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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2020

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

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

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 ☒

Non-accelerated

filer ☐

Smaller reporting

company 

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 ☒

 


Title of Each Class

 

Number of Shares of Common Stock Outstanding

 as of August 1, 2020

Class A Common Stock ($0.10 par value)

 

2,144,912

Class B Common Stock ($0.10 par value)

 

10,232,602

 

 

 

 

 

 

BEL FUSE INC. AND SUBSIDIARIES

 

INDEX

 

 

 

 

Page

Part I

 

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and

December 31, 2019 (unaudited)

2

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six 

Months Ended June 30, 2020 and 2019 (unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the

Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

4

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders' Equity for the Three

and Six Months Ended June 30, 2020 and 2019 (unaudited)

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six

Months Ended June 30, 2020 and 2019 (unaudited)

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7 - 15

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of

Financial Condition and Results of Operation

16 - 22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About

Market Risk

22

 

 

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

 

Part II

 

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

22

 

 

 

 

 

Item 1A.

Risk Factors

22

 

 

 

 

  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
       
  Item 3. Defaults Upon Senior Securities 23
       
  Item 4. Mine Safety Disclosures 23
       
  Item 5. Other Information 23
       

 

Item 6.

Exhibits

24

 

 

 

 

 

Signatures

 

25

 

 

 

 

 

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 2019 Annual Report on Form 10-K and the risk factors described in this quarterly report. 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 and regarding the anticipated impact of COVID-19 are Forward-Looking Statements.  These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 2019 Annual Report on Form 10-K and in the risk factors described in this quarterly report, 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

 

 

 

 

 

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,

 
  

2020

  

2019

 

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $75,288  $72,289 

Accounts receivable, net of allowance for doubtful accounts of $1,218 and $1,171, respectively

  78,346   76,092 

Inventories

  104,726   107,276 

Unbilled receivables

  15,334   16,318 
Assets held for sale  2,454   - 

Other current assets

  9,224   11,206 

Total current assets

  285,372   283,181 
         
Property, plant and equipment, net  37,334   41,943 
Right-of-use assets  16,627   18,504 

Intangible assets, net

  68,466   72,364 

Goodwill

  22,252   21,993 

Deferred income taxes

  4,071   3,731 

Other assets

  27,021   27,201 
Total assets $461,143  $468,917 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current Liabilities:

        

Accounts payable

 $44,826  $44,169 

Accrued expenses

  28,402   26,918 

Current portion of long-term debt

  2,305   5,489 

Operating lease liability, current

  6,467   7,377 

Other current liabilities

  6,179   6,265 

Total current liabilities

  88,179   90,218 
         

Long-term Liabilities:

        

Long-term debt

  132,937   138,215 

Operating lease liability, long-term

  10,469   11,751 

Liability for uncertain tax positions

  27,075   26,901 

Minimum pension obligation and unfunded pension liability

  21,944   21,545 

Deferred income taxes

  1,145   1,726 

Other liabilities

  11,466   10,510 

Total liabilities

  293,215   300,866 
         

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; 2,144,912 and 2,144,912 shares outstanding at June 30, 2020 and December 31, 2019, respectively (net of 1,072,769 treasury shares)

  214   214 

Class B common stock, par value $.10 per share, 30,000,000 shares authorized; 10,233,602 and 10,127,602 shares outstanding at June 30, 2020 and December 31, 2019, respectively (net of 3,218,307 treasury shares)

  1,023   1,013 

Additional paid-in capital

  35,036   33,826 

Retained earnings

  157,157   157,063 

Accumulated other comprehensive loss

  (25,502)  (24,065)

Total stockholders' equity

  167,928   168,051 

Total liabilities and stockholders' equity

 $461,143  $468,917 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

2

 

 

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,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Revenue

  $ 121,172     $ 127,416     $ 225,149     $ 252,805  

Cost of sales

    89,403       100,670       168,269       195,325  

Gross profit

    31,769       26,746       56,880       57,480  
                                 
Research and development costs     6,116       6,862       12,175       14,036  

Selling, general and administrative expenses

    18,061       19,215       40,122       38,440  

Restructuring charges

    44       424       172       1,370  
Gain on sale of property     -       (4,257 )     -       (4,257 )

Income from operations

    7,548       4,502       4,411       7,891  
                                 

Interest expense

    (1,250 )     (1,381 )     (2,601 )     (2,820 )

Other (expense) income, net

    (302 )     267       (390 )     (513 )

Earnings before provision for (benefit from) income taxes

    5,996       3,388       1,420       4,558  
                                 

Provision for (benefit from) income taxes

    423       421       (349 )     460  

Net earnings available to common stockholders

  $ 5,573     $ 2,967     $ 1,769     $ 4,098  
                                 
                                 

Net earnings per common share:

                               

Class A common share - basic and diluted

  $ 0.43     $ 0.23     $ 0.13     $ 0.31  

Class B common share - basic and diluted

  $ 0.46     $ 0.24     $ 0.15     $ 0.34  
                                 

Weighted-average number of shares outstanding:

                               

Class A common share - basic and diluted

    2,145       2,175       2,145       2,175  

Class B common share - basic and diluted

    10,178       10,112       10,151       10,100  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

3

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Net earnings available to common stockholders

  $ 5,573     $ 2,967     $ 1,769     $ 4,098  
                                 

Other comprehensive income (loss):

                               

Currency translation adjustment, net of taxes of ($3) in the three months ended June 30, 2020, $16 in the three months ended June 30, 2019, ($30) in the six months ended June 30, 2020 and ($1) in the six months ended June 30, 2019

    676       (834 )     (1,569 )     (294 )

Change in unfunded SERP liability, net of taxes of ($20) in the three months ended June 30, 2020, ($11) in the three months ended June 30, 2019, ($40) in the six months ended June 30, 2020 and ($22) in the six months ended June 30, 2019

    66       37       132       74  

Other comprehensive income (loss)

    742       (797 )     (1,437 )     (220 )
                                 

Comprehensive income

  $ 6,315     $ 2,170     $ 332     $ 3,878  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except per share data)

 (unaudited)

 

                   

Accumulated

                         
                   

Other

   

Class A

   

Class B

   

Additional

 
           

Retained

   

Comprehensive

   

Common

   

Common

   

Paid-In

 
    Total     Earnings     (Loss) Income     Stock     Stock     Capital  
                                                 
Balance at December 31, 2019   $ 168,051     $ 157,063     $ (24,065 )   $ 214     $ 1,013     $ 33,826  
Net loss     (3,804 )     (3,804 )     -       -       -       -  

Dividends declared:

                                               

Class A Common Stock, $0.06/share

    (130 )     (130 )     -       -       -       -  

Class B Common Stock, $0.07/share

    (709 )     (709 )     -       -       -       -  

Forfeiture of restricted common stock

    -       -       -       -       (1 )     1  
Foreign currency translation adjustment, net of taxes of ($27)     (2,245 )     -       (2,245 )     -       -       -  

Stock-based compensation expense

    603       -       -       -       -       603  

Change in unfunded SERP liability, net of taxes of ($20)

    66       -       66       -       -       -  
Balance at March 31, 2020     161,832       152,420       (26,244 )     214       1,012       34,430  
                                                 
Net earnings     5,573       5,573       -       -       -       -  
Dividends declared:                                                
Class A Common Stock, $0.06/share     (129 )     (129 )     -       -       -       -  
Class B Common Stock, $0.07/share     (707 )     (707 )     -       -       -       -  
Forfeiture of restricted common stock     -       -       -       -       11       (11 )
Foreign currency translation adjustment, net of taxes of ($3)     676       -       676       -       -       -  
Stock-based compensation expense     617       -       -       -       -       617  
Change in unfunded SERP liability, net of taxes of ($20)     66       -       66       -       -       -  

Balance at June 30, 2020

  $ 167,928     $ 157,157     $ (25,502 )   $ 214     $ 1,023     $ 35,036  

 

 

                   

Accumulated

                         
                   

Other

   

Class A

   

Class B

   

Additional

 
           

Retained

   

Comprehensive

   

Common

   

Common

   

Paid-In

 
    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

    1,131       1,131       -       -       -       -  

Dividends declared:

                                               

Class A Common Stock, $0.06/share

    (130 )     (130 )     -       -       -       -  

Class B Common Stock, $0.07/share

    (708 )     (708 )     -       -       -       -  

Forfeiture of restricted common stock

    -       -       -       -       (1 )     1  
Foreign currency translation adjustment, net of taxes of ($17)     540       -       540       -       -       -  

Stock-based compensation expense

    813       -       -       -       -       813  

Change in unfunded SERP liability, net of taxes of ($11)

    37       -       37       -       -       -  

Effect of adoption of ASU 2018-02 (Topic 220)

    -       463       (463 )     -       -       -  
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  

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

5

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

   

Six Months Ended

 
   

June 30,

 
   

2020

   

2019

 
                 

Cash flows from operating activities:

               

Net earnings

  $ 1,769     $ 4,098  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization

    8,234       8,216  

Stock-based compensation

    1,220       1,601  

Amortization of deferred financing costs

    316       232  

Deferred income taxes

    (1,030 )     (1,002 )

Net unrealized gains/losses on foreign currency revaluation

    58       123  
Gain on sale of property     -       (4,257 )

Other, net

    105       1,316  
Changes in operating assets and liabilities:                

Accounts receivable, net

    (2,463 )     7,734  

Unbilled receivables

    984       4,329  

Inventories

    1,906       1,799  

Accounts payable

    994       (13,350 )

Accrued expenses

    1,307       (2,052 )

Other operating assets/liabilities, net

    3,443       (1,032 )

Net cash provided by operating activities

    16,843       7,755  
                 

Cash flows from investing activities:

               

Purchases of property, plant and equipment

    (2,980 )     (5,329 )

Proceeds from disposal/sale of property, plant and equipment

    20       5,784  

Net cash (used in) provided by investing activities

    (2,960 )     455  
                 

Cash flows from financing activities:

               

Dividends paid to common stockholders

    (1,613 )     (1,600 )

Deferred financing costs

    (600 )     -  

Borrowings under revolving credit line

    -       12,000  

Repayments of revolving credit line

    -       (12,000 )

Repayments of long-term debt

    (8,179 )     (1,487 )

Net cash used in financing activities

    (10,392 )     (3,087 )
                 

Effect of exchange rate changes on cash and cash equivalents

    (492 )     (639 )
                 

Net increase in cash and cash equivalents

    2,999       4,484  

Cash and cash equivalents - beginning of period

    72,289       53,911  

Cash and cash equivalents - end of period

  $ 75,288     $ 58,395  
                 
                 

Supplementary information:

               

Cash paid during the period for:

               

Income taxes, net of refunds received

  $ 1,473     $ 2,805  

Interest payments

  $ 2,339     $ 2,533  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

6

 

BEL FUSE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

The condensed consolidated balance sheets and statements of operations, comprehensive income, 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, 2020 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, 2019.

 

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 these 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, 2019.  There were no significant changes to these accounting policies during the six months ended June 30, 2020, except as discussed in “Recently Adopted Accounting Standards” below.

 

Reclassifications - During the fourth quarter of 2019, the Company changed its financial statement presentation of research and development costs.  These costs were previously included within cost of sales and were a factor in arriving at gross profit.  Research and development costs in the amount of $6.9 million and $14.0 million have been reclassified from cost of sales to a separate line item below gross profit in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019, respectively.  Also during the fourth quarter of 2019, the Company changed its financial statement presentation related to gain/loss on foreign currency exchange.  These gains/losses were previously included within selling, general and administrative expense.  Gains (losses) on foreign currency exchange in the amount of $0.5 million and ($0.1) million have been reclassified from selling, general and administrative expense and are now included within other (expense) income, net on the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019, respectively. These changes in presentation are consistent with that of our peers.  The Company also implemented a change to its reportable segments during the fourth quarter of 2019.  In the past, the Company's reportable operating segments were geographic in nature: North America, Europe and Asia.  In connection with the Company's migration to its new ERP system and with the acquisition of CUI, management is now assessing the business on a product group basis, and making decisions based on the profitability of three product segments, Cinch Connectivity Solutions, Power Solutions and Protection and Magnetic Solutions, in addition to a Corporate segment.  The segment disclosures in Note 14 for the three and six months ended June 30, 2019 have been recast to reflect the new reportable operating segments.

 

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 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.  The Company adopted the updated provisions effective January 1, 2020.  The adoption did not have a material impact on the Company's consolidated financial position or consolidated results of operations.

 

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.  The Company adopted this guidance effective January 1, 2020 and it did not have a material impact on its consolidated financial position or consolidated results of operations.

 

 

7

 

 

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”), as amended.  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 effective for the Company for annual reporting periods beginning after December 15, 2022, 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 consolidated financial statements.

 

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 adds 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 the Company's disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact of ASU 2019-12, but it is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

2.

ACQUISITION

 

On December 3, 2019, the Company completed the acquisition of the majority of the power supply products business of CUI Inc. ("CUI") through an asset purchase agreement with CUI Global Inc. for $29.2 million (after a working capital adjustment), plus the assumption of certain liabilities.  The CUI power business designs and markets a broad portfolio of AC/DC and DC/DC power supplies and board level components.  The CUI power business is headquartered in Tualatin, Oregon and had sales of $32.0 million for the year ended December 31, 2019.  The acquisition of the CUI power business enhances Bel's existing offering of power products, allowing the Company to better address all of its customer power needs.  It also introduces an alternative business model to Bel's, one which carries a higher gross margin profile and lower manufacturing risk.  The acquisition of CUI has also created the opportunity for expense reduction and the elimination of redundancies.  The combination of these factors has given rise to $10.9 million of goodwill.

 

During the three and six months ended June 30, 2020, the Company expensed $0.2 million of acquisition-related costs.  These costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

 

While the purchase price allocation related to CUI is substantially complete, the allocations are currently under review and are subject to change.  The Company expects to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

 

CUI’s results of operations have been included in the Company’s condensed consolidated financial statements for the period subsequent to the acquisition date.  CUI contributed revenues of $10.6 million and estimated net earnings of $2.3 million to the Company for the three months ended June 30, 2020 and revenues of $18.9 million and estimated net earnings of $3.1 million to the Company for the six months ended June 30, 2020.  The following unaudited pro forma information presents the combined operating results of the Company and CUI.  The following unaudited pro forma consolidated results of operations assume that the acquisition of CUI was completed as of January 1, 2019:

 

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30, 2019

  

June 30, 2019

 

Revenue

 $135,847  $270,504 

Net earnings

  3,383   5,069 

Earnings per Class A common share - basic and diluted

  0.26   0.39 

Earnings per Class B common share - basic and diluted

  0.28   0.42 

 

 

8

 

 

 

3.

REVENUE

 

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

 

  

Three Months Ended June 30, 2020

  

Six Months Ended June 30, 2020

 
  Cinch Connectivity Solutions  Power Solutions and Protection  Magnetic Solutions  Consolidated  Cinch Connectivity Solutions  Power Solutions and Protection  Magnetic Solutions  Consolidated 
                                 

By Product Group:

                                

North America

 $27,608  $29,029  $7,097  $63,734  $57,310  $51,752  $14,204  $123,266 

Europe

  8,356   8,965   1,717   19,038   16,118   18,279   2,918   37,315 

Asia

  2,944   7,118   28,338   38,400   4,579   11,258   48,731   64,568 
  $38,908  $45,112  $37,152  $121,172  $78,007  $81,289  $65,853  $225,149 
                                 

By Sales Channel:

                                

Direct to customer

 $23,600  $26,894  $31,021  $81,515  $48,652  $48,471  $55,363  $152,486 
Through distribution  15,308   18,218   6,131   39,657   29,355   32,818   10,490   72,663 
  $38,908  $45,112  $37,152  $121,172  $78,007  $81,289  $65,853  $225,149 

 

 

  

Three Months Ended June 30, 2019

  

Six Months Ended June 30, 2019

 
  Cinch Connectivity Solutions  Power Solutions and Protection  Magnetic Solutions  Consolidated  Cinch Connectivity Solutions  Power Solutions and Protection  Magnetic Solutions  Consolidated 
                                 

By Product Group:

                                

North America

 $31,297  $26,131  $9,638  $67,066  $63,418  $49,652  $18,583  $131,653 

Europe

  8,212   10,768   2,046   21,026   16,977   23,307   4,267   44,551 

Asia

  3,027   7,129   29,168   39,324   6,502   13,841   56,258   76,601 
  $42,536  $44,028  $40,852  $127,416  $86,897  $86,800  $79,108  $252,805 
                                 

By Sales Channel:

                                

Direct to customer

 $28,207  $28,594  $34,641  $91,442  $57,812  $57,694  $67,158  $182,664 

Through distribution

  14,329   15,434   6,211   35,974   29,085   29,106   11,950   70,141 
  $42,536  $44,028  $40,852  $127,416  $86,897  $86,800  $79,108  $252,805 

 


The balances of the Company’s contract assets and contract liabilities at  June 30, 2020 and December 31, 2019 are as follows:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
         

Contract assets - current (unbilled receivable)

 $15,334  $16,318 

Contract liabilities - current (deferred revenue)

 $1,148  $653 

 

 

The change in balance of our unbilled receivables from December 31, 2019 to June 30, 2020 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, 2020 related to contracts that exceed one year in duration amounted to $15.2 million, with expected contract expiration dates that range from 2021 - 2025. It is expected that 27% of this aggregate amount will be recognized in 2021, 70% will be recognized in 2022 and the remainder will be recognized in years beyond 2022.

 

9

 

 

 

4.

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, 2020 and 2019:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Numerator:

                               

Net earnings

  $ 5,573     $ 2,967     $ 1,769     $ 4,098  

Less dividends declared:

                               

Class A

    129       131       259       261  

Class B

    707       704       1,416       1,412  

Undistributed earnings

  $ 4,737     $ 2,132     $ 94     $ 2,425  
                                 

Undistributed earnings allocation - basic and diluted:

                               

Class A undistributed earnings

  $ 794     $ 363     $ 15     $ 412  

Class B undistributed earnings

    3,943       1,769       79       2,013  

Total undistributed earnings

  $ 4,737     $ 2,132     $ 94     $ 2,425  
                                 

Net earnings allocation - basic and diluted:

                               

Class A net earnings

  $ 923     $ 494     $ 274     $ 673  

Class B net earnings

    4,650       2,473       1,495       3,425  

Net earnings

  $ 5,573     $ 2,967     $ 1,769     $ 4,098  
                                 

Denominator:

                               

Weighted-average shares outstanding:

                               

Class A - basic and diluted

    2,145       2,175       2,145       2,175  

Class B - basic and diluted

    10,178       10,112       10,151       10,100  
                                 

Net earnings per share:

                               

Class A - basic and diluted

  $ 0.43     $ 0.23     $ 0.13     $ 0.31  

Class B - basic and diluted

  $ 0.46     $ 0.24     $ 0.15     $ 0.34  

 

 

 

5.

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.

 

10

 

As of June 30, 2020 and December 31, 2019, 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 $0.9 million at June 30, 2020 and $1.1 million at December 31, 2019.  During the second quarter of 2020, the Company entered into foreign exchange forward contracts, the fair value of which was less than $0.1 million at June 30, 2020.  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 3 during the six months ended June 30, 2020 or June 30, 2019.  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, 2020 or June 30, 2019.

 

There were no financial assets accounted for at fair value on a nonrecurring basis as of June 30, 2020 or December 31, 2019.

 

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, 2020 and December 31, 2019, the estimated fair value of total debt was $141.7 million and $146.4 million, respectively, compared to a carrying amount of $135.2 million and $143.7 million, respectively.  The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2020.

 

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.  The Company considered the impacts of COVID-19 on Bel's business and on general economic conditions when making its assessment on whether a triggering event had occurred during the six months ended June 30, 2020.  Based on the Company's assessment, it was concluded that no triggering events occurred during the six months ended June 30, 2020 that would warrant interim impairment testing. 

 

 

6.

INVENTORIES

 

The components of inventories are as follows:

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Raw materials

  $ 47,707     $ 47,936  

Work in progress

    29,139       27,065  

Finished goods

    27,880       32,275  

Inventories

  $ 104,726     $ 107,276  

 

 

 

7.

 PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consist of the following:

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

Land

 $1,428  $1,431 

Buildings and improvements

  22,647   29,722 

Machinery and equipment

  124,192   132,134 

Construction in progress

  2,662   5,090 
   150,929   168,377 

Accumulated depreciation

  (113,595)  (126,434)

Property, plant and equipment, net

 $37,334  $41,943 

 

 

Depreciation expense for the three months ended June 30, 2020 and 2019 was $2.3 million and $2.5 million, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 was $4.7 million and $5.0 million, respectively.  Depreciation expense related to our manufacturing facilities and equipment is included in cost of sales and depreciation expense associated with administrative facilities and office equipment is included in selling, general and administrative expense within the accompanying condensed consolidated statements of operations.

 

 

11

 

 

8.

ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Sales commissions

  $ 2,685     $ 2,542  

Subcontracting labor

    1,115       990  

Salaries, bonuses and related benefits

    15,301       14,715  

Warranty accrual

    1,368       1,576  

Other

    7,933       7,095  
    $ 28,402     $ 26,918  

 

The change in warranty accrual during the six months ended June 30, 2020 primarily related to repair costs incurred and adjustments to pre-existing warranties.  There were no new material warranty charges incurred during the six months ended June 30, 2020.

 

Restructuring Activities

 

Included within other accrued expenses in the table above are costs accrued related to the Company’s restructuring activities.  Activity and liability balances related to restructuring costs for the six months ended June 30, 2020 are as follows: