FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission file number: 11676 BEL FUSE INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22--1463699 - -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 206 Van Vorst Street Jersey City, New Jersey 07302 ---------------------------------------- (Address of principal executive offices) (Zip Code) 201-432-0463 ---------------------------------------------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At August 1, 2001, there were 2,664,299 shares of Class A Common Stock, $.10 par value, outstanding and 8,075,917 shares of Class B Common Stock, $.10 par value, outstanding.
BEL FUSE INC. INDEX Page Number ----------- Part I Financial Information Item 1 Financial Statements .................................... 1 Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 ....................... 2 - 3 Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2001 and 2000 (unaudited) ...................... 4 - 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (unaudited) ......... 6 - 7 Notes to Consolidated Financial Statements (unaudited) .. 8 - 10 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 11 - 15 Item 3 Quantitative and Qualitative Disclosures About Market Risk .................................................... 16 Part II Other Information Item 1 Legal Proceedings ....................................... 17 Item 4 Submission of Matter to a Vote of Security Holders ...... 17 Item 6 Exhibits and Reports on Form 8-K ........................ 17 Signatures ........................................................ 18
PART I. Financial Information Item 1. Financial Statements Certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the six month period ended June 30, 2001 are not necessarily indicative of the results for the entire fiscal year or for any other period. -1-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents ............... $ 62,794,322 $ 62,587,033 Marketable securities ................... 180,008 231,431 Accounts receivable, less allowance for doubtful accounts of $945,000 ...... 15,114,678 25,165,748 Inventories ............................. 22,473,173 30,259,606 Prepaid expenses and other current assets ................................. 671,151 318,120 Refundable income taxes ................. 790,361 -- Deferred income taxes ................... 801,000 654,000 ------------ ------------ Total Current Assets ................... 102,824,693 119,215,938 Property, plant and equipment - net .......... 41,578,140 39,738,064 Goodwill-net of amortization of $4,427,689 and $3,548,401 .............................. 15,037,020 10,241,051 Other assets ................................. 321,052 318,352 ------------ ------------ TOTAL ASSETS ........................... $159,760,905 $169,513,405 ============ ============ See notes to consolidated financial statements. -2-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) Current Liabilities: Accounts payable ........................ $ 8,300,391 $ 13,038,299 Accrued expenses ........................ 6,599,880 8,058,326 Dividends payable ....................... 402,000 399,700 ------------ ------------ Total Current Liabilities .............. 15,302,271 21,496,325 Deferred income taxes ........................ 6,743,000 7,001,000 ------------ ------------ Total Liabilities ...................... 22,045,271 28,497,325 ------------ ------------ Stockholders' Equity: Preferred stock, no par value - authorized 1,000,000 shares; none issued ........................... -- -- Class A common stock, par value $.10 per share - authorized 10,000,000 shares; outstanding 2,660,765 and 2,646,828 shares (net of 1,072,770 treasury shares) .... 266,077 264,683 Class B common stock, par value $.10 per share - authorized 30,000,000 shares; outstanding 8,064,767 and 7,993,783 shares (net of 3,218,310 treasury shares) .... 806,477 799,379 Additional paid-in capital .............. 10,478,486 9,419,553 Retained earnings ....................... 126,135,108 130,470,576 Cumulative other comprehensive income ................................. 29,486 61,889 ------------ ------------ Total Stockholders' Equity ............. 137,715,634 141,016,080 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $159,760,905 $169,513,405 ============ ============ See notes to consolidated financial statements. -3-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Sales .................................. $ 55,779,903 $ 59,855,125 $ 22,076,118 $ 33,721,946 ------------ ------------ ------------ ------------ Costs and Expenses: Cost of sales ..................... 49,658,562 37,647,443 29,386,997 20,942,948 Selling, general and administrative expenses .......... 11,119,255 10,745,553 5,494,111 5,575,859 ------------ ------------ ------------ ------------ 60,777,817 48,392,996 34,881,108 26,518,807 ------------ ------------ ------------ ------------ Income (loss) from operations .......... (4,997,914) 11,462,129 (12,804,990) 7,203,139 Other income - net ..................... 1,519,482 2,084,156 693,876 607,345 ------------ ------------ ------------ ------------ Earnings (loss) before income taxes .... (3,478,432) 13,546,285 (12,111,114) 7,810,484 Income tax provision (benefit) ......... 55,000 2,515,000 (1,001,000) 1,251,000 ------------ ------------ ------------ ------------ Net earnings (loss) .................... $ (3,533,432) $ 11,031,285 $(11,110,114) $ 6,559,484 ------------ ------------ ------------ ------------ Basic earnings (loss) per common share ................................. $ (0.33) $ 1.04 $ (1.04) $ 0.62 ------------ ------------ ------------ ------------ Diluted earnings (loss) per common share ................................. $ (0.33) $ 1.01 $ (1.04) $ 0.60 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding-basic ....... 10,684,149 10,567,240 10,714,868 10,578,765 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding and potential common shares - diluted ..... 10,684,149 10,878,914 10,714,868 10,901,506 ------------ ------------ ------------ ------------ </TABLE> See notes to consolidated financial statements. -4-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, ------------------------------------------------------------ 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net earnings (loss) .................... $ (3,533,432) $ 11,031,285 $(11,110,114) $ 6,559,484 Other comprehensive income (expense), net of income taxes: Unrealized (loss) gain on marketable securities ......................... (30,000) (482,218) (30,000) 20,694 Foreign currency translation adjustment ............. (2,403) (6,939) 5,153 1,053 ------------ ------------ ------------ ------------ Comprehensive income (loss) ............ $ (3,565,835) $ 10,542,128 $(11,134,961) $ 6,581,231 ============ ============ ============ ============ </TABLE> See notes to consolidated financial statements. -5-
<TABLE> <CAPTION> BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, ---------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net income (loss) ............................ $ (3,533,432) $ 11,031,285 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ................. 3,462,951 2,791,819 Inventory write-off ........................... 12,000,000 -- Gain on sale of marketable securities ................................... -- (1,012,095) Deferred income taxes ......................... (385,000) -- Other ......................................... 217,000 121,000 Changes in operating assets and liabilities - net of acquisitions ............ (1,458,797) 2,398,886 ------------ ------------ Net Cash Provided by Operating Activities .. 10,302,722 15,330,895 ------------ ------------ Cash flows from investing activities: Purchase of property, plant and equipment .................................... (4,217,567) (2,672,820) Payment for acquisitions - net of cash acquired (5,943,046) -- Proceeds from sale of marketable securities ................................... -- 2,071,157 Purchase of marketable securities ............. -- (773,253) Proceeds from repayment by contractors ........ 14,500 64,500 ------------ ------------ Net Cash Used in Investing Activities ...... (10,146,113) (1,310,416) ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options ....... 850,416 250,677 Dividends paid to common shareholders ......... (799,736) (789,263) ------------ ------------ Net Cash Provided by (Used in) Financing Activities ......................... 50,680 (538,586) ------------ ------------ Net increase in Cash ............................... 207,289 13,481,893 Cash and Cash Equivalents - beginning of period .... 62,587,033 31,382,629 ------------ ------------ Cash and Cash Equivalents - end of period .......... $ 62,794,322 $ 44,864,522 ============ ============ </TABLE> See notes to consolidated financial statements. (continued) -6-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited) Six Months Ended June 30, ---------------------------- 2001 2000 ------------ ------------ Changes in operating assets and liabilities-net of acquisitions consist of: (Increase) decrease in accounts receivable $ 10,051,864 $ (2,850,921) (Increase) decrease in inventories ........ (4,153,091) 1,513,141 Increase in prepaid expenses and other current assets .................... (420,973) (480,086) Increase in refundable income taxes ....... (790,361) -- Increase in other assets .................. (2,700) (5,191) Increase (decrease) in accounts payable ... (4,705,386) 1,517,841 Increase (decrease) in accrued expenses ... (1,438,150) 1,613,291 Increase in income taxes payable .......... -- 1,090,811 ------------ ------------ $ (1,458,797) $ 2,398,886 ============ ============ Supplementary information: Cash paid during the period for: Income taxes .............................. $ 955,000 $ 830,000 ============ ============ Non-Cash Investing Activities: Unrealized loss on marketable securities .. $ (30,000) $ (482,228) ============ ============ Acquisitions: Fair value of net assets acquired (excluding cash of $341,954) ............ $ 267,789 Identified intangibles .................... 5,675,257 ------------ Cash paid ................................. $ 5,943,046 ============ See notes to consolidated financial statements. -7-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of June 30, 2001, and the consolidated statements of operations and comprehensive income (loss) 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 financial position, results of operations and comprehensive income (loss) and cash flows for all periods presented have been made. The information for December 31, 2000 was derived from audited financial statements. 2. Acquisitions On May 11, 2001, the Company acquired E-Power Ltd. ("E-Power") and the assets of Current Concepts, Inc. ("Current Concepts") for an aggregate of $6,285,000 in cash (including acquisition expenses). The Company will be required to make contingent payments up to approximately $7.6 million should the acquired companies reach various sales levels. The transactions were accounted for using the purchase method of accounting, and accordingly, the results of operations of Current Concepts and E-Power have been included in the Company's consolidated financial statements since the date of acquisition. Purchase price allocations were based on preliminary management estimates and will be adjusted, if necessary, when formal appraisals have been completed. The excess of the purchase price over the net assets acquired is approximately $5.7 million and is being amortized on a straight-line basis over a period of 3 to 15 years. The following unaudited pro forma summary results project information as if Current Concepts and E-Power had been acquired as of the beginning of the Company's 2000 fiscal year: Six Months Ended June 30, -------------------------------- 2001 2000 ------------- -------------- Sales ..................................... $ 55,867,166 $ 59,922,689 Net Income (loss) ......................... (4,089,274) 10,497,090 Earnings (loss) per share-diluted ......... (0.38) 0.96 3. Earnings (Loss) Per Share Basic earnings (loss) per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed using the weighted average number of common shares and potential common shares outstanding during the period. For the six months and three months ended June 30, 2001 potential common shares were not used in the computation of diluted loss per common share as their effect would be antidilutive. -8-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Business Segment Information The Company does not have reportable operating segments as defined in Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The method for attributing revenues for interim purposes is based on total shipments from the country of origination less intergeographic revenues. The Company operates facilities in the United States, Europe and the Far East. The primary criteria by which financial performance is evaluated and resources are allocated include revenues and operating income. The following is a summary of key financial data: <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, ---------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------- <S> <C> <C> <C> <C> Total Revenues: United States ....... $ 25,908,420 $ 34,576,951 $ 9,555,351 $ 20,510,630 Asia ................ 54,987,731 57,137,881 18,751,438 31,140,306 Less intergeographic revenues ........... (25,116,248) (31,859,707) (6,230,671) (17,928,990) ------------ ------------ ------------ ------------ $ 55,779,903 $ 59,855,125 $ 22,076,118 $ 33,721,946 ============ ============ ============ ============ Income (loss) from Operations: United States ....... $829,508 $ 1,601,221 $ (222,813) $ 611,489 Asia ................ (5,827,422) 9,860,908 (12,582,177) 6,591,650 ------------ ------------ ------------ ------------ $ (4,997,914) $11,462,129 $(12,804,990) $ 7,203,139 ============ =========== ============ ============ </TABLE> 5. On May 10, 2000 the Board of Directors authorized the repurchase of up to 10% of the Company's outstanding shares. To date the Company purchased and retired 23,600 Class B common shares at a cost of approximately $808,000, which reduced the number of Class B common shares outstanding. -9-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. New Financial Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. Management has concluded that the adoption of SFAS 133 has not had a significant impact on the consolidated financial position, results of operations, or cash flows of the Company. On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for issuance Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchasing method of accounting; the pooling of interest method of accounting is prohibited except for transactions recorded separately for goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, goodwill will no longer be subject to amortization. Although it is still reviewing the provisions of these Statements, management's preliminary assessment is that these Statements will not have a material impact on the Company's financial position or results of operations other than the cessation of goodwill amortization. -10-
Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the following: (a) the risk that the Company may be unable to respond adequately to rapidly changing technological developments in its industry, (b) risks associated with its Far East operations, (c) the highly competitive nature of the Company's industry and the impact that competitors' new products and pricing may have upon the Company, (d) the likelihood that revenues may vary significantly from one accounting period to another accounting period due to a variety of factors, including customers' buying decisions, the Company's product mix and general market and economic conditions, (e) the Company's reliance on certain substantial customers, (f) risks associated with the Company's ability to manufacture and deliver products in a manner that is responsive to its customers' needs and (g) market and competitive factors impacting the Company's customers. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the "SEC") contain certain Forward-Looking Statements under the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements") with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those mentioned above, and those detailed in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000, 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. An investment in the Company involves various risks, including those mentioned above and those which are detailed from time to time in the Company's SEC filings. -11-
Results of Operations The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items included in the Company's consolidated statements of operations. <TABLE> <CAPTION> Percentage of Net Sales -------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, ---------------------- --------------------- 2001 2000 2001 2000 ------ ------ ------ ------ <S> <C> <C> <C> <C> Net sales ....................................... 100.0% 100.0% 100.0% 100.0% Cost of sales ................................... 89.0 62.9 133.1 62.1 Selling, general and administrative expenses ....................... 19.9 18.0 24.9 16.5 Other income - net .............................. 2.7 3.5 3.1 1.8 Earnings (loss) before income tax provision ................................. (6.3) 22.6 (54.8) 23.2 Income tax provision (benefit) .................. -- 4.2 (4.5) 3.7 Net earnings (loss) ............................. (6.3) 18.4 (50.3) 19.5 </TABLE> The following table sets forth, for the periods indicated, the percentage increase (decrease) of items included in the Company's consolidated statements of operations. <TABLE> <CAPTION> Increase (Decrease) from Prior Period ------------------------------------------ Six Months Ended Three Months Ended June 30, 2001 June 30, 2001 compared with 2000 compared with 2000 ------------------- ------------------- <S> <C> <C> Net sales ................................. (6.8)% (34.5)% Cost of sales ............................. 31.9 40.3 Selling, general and administrative expenses ................. 3.5 (1.5) Other income - net ........................ (27.1) 14.2 Earnings (loss) before income tax provision ..................... (125.7) (255.0) Income tax provision (benefit) ............ (97.8) (180.0) Net earnings (loss) ....................... (132.0) (269.4) </TABLE> -12-
Six Months ended June 30, 2001 vs. Six Months ended June 30, 2000 Net Sales Net sales decreased 6.8% from $59,855,125 during the first six months of 2000 to $55,779,903 during the first six months of 2001. The Company attributes this decrease to the decline in demand affecting the global electronics industry. Although all product lines experienced sales decreases except for integrated connector modules ("ICM"), the telecommunications and networking segments were particularly depressed. Several of the Company's customers are facing difficult market conditions. Some customers have delayed purchase orders, while others have cancelled purchase orders outright. As a result of these potential difficulties, the Company believes that third quarter 2001 revenue levels and earnings should approximate second quarter 2001 exclusive of the after tax charge for inventory of $11,700,000. This projection represents a Forward - Looking Statement. Actual results could differ materially from this statement, depending in large part upon market conditions in the Company's industry. Cost of Sales Cost of sales as a percentage of net sales increased 26.1% to 89.0% during the first six months of 2001 from 62.9 % during the first six months of 2000. The increase in the cost of sales percentage is primarily attributable to a $12.0 million inventory write-off of surplus and obsolete inventory and non-cancelable purchase commitments. This provision reflects the Company's assessment of current business levels and its belief that its customers will ultimately seek next generation products when and if a recovery occurs. Also contributing to the increase in cost of sales are manufacturing inefficiencies due to reduced sales volume and sales with lower or no gross profit margins. Selling, General and Administrative Expenses The percentage relationship of selling, general and administrative expenses to net sales increased 1.9% to 19.9% during the first six months of 2001 from 18.0% during the first six months of 2000. The Company attributes the percentage increase primarily to decreased sales. Selling, general and administrative expenses increased in dollar amount by approximately 3.5%. The Company attributes the increase in dollar amount of such expenses primarily to a wage continuance benefit of approximately $700,000 under the terms of the Chairman of the Board's employment agreement offset in part by reduced sales and marketing salaries and related expenses. The Company's Chairman died in July 2001. Other Income and Expense Other income, consisting principally of gain on the sale of marketable securities during the first six months of 2000, and interest earned on cash and cash equivalents, decreased by approximately $565,000 during the first six months of 2001 compared to the first six months of 2000. The decrease is due to the $1.0 million gain on the sale of marketable securities during the quarter ended June 30, 2000 offset by higher interest income due to higher cash and cash equivalent balances. -13-
Provision for Income Taxes The provision for income taxes for the first six months of 2001 was $55,000 as compared to $2,515,000 for the first six months of 2000. The decrease in the provision is due primarily to lower worldwide taxable income, lower United States taxes resulting from the gain on the sale of marketable securities in 2000 versus 2001 and foreign losses arising from inventory provisions in 2001. Three Months ended June 30, 2001 vs. Three Months ended June 30, 2000 Net Sales Net sales decreased 34.5% from $33,721,946 during the second quarter of 2000 to $22,076,118 during the second quarter of 2001. The Company attributes this decrease primarily to the reasons set forth in the six-month analysis. Cost of Sales Cost of sales as a percentage of net sales increased 71% to 133.1% during the second quarter of 2001 from 62.1 % during the second quarter of 2000. The increase in the cost of sales percentage is primarily attributable to the reasons set forth in the six-month analysis. Selling, General and Administrative Expenses The percentage relationship of selling, general and administrative expenses to net sales increased 8.4% to 24.9% during the second quarter of 2001 from 16.5% during the second quarter of 2000. The Company attributes the percentage increase primarily to the reasons set forth in the six-month analysis. Selling, general and administrative expenses decreased in dollar amount by approximately 1.5%. The Company attributes the decrease in dollar amount of such expenses primarily to the reasons set forth in the six-month analysis. Other Income and Expense Other income, consisting principally of interest earned on cash and cash equivalents, increased by approximately $86,000 during the second quarter of 2001, compared to the second quarter of 2000. The increase is due to higher interest income due to higher cash and cash equivalent balances. Provision for Income Taxes The provision (benefit) for income taxes for the second quarter of 2001 was $(1,001,000) as compared to $1,251,000 for the second quarter of 2000. The decrease in the provision is due primarily to the reasons set forth in the six-month analysis. -14-
Liquidity and Capital Resources Historically, the Company has financed its capital expenditures through cash flows from operating activities. Management believes that the cash flow from operations, combined with its existing capital base and the Company's available lines of credit, will be sufficient to fund its operations for the near term. This statement represents a Forward-Looking Statement. Actual results could differ materially from such statement if the Company experiences substantial unanticipated cash requirements. The Company has lines of credit, all of which were unused at June 30, 2001, in the aggregate amount of $14 million, of which $12 million is from domestic banks and $2 million is from foreign banks. On May 11, 2001, the Company acquired E-Power Ltd. ("E-Power") and the assets of Current Concepts, Inc. ("Current Concepts") for an aggregate $6,285,000 in cash (including acquisition expenses). The Company will be required to make contingent payments up to approximately $7.6 million should the acquired companies reach various sales levels. The transactions were accounted for using the purchase method of accounting, and accordingly, the results of operations of Current Concepts and E-Power have been included in the Company's financial statements since the date of acquisition. Purchase price allocations were based on preliminary management estimates and will be adjusted, if necessary, when formal appraisals have been completed. The excess of the purchase price over the net assets acquired is approximately $5.7 million and is being amortized on a straight-line basis over a period of 3 to 15 years. On May 10, 2000 the Board of Directors authorized the repurchase of up to 10% of the Company's outstanding shares. To date the Company purchased and retired 23,600 Class B common shares at a cost of approximately $808,000, which reduced the number of Class B common shares outstanding. During the first six months of 2001, the Company's cash and cash equivalents increased by approximately $.2 million, reflecting approximately $10.3 million provided by operating activities, offset, in part, by $5.9 million in payments for acquisitions, net of cash acquired and approximately $4.2 million in purchases of plant and equipment. Cash and cash equivalents and accounts receivable comprised approximately 48.8% and 51.9% of the Company's total assets at June 30, 2001 and December 31, 2000, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 6.7 to 1 and 5.5 to 1 at June 30, 2001 and December 31, 2000, respectively. New Financial Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. Management has concluded that the adoption of SFAS 133 has not had a significant impact on the consolidated financial position, results of operations, or cash flows of the Company. -15-
On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for issuance Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchasing method of accounting; the pooling of interest method of accounting is prohibited except for transactions recorded separately for goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, goodwill will no longer be subject to amortization. Although it is still reviewing the provisions of these Statements, management's preliminary assessment is that these Statements will not have a material impact on the Company's financial position or results of operations other than the cessation of goodwill amortization. Item 3. Qualitative and Quantitative Disclosure About Market Risk Fair Value of Financial Instruments-- The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The Company has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments. The Company's carrying values of cash, marketable securities, accounts receivable, accounts payable and accrued expenses are a reasonable approximation of their fair value. The Company's business in this regard is subject to certain risks, including, but not limited to, differing economic conditions, loss of significant customers, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. The Company's future results could be materially and adversely impacted by changes in these or other factors. -16-
PART II. Other Information Item 1. Legal Proceedings The Company is not presently subject to any legal proceedings which are material to the consolidated results of operations or financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of security holders was held on May 24, 2001. At the meeting the following vote was taken: (1) The Board's nominees were elected to the Board of Directors for a term of three years. The votes were cast as follows: For Withheld Daniel Bernstein 2,335,569 31,335 Peter Gilbert 2,330,973 35,931 John Johnson 2,366,629 30,275 There were -0- abstentions and -0- broker votes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) There were no Current Reports on Form 8-K filed by the registrant during the quarter ended June 30, 2001. -17-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BEL FUSE INC. By: /s/ Daniel Bernstein ---------------------------- Daniel Bernstein, President and Chief Executive Officer By: /s/ Colin Dunn ---------------------------- Colin Dunn, Vice President of Finance and Chief Financial Officer Dated: August 10, 2001 -18-