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, 1998 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: 0-11676 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.) 198 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, 1998, there were 2,600,997 shares of Class A Common Stock, $.10 par value, outstanding and 2,600,997 shares of Class B Common Stock, $.10 par value.
BEL FUSE INC. INDEX Page Number ----------- Part I. Financial Information Item 1. Financial Statements 1 Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 2 - 3 Consolidated Statements of Opera- tions and Comprehensive Income for the Six Months and Three Months Ended June 30, 1998 and 1997 (unaudited) 4 - 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (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 - 14 Part II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 4. Submission of Matters to a Vote of Security Holders 15 - 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
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, 1997. The results of operations for the six month period ended June 30, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period. -1-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 1998 1997 ----------- ----------- (unaudited) Current Assets: Cash and cash equivalents $34,911,825 $29,231,967 Marketable securities 2,830,415 -- Accounts receivable, less allowance for doubtful accounts of $238,000 and $227,000 12,186,539 11,181,379 Inventories 9,854,987 12,202,938 Prepaid expenses and other current assets 659,129 383,084 Deferred income taxes 365,000 421,000 ----------- ----------- Total Current Assets 60,807,895 53,420,368 Property, plant and equipment - net 29,256,418 29,052,354 Other assets 584,404 679,511 ----------- ----------- TOTAL ASSETS $90,648,717 $83,152,233 =========== =========== (Continued) See notes to consolidated financial statements. -2-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1998 1997 ----------- ----------- (unaudited) Current Liabilities: Accounts payable $ 3,182,126 $ 3,467,897 Accrued expenses 6,533,050 5,660,411 Income taxes payable 161,927 237,515 ----------- ----------- Total Current Liabilities 9,877,103 9,365,823 Deferred income taxes 971,000 957,000 ----------- ----------- Total Liabilities 10,848,103 10,322,823 ----------- ----------- Stockholders' Equity: Preferred stock, no par value - authorized 1,000,000 shares; none issued -- -- Common stock, par value $.10 per share - authorized 10,000,000 shares; outstanding 5,201,995 and 5,121,920 shares (net of 2,145,539 treasury shares) 520,200 512,192 Additional paid-in capital 8,503,882 7,525,753 Retained earnings 70,776,491 64,771,298 Cumulative currency translation adjustment 41 20,167 ----------- ----------- Total Stockholders' Equity 79,800,614 72,829,410 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $90,648,717 $83,152,233 =========== =========== See notes to consolidated financial statements. -3-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Sales $39,046,355 $34,710,894 $19,531,655 $18,748,690 ----------- ----------- ----------- ----------- Costs and Expenses: Cost of sales 26,024,635 24,478,017 12,846,907 13,107,902 Selling, general and administrative expenses 7,033,510 6,503,284 3,646,028 3,408,975 ----------- ----------- ----------- ----------- 33,058,145 30,981,301 16,492,935 16,516,877 ----------- ----------- ----------- ----------- Income from operations 5,988,210 3,729,593 3,038,720 2,231,813 Other income - net 893,983 682,028 477,985 341,949 ----------- ----------- ----------- ----------- Earnings before income taxes 6,882,193 4,411,621 3,516,705 2,573,762 Income tax provision 877,000 969,000 478,000 441,000 ----------- ----------- ----------- ----------- Net earnings $ 6,005,193 $ 3,442,621 $ 3,038,705 $ 2,132,762 =========== =========== =========== =========== Earnings per common share-basic $ 1.16 $ .68 $ .59 $ .42 =========== =========== =========== =========== Earnings per common share- diluted $ 1.15 $ .67 $ .58 $ .42 =========== =========== =========== =========== Weighted average number of common shares outstanding-basic 5,158,028 5,072,919 5,184,994 5,073,736 =========== =========== =========== =========== Weighted average number of common shares outstanding- diluted 5,222,613 5,125,791 5,212,584 5,123,839 =========== =========== =========== =========== </TABLE> (Continued) See notes to consolidated financial statements. -4-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) (Continued) <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net earnings $ 6,005,193 $ 3,442,621 $ 3,038,705 $ 2,132,762 Other comprehensive income (expense), net of income taxes: Foreign currency translation adjustment (20,126) 15,376 (1,511) 460 ----------- ----------- ----------- ----------- Comprehensive income $ 5,985,067 $ 3,457,997 $ 3,037,194 $ 2,133,222 =========== =========== =========== =========== </TABLE> See notes to consolidated financial statements. -5-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, ----------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net income $ 6,005,193 $ 3,442,621 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,662,700 1,630,050 Other 196,000 169,000 Changes in operating assets and liabilities 1,569,259 (3,375,201) ------------ ------------ Net Cash Provided by Operating Activities 9,433,152 1,866,470 ------------ ------------ Cash flows from investing activities: Purchase of property, plant and equipment (1,837,547) (3,855,172) Purchase of marketable securities (2,830,415) (3,962,825) Proceeds from sale of marketable securities -- 2,982,450 Proceeds from repayment by contractor 82,531 83,789 ------------ ------------ Net Cash (Used in) Investing Activities (4,585,431) (4,751,758) ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options 832,137 27,125 ------------ ------------ Net increase (decrease) in Cash 5,679,858 (2,858,163) Cash and Cash Equivalents - beginning of period 29,231,967 23,498,491 ------------ ------------ Cash and Cash Equivalents - end of period $ 34,911,825 $ 20,640,328 ============ ============ (Continued) See notes to consolidated financial statements. -6-
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited) Six Months Ended June 30, ---------------------------- 1998 1997 ----------- ----------- Changes in operating assets and liabilities consist of: (Increase) in accounts receivable $(1,016,160) $(1,753,425) (Increase) decrease in inventories 2,347,951 (2,150,635) (Increase) in prepaid expenses and other current assets (363,378) (323,807) Decrease in other assets 89,566 146,728 (Decrease) in accounts payable (285,771) (295,352) Increase in accrued expenses 872,639 988,430 Increase (decrease) in income taxes payable (75,588) 12,860 ----------- ----------- $ 1,569,259 $(3,375,201) =========== =========== Supplementary information: Cash paid during the period for: Interest $ -- $ -- =========== =========== Income taxes $ 432,000 $ 787,941 =========== =========== See notes to consolidated financial statements. -7-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The consolidated balance sheet as of June 30, 1998, and the consolidated statements of operations and comprehensive income 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 and cash flows for all periods presented have been made. Certain items in the June 30, 1997 financial statements have been reclassified to conform to June 30, 1998 classifications. The information for December 31, 1997 was derived from audited financial statements. 2. Earnings Per Share - Basic earnings 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 common stock equivalent shares outstanding during the period. Earnings per share for the quarter ended June 30, 1997 have been restated to conform to the provisions of SFAS 128. Six Months Ended Three Months Ended June 30 June 30 ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Basic: Net earnings $6,005,193 $3,442,621 $3,038,705 $2,132,762 Weighted average shares out- standing 5,158,028 5,072,919 5,184,994 5,073,736 Earnings per share- basic $ 1.16 $ .68 $ .59 $ .42 Diluted: Net earnings $6,005,193 $3,442,621 $3,038,705 $2,132,762 Weighted average shares out- standing 5,158,028 5,072,919 5,184,994 5,073,736 Incremental shares under stock option plan 64,585 52,872 27,590 50,103 ---------- ---------- ---------- ---------- Adjusted weighted average shares outstanding 5,222,613 5,125,791 5,212,584 5,123,839 ========== ========== ========== ========== Earnings per share- diluted $ 1.15 $ .67 $ .58 $ .42 -8-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. Inventories consist of the following: June 30, 1998 December 31, 1997 ------------- ----------------- Raw materials $ 5,671,276 $ 7,029,632 Work-in-process 88,199 115,586 Finished goods 4,095,512 5,057,720 ----------- ----------- $ 9,854,987 $12,202,938 =========== =========== 4. Property, plant and equipment consists of the following: June 30, 1998 December 31, 1997 ------------- ----------------- Land $ 835,218 $ 835,218 Buildings and improvements 14,294,251 14,230,326 Machinery and equipment 40,025,930 38,233,434 Idle property held for sale 935,000 935,000 ----------- ----------- 56,090,399 54,233,978 Less accumulated depreciation and amortization 26,833,981 25,181,624 ----------- ----------- Net property, plant and equipment $29,256,418 $29,052,354 =========== =========== 5. SHAREHOLDERS' ANNUAL MEETING On July 9, 1998, the shareholders approved an amendment to the Company's Stock Option Plan to provide for the issuance of an additional 500,000 shares of common stock under the Plan. The shareholders also approved an amendment to Article VI of the Company's Certificate of Incorporation that (i) authorized a new voting Class A Common Stock, par value $.10 per share, and a new non-voting Class B Common Stock, par value $.10 share,(ii) increased the authorized number of shares of common stock from 10,000,000 to 20,000,000, consisting of 10,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock, (iii) established the rights, powers and limitations of the Class A Common Stock and the Class B Common Stock and (iv) reclassified each share of the Company's issued Common Stock, par value $.10 per share, as one-half share of Class A Common Stock and one-half share of Class B Common Stock. 6. NEW ACCOUNTING PRONOUNCEMENTS SEGMENT INFORMATION -- During June 1997, the Financial Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". -9-
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 6. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) This statement requires the disclosure of financial and descriptive information about reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources and in assessing performance. The Company has not yet completed its evaluation of this Statement. This Statement is effective for the Company's 1998 year end financial statements. -10-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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. Percentage of Net Sales ------------------------------------------ Six Months Ended Three Months Ended June 30, June 30, 1998 1997 1998 1997 ------ ------ ------ ------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 66.7 70.5 65.8 69.9 Selling, general and administrative expenses 18.0 18.7 18.7 18.2 Other income, net of interest expense 2.3 2.0 2.5 1.8 Earnings before income tax provision 17.6 12.7 17.9 13.7 Income tax provision 2.2 2.8 2.4 2.3 Net earnings 15.4 9.9 15.6 11.4 The following table sets forth, for the periods indicated, the percentage increase (decrease) of items included in the Company's consolidated statements of operations. Increase (Decrease) from Prior Period ------------------------------------------- Six Months Ended Three Months Ended June 30, 1998 June 30, 1998 compared with 1997 compared with 1997 ------------------ ------------------ Net sales 12.5% 4.2% Cost of sales 6.3 (2.0) Selling, general and administrative expenses 8.2 7.0 Other income - net 31.1 39.8 Earnings before income tax provi- sion 56.0 36.6 Income tax provision (9.5) 8.4 Net earnings 74.4 42.5 -11-
Six Months 1998 vs. Six Months 1997 Sales Net sales increased 12.5% from $34,710,894 during the first six months of 1997 to $39,046,355 during the first six months of 1998. The Company attributes this increase primarily to sales growth of network magnetic products offset, in part, by reduced sales of value-added products. Such reduced sales reflect the completion of certain contracts. Sales growth consisted primarily of growth in unit sales, including sales of certain new products. Cost of Sales Cost of sales as a percentage of net sales decreased 3.8% to 66.7% during the first six months of 1998 from 70.5% during the first six months of 1997. The decrease in the cost of sales percentage is primarily attributable to lower raw material and labor costs and improved manufacturing efficiencies. Selling, General and Administrative Expenses The percentage relationship of selling, general and administrative expenses to net sales decreased from 18.7% for the first six months of 1997 to 18.0% for the first six months of 1998. The Company attributes the percentage decrease primarily to increased sales. Selling, general and administrative expenses increased in dollar amount by 8.2%. The Company attributes the increase in dollar amount of such expenses primarily to increases in sales and marketing salaries and sales related expenses. Other Income and Expenses Other income, consisting principally of interest earned on cash equivalents and marketable securities, increased by approximately $212,000 during the first six months of 1998 compared to the first six months of 1997. The increase is primarily due to higher earnings on invested funds due to greater average balances in 1998 compared to 1997. Provision for Income Taxes The provision for income taxes for the first six months of 1997 was $969,000 as compared to $877,000 for the first six months of 1998. The decrease in the provision is due primarily to lower foreign income tax rates offset in part by higher United States earnings before income taxes in 1998 versus 1997. -12-
Three Months 1998 vs. Three Months 1997 Sales Sales increased 4.2% to $19,531,655 during the second quarter of 1998 from $18,748,690 during the second quarter of 1997. The Company attributes the increase primarily to the reasons set forth in the six month analysis. Cost of Sales Cost of sales as a percentage of net sales decreased 4.1% to 65.8% during the second quarter of 1998 from 69.9% during the second quarter of 1997. The Company attributes the decrease primarily 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 remained relatively constant during the second quarter of 1998 as compared to 1997. Selling, general and administrative expenses increased in dollar amount by $237,000. The Company attributes the increase in dollar amount to the reasons set forth in the six month analysis. Other Income and Expense Other income increased for the second quarter of 1998 compared to the second quarter of 1997 due to those reasons set forth in the six month analysis. Provision for Income Taxes The provision for income taxes increased to $478,000 for the second quarter of 1998 from $441,000 for the second quarter of 1997. The increase in the provision is due primarily to higher United States earnings before income taxes offset in part by lower foreign income tax rates in the second quarter of 1998 versus 1997. -13-
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, 1998, in the aggregate amount of $7.0 million, of which $5.0 million is from domestic banks and $2.0 million is from foreign banks. During the first six months of 1998, the Company's cash and cash equivalents and marketable securities increased by $8.5 million, reflecting $9.4 million provided by operating activities and $.8 million from the exercise of stock options, offset, in part, by $1.8 million in purchases of plant and equipment. The Company has historically followed a policy of reinvesting the earnings of foreign subsidiaries in the Far East. No earnings were repatriated during the first six months of 1998 or 1997. Cash, accounts receivable and marketable securities comprised approximately 55.1% and 48.6% of the Company's total assets at June 30, 1998 and December 31, 1997, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 6 to 1 and 5.7 to 1 at June 30, 1998 and December 31, 1997, respectively. This report contains forward-looking statements that involve substantial risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations", and "Risks and Uncertainties" captions in the Company's Form 10-K for the year ended December 31, 1997. -14-
PART II. Other Information Item 1. Legal Proceedings See Item 3 of the Company's Form 10-K for the year ended December 31, 1997. Item 2. Changes in Securities and Use of Proceeds On July 9, 1998, the shareholders of the Company approved an amendment to Article VI of the Company's Certificate of Incorporation that (i) authorized a new voting Class A Common Stock, par value $.10 per share, and a new non-voting Class B Common Stock, par value $.10 share,(ii) increased the authorized number of shares of common stock from 10,000,000 to 20,000,000, consisting of 10,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock, (iii) established the rights, powers and limitations of the Class A Common Stock and the Class B Common Stock and (iv) reclassified each share of the Company's issued Common Stock, par value $.10 per share, as one-half share of Class A Common Stock and one-half share of Class B Common Stock. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of security holders was held on July 9, 1998. At the meeting the following votes were 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 4,039,203 489,222 Peter Gilbert 4,039,745 488,680 John S. Johnson 4,036,469 491,956 There were -0- abstentions and -0- broker non-votes. (2) The Company's Stock Option Plan was amended to increase the number of shares authorized for issuance under such Plan by 500,000 shares. The votes were cast as follows: For Against Abstain Not Voted --------- ------- ------- --------- 3,798,907 289,532 19,944 420,042 -15-
PART II. Other Information (Continued) (3) The Company's Certificate of Incorporation was amended to authorize a new class of non-voting Common Stock and to effect a recapitalization of the Company. For Against Abstain --------- --------- ------- 2,802,987 1,703,729 21,709 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 Restated Certificate of Incorportion, as amended 27.1 Financial Data Schedule (b) There were no Current Reports on Form 8-K filed by the registrant during the quarter ended June 30, 1998. -16-
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 (Principal Financial and Accounting Officer) Dated: August 11, 1998 -17-