial statements.

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2.
REVENUE

The following table provides information about disaggregated revenue by product group and sales channel, and includes a reconciliation of the disaggregated revenue to our reportable segments:


 
 
Three Months Ended June 30, 2019
   
Six Months Ended June 30, 2019
 
 
 
North
                     
North
                   
 
 
America
   
Asia
   
Europe
   
Consolidated
   
America
   
Asia
   
Europe
   
Consolidated
 
 
                                               
By Product Group:
                                               
Connectivity solutions
 
$
31,297
   
$
3,027
   
$
8,212
   
$
42,536
   
$
63,418
   
$
6,502
   
$
16,977
   
$
86,897
 
Magnetic solutions
   
9,638
     
29,168
     
2,046
     
40,852
     
18,583
     
56,258
     
4,267
     
79,108
 
Power solutions and protection
   
26,131
     
7,129
     
10,768
     
44,028
     
49,652
     
13,841
     
23,307
     
86,800
 
 
 
$
67,066
   
$
39,324
   
$
21,026
   
$
127,416
   
$
131,653
   
$
76,601
   
$
44,551
   
$
252,805
 
 
                                                               
By Sales Channel:
                                                               
Direct to customer
 
$
45,442
   
$
32,707
   
$
13,293
   
$
91,442
   
$
89,323
   
$
63,835
   
$
29,506
   
$
182,664
 
Through distribution
   
21,624
     
6,617
     
7,733
     
35,974
     
42,330
     
12,766
     
15,045
     
70,141
 
 
 
$
67,066
   
$
39,324
   
$
21,026
   
$
127,416
   
$
131,653
   
$
76,601
   
$
44,551
   
$
252,805
 
 
                                                               
 
                                                               
 
 
Three Months Ended June 30, 2018
   
Six Months Ended June 30, 2018
 
 
 
North
                           
North
                         
 
 
America
   
Asia
   
Europe
   
Consolidated
   
America
   
Asia
   
Europe
   
Consolidated
 
 
                                                               
By Product Group:
                                                               
Connectivity solutions
 
$
34,834
   
$
4,820
   
$
9,274
   
$
48,928
   
$
65,878
   
$
8,241
   
$
17,727
   
$
91,846
 
Magnetic solutions
   
10,158
     
32,844
     
2,546
     
45,548
     
18,209
     
60,669
     
4,898
     
83,776
 
Power solutions and protection
   
26,248
     
8,250
     
11,736
     
46,234
     
46,609
     
15,625
     
21,105
     
83,339
 
 
 
$
71,240
   
$
45,914
   
$
23,556
   
$
140,710
   
$
130,696
   
$
84,535
   
$
43,730
   
$
258,961
 
 
                                                               
By Sales Channel:
                                                               
Direct to customer
 
$
44,055
   
$
39,402
   
$
15,990
   
$
99,447
   
$
81,951
   
$
72,330
   
$
30,183
   
$
184,464
 
Through distribution
   
27,185
     
6,512
     
7,566
     
41,263
     
48,745
     
12,205
     
13,547
     
74,497
 
 
 
$
71,240
   
$
45,914
   
$
23,556
   
$
140,710
   
$
130,696
   
$
84,535
   
$
43,730
   
$
258,961
 
 
                                                               



The balances of the Company’s contract assets and contract liabilities at June 30, 2019 and December 31, 2018 are as follows:

   
June 30,
   
December 31,
 
   
2019
   
2018
 
             
Contract assets - current (unbilled receivable)
 
$
11,470
   
$
15,799
 
Contract liabilities - current (deferred revenue)
 
$
1,763
   
$
1,036
 


The change in balance of our unbilled receivables from December 31, 2018 to June 30, 2019 primarily relates to a timing difference between the Company’s performance (i.e. when our product is shipped to a customer-controlled hub) and the point at which the Company can invoice the customer per the terms of the customer contract (i.e. when the customer pulls our product from the customer-controlled hub).

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of June 30, 2019 related to contracts that exceed one year in duration amounted to $14.3 million, with expected contract expiration dates that range from 2020 - 2025. It is expected that 21% of this aggregate amount will be recognized in 2020, 54% will be recognized in 2021 and the remainder will be recognized in years beyond 2021.

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3.
EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted net earnings per common share under the two-class method for the three and six months ended June 30, 2019 and 2018:

  
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
                       
Numerator:
                       
Net earnings
 
$
2,967
   
$
6,634
   
$
4,098
   
$
5,332
 
Less dividends declared:
                               
     Class A
   
131
     
131
     
261
     
261
 
     Class B
   
704
     
689
     
1,412
     
1,390
 
Undistributed earnings
 
$
2,132
   
$
5,814
   
$
2,425
   
$
3,681
 
 
                               
Undistributed earnings allocation - basic and diluted:
                               
     Class A undistributed earnings
 
$
363
   
$
1,010
   
$
412
   
$
640
 
     Class B undistributed earnings
   
1,769
     
4,804
     
2,013
     
3,041
 
     Total undistributed earnings
 
$
2,132
   
$
5,814
   
$
2,425
   
$
3,681
 
 
                               
Net earnings allocation - basic and diluted:
                               
     Class A net earnings
 
$
494
   
$
1,141
   
$
673
   
$
901
 
     Class B net earnings
   
2,473
     
5,493
     
3,425
     
4,431
 
     Net earnings
 
$
2,967
   
$
6,634
   
$
4,098
   
$
5,332
 
 
                               
Denominator:
                               
Weighted-average shares outstanding:
                               
     Class A - basic and diluted
   
2,175
     
2,175
     
2,175
     
2,175
 
     Class B - basic and diluted
   
10,112
     
9,844
     
10,100
     
9,850
 
 
                               
Net earnings per share:
                               
     Class A - basic and diluted
 
$
0.23
   
$
0.52
   
$
0.31
   
$
0.41
 
     Class B - basic and diluted
 
$
0.24
   
$
0.56
   
$
0.34
   
$
0.45
 



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; and

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, 2019 and December 31, 2018, our available-for-sale securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations.  These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs and amounted to $1.3 million at June 30, 2019 and $1.4 million at December 31, 2018.  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 six months ended June 30, 2019 or June 30, 2018.  There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the six months ended June 30, 2019 or June 30, 2018.

There were no financial assets accounted for at fair value on a nonrecurring basis as of June 30, 2019 or December 31, 2018.

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The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts 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, 2019 and December 31, 2018, the estimated fair value of total debt was $118.5 million and $117.9 million, respectively, compared to a carrying amount of $113.0 million and $114.2 million, respectively.  The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2019.

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 upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. There were no triggering events that occurred during the six months ended June 30, 2019 that would warrant interim impairment testing.


5.  INVENTORIES

The components of inventories are as follows:

 
 
June 30,
   
December 31,
 
 
 
2019
   
2018
 
Raw materials
 
$
53,251
   
$
63,348
 
Work in progress
   
28,548
     
21,441
 
Finished goods
   
36,410
     
35,279
 
Inventories
 
$
118,209
   
$
120,068
 


6.
 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

 
 
June 30,
   
December 31,
 
 
 
2019
   
2018
 
Land
 
$
1,433
   
$
2,251
 
Buildings and improvements
   
29,319
     
30,119
 
Machinery and equipment
   
129,386
     
126,747
 
Construction in progress
   
5,516
     
4,687
 
 
   
165,654
     
163,804
 
Accumulated depreciation
   
(123,310
)
   
(119,872
)
Property, plant and equipment, net
 
$
42,344
   
$
43,932