NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
|
The condensed consolidated balance sheets, statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the
periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated financial position, results
of operations and cash flows for all periods presented have been made. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Bel Fuse Annual Report on Form 10-K for the year ended December 31, 2018.
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S.
GAAP”) have been condensed or omitted from the following condensed consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements, of the U.S. Securities and Exchange Commission (“SEC”). The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated
financial statements and accompanying notes. Actual results could differ from these estimates.
The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018. There were no significant changes to these accounting policies during the six months ended June 30, 2019, except as discussed in “Recently Adopted Accounting Standards” below.
All amounts included in the tables to these notes to condensed consolidated financial statements, except per share amounts, are in thousands.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842) (“ASU 2016-02”)
, to provide a new comprehensive model for lease accounting. Under this guidance, lessees and lessors should
apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a
finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. This guidance was effective for annual periods and interim periods within those annual periods beginning after December
15, 2018. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements.
The Company adopted ASU 2016-02 as amended effective January 1, 2019 using the modified retrospective approach. In connection with the
adoption, we elected to utilize the Comparatives Under 840 Option whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, we elected the transition package of three practical
expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy,
permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain
classes of assets. We implemented a new lease system to facilitate the requirements of the new standard and completed the necessary changes to our accounting policies, processes, disclosures and internal control over financial reporting.
Adoption of the new standard resulted in the recording of right-of-use assets in the amount of $20.7 million and lease liabilities related to
our operating leases in the amount of $21.0 million on our consolidated balance sheet as of January 1, 2019. The standard did not materially affect the Company’s consolidated net earnings or have any impact on cash flows. See Note 12,
Leases
, for Topic 842 disclosures in connection with the adoption of ASU 2016-02.
In February 2018, the FASB issued ASU 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This guidance allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act, which was enacted on December 22, 2017. This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is
recognized. This guidance was adopted by the Company effective January 1, 2019. In accordance with this guidance, the Company reclassified $0.5 million of stranded tax effects from accumulated other comprehensive income to retained earnings
within the equity section of the condensed consolidated balance sheet as of January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2018, the FASB issued ASU 2018-07,
Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. This guidance will better align the
treatment of share-based payments to nonemployees with the requirements for such share-based payments granted to employees. This guidance is effective for all public entities for fiscal years beginning after December 15, 2018, including interim
periods within that year. This guidance was adopted by the Company effective January 1, 2019 and did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
. The new guidance will broaden the information that an entity must consider in developing its expected
credit loss estimates related to its financial instruments and adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. The amendment is currently effective for public entities for annual reporting
periods beginning after December 15, 2019, with early adoption permitted. Management is currently assessing the impact of ASU 2016-13, but it is not expected to have a material impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued
ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04 simplifies how an entity is
required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is
required to adopt ASU 2017-04 for its annual or any interim goodwill impairment tests for annual periods beginning after December 15, 2019, and the guidance is to be applied on a prospective basis.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
. The updated guidance improves the disclosure requirements on fair value measurements. The updated
guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and
impact of adopting the updated provisions.
In August 2018, the FASB issued ASU 2018-14,
Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”)
. This guidance removes certain disclosures
that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. The standard is effective for fiscal years ending after December 15, 2020. The amendments in ASU 2018-14 would need to be applied on
a retrospective basis. The Company is currently assessing the impact the new guidance will have on its disclosures.
In August 2018, the FASB issued ASU 2018-15,
Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Cost
. This guidance aligns the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim
and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impacts that adoption of this ASU will have on its consolidated financial statements.
The following table provides information about disaggregated revenue by product group and sales channel, and includes a
reconciliation of the disaggregated revenue to our reportable segments:
|
|
Three Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Consolidated
|
|
|
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Product Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connectivity solutions
|
|
$
|
31,297
|
|
|
$
|
3,027
|
|
|
$
|
8,212
|
|
|
$
|
42,536
|
|
|
$
|
63,418
|
|
|
$
|
6,502
|
|
|
$
|
16,977
|
|
|
$
|
86,897
|
|
Magnetic solutions
|
|
|
9,638
|
|
|
|
29,168
|
|
|
|
2,046
|
|
|
|
40,852
|
|
|
|
18,583
|
|
|
|
56,258
|
|
|
|
4,267
|
|
|
|
79,108
|
|
Power solutions and protection
|
|
|
26,131
|
|
|
|
7,129
|
|
|
|
10,768
|
|
|
|
44,028
|
|
|
|
49,652
|
|
|
|
13,841
|
|
|
|
23,307
|
|
|
|
86,800
|
|
|
|
$
|
67,066
|
|
|
$
|
39,324
|
|
|
$
|
21,026
|
|
|
$
|
127,416
|
|
|
$
|
131,653
|
|
|
$
|
76,601
|
|
|
$
|
44,551
|
|
|
$
|
252,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Sales Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct to customer
|
|
$
|
45,442
|
|
|
$
|
32,707
|
|
|
$
|
13,293
|
|
|
$
|
91,442
|
|
|
$
|
89,323
|
|
|
$
|
63,835
|
|
|
$
|
29,506
|
|
|
$
|
182,664
|
|
Through distribution
|
|
|
21,624
|
|
|
|
6,617
|
|
|
|
7,733
|
|
|
|
35,974
|
|
|
|
42,330
|
|
|
|
12,766
|
|
|
|
15,045
|
|
|
|
70,141
|
|
|
|
$
|
67,066
|
|
|
$
|
39,324
|
|
|
$
|
21,026
|
|
|
$
|
127,416
|
|
|
$
|
131,653
|
|
|
$
|
76,601
|
|
|
$
|
44,551
|
|
|
$
|
252,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Consolidated
|
|
|
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Product Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connectivity solutions
|
|
$
|
34,834
|
|
|
$
|
4,820
|
|
|
$
|
9,274
|
|
|
$
|
48,928
|
|
|
$
|
65,878
|
|
|
$
|
8,241
|
|
|
$
|
17,727
|
|
|
$
|
91,846
|
|
Magnetic solutions
|
|
|
10,158
|
|
|
|
32,844
|
|
|
|
2,546
|
|
|
|
45,548
|
|
|
|
18,209
|
|
|
|
60,669
|
|
|
|
4,898
|
|
|
|
83,776
|
|
Power solutions and protection
|
|
|
26,248
|
|
|
|
8,250
|
|
|
|
11,736
|
|
|
|
46,234
|
|
|
|
46,609
|
|
|
|
15,625
|
|
|
|
21,105
|
|
|
|
83,339
|
|
|
|
$
|
71,240
|
|
|
$
|
45,914
|
|
|
$
|
23,556
|
|
|
$
|
140,710
|
|
|
$
|
130,696
|
|
|
$
|
84,535
|
|
|
$
|
43,730
|
|
|
$
|
258,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Sales Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct to customer
|
|
$
|
44,055
|
|
|
$
|
39,402
|
|
|
$
|
15,990
|
|
|
$
|
99,447
|
|
|
$
|
81,951
|
|
|
$
|
72,330
|
|
|
$
|
30,183
|
|
|
$
|
184,464
|
|
Through distribution
|
|
|
27,185
|
|
|
|
6,512
|
|
|
|
7,566
|
|
|
|
41,263
|
|
|
|
48,745
|
|
|
|
12,205
|
|
|
|
13,547
|
|
|
|
74,497
|
|
|
|
$
|
71,240
|
|
|
$
|
45,914
|
|
|
$
|
23,556
|
|
|
$
|
140,710
|
|
|
$
|
130,696
|
|
|
$
|
84,535
|
|
|
$
|
43,730
|
|
|
$
|
258,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balances of the Company’s contract assets and contract liabilities at June 30, 2019 and December 31, 2018 are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Contract assets - current (unbilled receivable)
|
|
$
|
11,470
|
|
|
$
|
15,799
|
|
Contract liabilities - current (deferred revenue)
|
|
$
|
1,763
|
|
|
$
|
1,036
|
|
The change in balance of our unbilled receivables from December 31, 2018 to June 30, 2019 primarily relates to a timing difference between
the Company’s performance (i.e. when our product is shipped to a customer-controlled hub) and the point at which the Company can invoice the customer per the terms of the customer contract (i.e. when the customer pulls our product from the
customer-controlled hub).
The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as
of June 30, 2019 related to contracts that exceed one year in duration amounted to $14.3 million, with expected contract expiration dates that range from 2020 - 2025. It is expected that 21% of this aggregate amount will be recognized in 2020, 54%
will be recognized in 2021 and the remainder will be recognized in years beyond 2021.
The following table sets forth the calculation of basic and diluted net earnings per common share under the two-class method for the three
and six months ended June 30, 2019 and 2018:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,967
|
|
|
$
|
6,634
|
|
|
$
|
4,098
|
|
|
$
|
5,332
|
|
Less dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
131
|
|
|
|
131
|
|
|
|
261
|
|
|
|
261
|
|
Class B
|
|
|
704
|
|
|
|
689
|
|
|
|
1,412
|
|
|
|
1,390
|
|
Undistributed earnings
|
|
$
|
2,132
|
|
|
$
|
5,814
|
|
|
$
|
2,425
|
|
|
$
|
3,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A undistributed earnings
|
|
$
|
363
|
|
|
$
|
1,010
|
|
|
$
|
412
|
|
|
$
|
640
|
|
Class B undistributed earnings
|
|
|
1,769
|
|
|
|
4,804
|
|
|
|
2,013
|
|
|
|
3,041
|
|
Total undistributed earnings
|
|
$
|
2,132
|
|
|
$
|
5,814
|
|
|
$
|
2,425
|
|
|
$
|
3,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A net earnings
|
|
$
|
494
|
|
|
$
|
1,141
|
|
|
$
|
673
|
|
|
$
|
901
|
|
Class B net earnings
|
|
|
2,473
|
|
|
|
5,493
|
|
|
|
3,425
|
|
|
|
4,431
|
|
Net earnings
|
|
$
|
2,967
|
|
|
$
|
6,634
|
|
|
$
|
4,098
|
|
|
$
|
5,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - basic and diluted
|
|
|
2,175
|
|
|
|
2,175
|
|
|
|
2,175
|
|
|
|
2,175
|
|
Class B - basic and diluted
|
|
|
10,112
|
|
|
|
9,844
|
|
|
|
10,100
|
|
|
|
9,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - basic and diluted
|
|
$
|
0.23
|
|
|
$
|
0.52
|
|
|
$
|
0.31
|
|
|
$
|
0.41
|
|
Class B - basic and diluted
|
|
$
|
0.24
|
|
|
$
|
0.56
|
|
|
$
|
0.34
|
|
|
$
|
0.45
|
|
4.
FAIR VALUE MEASUREMENTS
F
air value is defined as an exit price, representing the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. Entities are required to use a fair
value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1
–
Observable inputs such as quoted market prices in active markets;
Level 2
– Inputs
other than quoted prices in active markets that are either directly or indirectly observable; and
Level
3
– Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of June 30, 2019 and December 31, 2018, our available-for-sale securities primarily consisted of investments held in a rabbi trust which
are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations. These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs and amounted to $1.3 million at
June 30, 2019 and $1.4 million at December 31, 2018. The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during the
six months ended June 30, 2019 or June 30, 2018. There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the six months ended June 30, 2019 or June 30, 2018.
There were no financial assets accounted for at fair value on a nonrecurring basis as of June 30, 2019 or December 31, 2018.
The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and
accrued expenses, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The fair value of the Company’s long-term debt is estimated using a
discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities. At June 30, 2019 and December 31, 2018, the estimated fair value of total debt was $118.5 million and $117.9
million, respectively, compared to a carrying amount of $113.0 million and $114.2 million, respectively. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2019.
Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair
value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. There were no triggering events that occurred during the six months ended June
30, 2019 that would warrant interim impairment testing.
5.
INVENTORIES
The components of inventories are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
53,251
|
|
|
$
|
63,348
|
|
Work in progress
|
|
|
28,548
|
|
|
|
21,441
|
|
Finished goods
|
|
|
36,410
|
|
|
|
35,279
|
|
Inventories
|
|
$
|
118,209
|
|
|
$
|
120,068
|
|
6.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
1,433
|
|
|
$
|
2,251
|
|
Buildings and improvements
|
|
|
29,319
|
|
|
|
30,119
|
|
Machinery and equipment
|
|
|
129,386
|
|
|
|
126,747
|
|
Construction in progress
|
|
|
5,516
|
|
|
|
4,687
|
|
|
|
|
165,654
|
|
|
|
163,804
|
|
Accumulated depreciation
|
|
|
(123,310
|
)
|
|
|
(119,872
|
)
|
Property, plant and equipment, net
|
|
$
|
42,344
|
|
|
$
|
43,932
|
|
Depreciation expense for the three months ended June 30, 2019 and 2018 was $2.5 million and $2.9 million, respectively. Depreciation expense
for the six months ended June 30, 2019 and 2018 was $5.0 million and $6.1 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.
During the first quarter of 2019, the Company finalized its plans to transition its manufacturing and warehousing operations from its Inwood,
New York facility to Bel’s existing facilities in Glen Rock, Pennsylvania and the Dominican Republic. In connection with this transition, the Company had classified $1.5 million of property, plant and equipment as held for sale on its condensed
consolidated balance sheet at March 31, 2019. The sale of the Inwood, New York property was completed during the second quarter of 2019, resulting in net proceeds of $5.8 million. The resulting gain on sale of $4.3 million (pre-tax) was recorded
in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2019.
Accrued expenses consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Sales commissions
|
|
$
|
2,628
|
|
|
$
|
2,609
|
|
Subcontracting labor
|
|
|
1,276
|
|
|
|
1,550
|
|
Salaries, bonuses and related benefits
|
|
|
14,918
|
|
|
|
18,275
|
|
Warranty accrual
|
|
|
1,329
|
|
|
|
1,078
|
|
Other
|
|
|
9,941
|
|
|
|
8,778
|
|
|
|
$
|
30,092
|
|
|
$
|
32,290
|
|
The change in warranty accrual during the six months ended June 30, 2019 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, 2019.
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, 2019 are as follows:
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
Cash Payments
|
|
|
Liability at
|
|
|
|
December 31,
|
|
|
New
|
|
|
and Other
|
|
|
June 30,
|
|
|
|
2018
|
|
|
Charges
|
|
|
Settlements
|
|
|
2019
|
|
Severance costs
|
|
$
|
-
|
|
|
$
|
311
|
|
|
$
|
(244
|
)
|
|
$
|
67
|
|
Other restructuring costs
|
|
|
-
|
|
|
|
809
|
|
|
|
(107
|
)
|
|
|
702
|
|
Total
|
|
$
|
-
|
|
|
$
|
1,120
|
|
|
$
|
(351
|
)
|
|
$
|
769
|
|
During the six months ended June 30, 2019, the Company’s restructuring charges included $0.9 million of costs associated
with the Company’s decision to transition manufacturing and warehousing operations from our Inwood, New York facility to other existing Bel facilities. The balance of the restructuring charges related to the realignment of our R&D resources
dedicated to our Power Solutions and Protection group and other restructuring activities in Asia.
The Company has a Credit and Security Agreement with KeyBank National Association (as amended, the “CSA”). The CSA consists of (i) a term
loan, with outstanding borrowings of $114.5 million and $116.0 million at June 30, 2019 and December 31, 2018, respectively and (ii) a $75 million revolving credit facility (“Revolver”), with no outstanding borrowings at June 30, 2019 or December
31, 2018. The CSA has a maturity date of December 11, 2022. At June 30, 2019 and December 31, 2018, the carrying value of the debt on the condensed consolidated balance sheet is reflected net of $1.5 million and $1.8 million, respectively, of
deferred financing costs. During the six months ended June 30, 2019, the Company borrowed $12.0 million from its revolver, all of which was repaid by June 30, 2019.
The weighted-average interest rate in effect was 4.19% at June 30, 2019 and 4.31% at December 31, 2018
and consisted of LIBOR plus the Company’s credit spread, as determined per the terms of the CSA. The Company incurred $1.4 million and $1.3 million of interest expense during the three months ended June 30, 2019 and June 30, 2018, respectively,
and $2.8 million and $2.5 million of interest expense during the six months ended June 30, 2019 and June 30, 2018, respectively.
The CSA contains customary representations and warranties, covenants and events of default and financial covenants that measure (i) the ratio
of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company’s consolidated EBITDA, as defined, (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s
consolidated fixed charges. If an event of default occurs, the lenders under the CSA would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At
June 30, 2019, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Fixed Charge Coverage Ratio.
9.
INCOME TAXES
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The
Company is no longer subject to U.S. federal examinations by tax authorities for years before 2015 and for state examinations before 2012. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for
years before 2008 in Asia and generally 2011 in Europe. The Company is currently under examination by the taxing authorities in Slovakia for the tax year 2014.
As a result of the expiration of the statutes of limitations for specific jurisdictions, it is reasonably possible that the related
unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company’s consolidated financial statements at June 30, 2019. The
Company’s liabilities for uncertain tax positions totaled $28.5 million and $28.9 million at June 30, 2019 and December 31, 2018, respectively, of which $0.1 million and $1.4 million is included in other current liabilities at June 30, 2019 and
December 31, 2018, respectively. These amounts, if recognized, would reduce the Company’s effective tax rate. As of June 30, 2019, approximately $0.1 million of the Company’s liabilities for uncertain tax positions are expected to be resolved
during 2019 by way of expiration of the related statute of limitations.
The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for
income taxes. During the six months ended June 30, 2019 and 2018, the Company recognized $0.3 million and $0.5 million, respectively, in interest and penalties in the condensed consolidated statements of operations. During the six months ended
June 30, 2019 and 2018, the Company recognized a benefit of $0.7 million and a benefit of $0.4 million, respectively, for the reversal of such interest and penalties, relating to the settlement of the liability for uncertain tax positions. The
Company has approximately $4.5 million and $3.8 million accrued for the payment of interest and penalties at June 30, 2019 and December 31, 2018, respectively, which is included in both income taxes payable and liability for uncertain tax positions
in the condensed consolidated balance sheets.
The Company continues to monitor the impacts of the U.S. tax reform and supplementary guidance as it becomes available. At December 31,
2018, the remaining balance of the deemed repatriation tax was included in other current liabilities on the Company’s condensed consolidated balance sheet. At June 30, 2019, the majority of the deemed repatriation tax is included in other
long-term liabilities on the Company's condensed consolidated balance sheet due to clarification of an Internal Revenue Service notice received in December 2018.
10.
RETIREMENT FUND AND PROFIT SHARING PLAN
The Company maintains the Bel Fuse Inc. Employees’ Savings Plan, a defined contribution plan that is intended to meet the applicable
requirements for tax-qualification under sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended (the “Code”). The expense for the three months ended June 30, 2019 and 2018 amounted to $0.3 million in both periods. The expense for
the six months ended June 30, 2019 and 2018 amounted to $0.6 million in both periods. The Company’s matching contribution is made in the form of Bel Fuse Inc. Class A common stock. As of June 30, 2019, the plan owned 133,280 and 107,962 shares of
Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company's subsidiaries in Asia have a retirement fund covering substantially all of their Hong Kong based full-time employees.
The expense for the three months ended June 30, 2019 and 2018 amounted to $0.1 million in both periods. The expense for the six months ended June 30, 2019 and 2018 amounted to
$0.2 million in both periods. As of June 30, 2019, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company maintains a SERP, which is designed to provide a
limited group of key management and other key employees of the Company
with
supplemental retirement and death benefits. As discussed in Note 3 above, the
Company has investments in a rabbi trust which are intended to fund the obligations of the SERP.
The components of SERP expense are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Service cost
|
|
$
|
144
|
|
|
$
|
183
|
|
|
$
|
288
|
|
|
$
|
366
|
|
Interest cost
|
|
|
185
|
|
|
|
166
|
|
|
|
370
|
|
|
|
332
|
|
Net amortization
|
|
|
48
|
|
|
|
111
|
|
|
|
96
|
|
|
|
222
|
|
Net periodic benefit cost
|
|
$
|
377
|
|
|
$
|
460
|
|
|
$
|
754
|
|
|
$
|
920
|
|
The service cost component of net benefit cost is presented within cost of sales or selling, general and administrative expense on the
accompanying condensed consolidated statements of operations, in accordance with where compensation cost for the related associate is reported. All other components of net benefit cost, including interest cost and net amortization noted above, are
presented within other income/expense, net in the accompanying condensed consolidated statements of operations.
The following amounts are recognized net of tax in accumulated other comprehensive loss:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Prior service cost
|
|
$
|
828
|
|
|
$
|
918
|
|
Net loss
|
|
|
1,971
|
|
|
|
1,977
|
|
|
|
$
|
2,799
|
|
|
$
|
2,895
|
|
11.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss at June 30, 2019 and December 31, 2018 are summarized below:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes of ($752) at
|
|
|
|
|
|
|
June 30, 2019 and ($751) at December 31, 2018
|
|
$
|
(22,929
|
)
|
|
$
|
(22,635
|
)
|
Unrealized holding gains on available-for-sale securities, net of taxes of
|
|
|
|
|
|
|
|
|
$0 at June 30, 2019 and $0 at December 31, 2018
|
|
|
12
|
|
|
|
12
|
|
Unfunded SERP liability, net of taxes of ($195) at June 30, 2019
|
|
|
|
|
|
|
|
|
and ($680) at December 31, 2018
|
|
|
(2,604
|
)
|
|
|
(2,215
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(25,521
|
)
|
|
$
|
(24,838
|
)
|
Changes in accumulated other comprehensive loss by component during the six months ended June 30, 2019 are as follows. All amounts are net
of tax.
|
|
|
|
|
Unrealized Holding
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
|
Gains on
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Available-for-
|
|
|
Unfunded
|
|
|
|
|
|
|
|
Adjustment
|
|
|
Sale Securities
|
|
|
SERP Liability
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
$
|
(22,635
|
)
|
|
$
|
12
|
|
|
$
|
(2,215
|
)
|
|
|
$
|
(24,838
|
)
|
Other comprehensive income before reclassifications
|
|
|
(294
|
)
|
|
|
-
|
|
|
|
11
|
|
|
|
|
(283
|
)
|
Amount reclassified from accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
(a)
|
|
|
63
|
|
Net current period other comprehensive income
|
|
|
(294
|
)
|
|
|
-
|
|
|
|
74
|
|
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of ASU 2018-02 (Topic 220)
|
|
|
-
|
|
|
|
-
|
|
|
|
(463
|
)
|
|
|
|
(463
|
)
|
Balance at June 30, 2019
|
|
$
|
(22,929
|
)
|
|
$
|
12
|
|
|
$
|
(2,604
|
)
|
|
|
$
|
(25,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP Plan.
|
|
|
|
|
|
|
|
|
|
|
This expense is allocated between cost of sales and selling, general and administrative expense based upon the employment
|
|
|
|
|
|
|
|
|
|
|
classification of the plan participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. LEASES
The Company has operating leases for its facilities used for manufacturing, research and development, sales and administration. There are
also operating and finance leases related to manufacturing equipment, office equipment and vehicles. These leases have remaining lease terms ranging from 1 year to 8 years. Certain of the leases contain options to extend the term of the lease and
certain of the leases contain options to terminate the lease within a specified period of time. These options to extend or terminate a lease are included in the lease term only when it is reasonably likely that the Company will elect that option.
The Company is not a party to any material sublease arrangements.
The components of lease expense, which are included in cost of sales and selling, general and administrative expense, based on the underlying
use of the ROU asset, were as follows:
|
|
Three Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2019
|
|
Amortization of ROU Assets - Finance Leases
|
|
$
|
33
|
|
|
$
|
67
|
|
Interest on Lease Liabilities - Finance Leases
|
|
|
12
|
|
|
|
25
|
|
Operating Lease Cost (Cost resulting from lease payments)
|
|
|
1,978
|
|
|
|
3,969
|
|
Short-term Lease Cost
|
|
|
31
|
|
|
|
100
|
|
Variable Lease Cost (Cost excluded from lease payments)
|
|
|
61
|
|
|
|
121
|
|
Sublease Income
|
|
|
-
|
|
|
|
-
|
|
Total Lease Cost
|
|
$
|
2,115
|
|
|
$
|
4,282
|
|
Supplemental cash flow information related to leases are as follows:
|
|
Six Months Ended June 30, 2019
|
|
Cash paid for amounts included in the measruement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
3,963
|
|
Operating cash flows from finance leases
|
|
|
25
|
|
Finance cash flows from finance leases
|
|
|
57
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
|
21,396
|
|
Finance leases
|
|
|
-
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
June 30, 2019
|
|
Operating Leases:
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
17,885
|
|
Operating lease liability, current
|
|
|
6,238
|
|
Operating lease liability, long-term
|
|
|
12,121
|
|
Total operating lease liabilities
|
|
|
18,359
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
Property, plant and equipment, gross
|
|
$
|
894
|
|
Accumulated depreciation
|
|
|
(202
|
)
|
Property, plant and equipment, net
|
|
|
692
|
|
Other current liabilities
|
|
|
120
|
|
Other long-term liabilities
|
|
|
626
|
|
Total finance lease liabilities
|
|
$
|
746
|
|
|
|
June 30, 2019
|
|
Weighted-Average Remaining Lease Term:
|
|
|
|
Operating leases
|
|
3.65 years
|
|
Finance leases
|
|
5.82 years
|
|
|
|
|
|
Weighted-Average Discount Rate:
|
|
|
|
Operating leases
|
|
|
6.0
|
%
|
Finance leases
|
|
|
6.5
|
%
|
Our discount rate is based on our incremental borrowing rate, as adjusted based on the geographic regions in which our leases assets are
located.
Maturities of lease liabilities were as follows as of June 30, 2019:
Year Ending
|
|
Operating
|
|
|
Finance
|
|
June 30,
|
|
Leases
|
|
|
Leases
|
|
2020
|
|
$
|
7,204
|
|
|
$
|
164
|
|
2021
|
|
|
5,549
|
|
|
|
163
|
|
2022
|
|
|
4,206
|
|
|
|
163
|
|
2023
|
|
|
2,440
|
|
|
|
163
|
|
2024
|
|
|
422
|
|
|
|
163
|
|
Thereafter
|
|
|
305
|
|
|
|
67
|
|
Total undiscounted cash flows
|
|
|
20,126
|
|
|
|
883
|
|
Less imputed interest
|
|
|
(1,767
|
)
|
|
|
(137
|
)
|
Present value of lease liabilities
|
|
$
|
18,359
|
|
|
$
|
746
|
|
As of June 30, 2019, the Company did not have any additional operating or financing leases that have not yet commenced.
13.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is party to a number of legal actions and claims, none of which individually or in the aggregate, in the opinion of management,
are expected to have a material adverse effect on the Company’s consolidated results of operations or financial position.
In connection with the acquisition of Power Solutions, there is an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax
matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd, or “BPS China”) for the years 2004 to 2006. In September 2012, the Tax Court of Arezzo ruled
in favor of BPS China and cancelled the claim. In February 2013, the Arezzo Revenue Agency filed an appeal of the Tax Court’s ruling. The hearing of the appeal was held on October 2, 2014. On October 13, 2014, BPS China was informed of the
Regional Tax Commission of Florence ruling which was in favor of the Arezzo Revenue Agency and against BPS China. An appeal was filed on July 18, 2015 before the Regional Tax Commission of Florence and rejected. On December 5, 2016, the Arezzo
Revenue Agency filed an appeal with the Supreme Court and BPS China filed a counter-appeal on January 4, 2017. The Supreme Court has yet to render its judgment. The estimated liability related to this matter is approximately $12.0 million and
has been included as a liability for uncertain tax positions on the accompanying condensed consolidated balance sheets. As Bel is fully indemnified in this matter per the terms of the stock purchase agreement with ABB, a corresponding other asset
for indemnification is also included in other assets on the accompanying condensed consolidated balance sheets at June 30, 2019 and December 31, 2018.
The Company is not a party to any other legal proceeding, the adverse outcome of which is likely to have a material adverse effect on the
Company's consolidated financial condition or results of operations.
14.
SEGMENTS
The Company operates in one industry with three reportable operating segments, which are geographic in nature. The segments consist of North
America, Asia and Europe. The primary criteria by which financial performance is evaluated and resources are allocated are net sales and income from operations. The following is a summary of key financial data:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net Sales to External Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
67,066
|
|
|
$
|
71,240
|
|
|
$
|
131,653
|
|
|
$
|
130,696
|
|
Asia
|
|
|
39,324
|
|
|
|
45,914
|
|
|
|
76,601
|
|
|
|
84,535
|
|
Europe
|
|
|
21,026
|
|
|
|
23,556
|
|
|
|
44,551
|
|
|
|
43,730
|
|
|
|
$
|
127,416
|
|
|
$
|
140,710
|
|
|
$
|
252,805
|
|
|
$
|
258,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
69,450
|
|
|
$
|
74,602
|
|
|
$
|
136,923
|
|
|
$
|
137,173
|
|
Asia
|
|
|
63,062
|
|
|
|
70,005
|
|
|
|
125,372
|
|
|
|
126,144
|
|
Europe
|
|
|
25,734
|
|
|
|
27,630
|
|
|
|
52,598
|
|
|
|
51,942
|
|
Less intercompany net sales
|
|
|
(30,830
|
)
|
|
|
(31,527
|
)
|
|
|
(62,088
|
)
|
|
|
(56,298
|
)
|
|
|
$
|
127,416
|
|
|
$
|
140,710
|
|
|
$
|
252,805
|
|
|
$
|
258,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,373
|
|
|
$
|
2,963
|
|
|
$
|
1,880
|
|
|
$
|
2,661
|
|
Asia
|
|
|
270
|
|
|
|
5,319
|
|
|
|
1,283
|
|
|
|
5,234
|
|
Europe
|
|
|
2,310
|
|
|
|
2,385
|
|
|
|
4,604
|
|
|
|
3,209
|
|
|
|
$
|
4,953
|
|
|
$
|
10,667
|
|
|
$
|
7,767
|
|
|
$
|
11,104
|
|
Net Sales
– Segment net sales are attributed to individual segments based on the geographic source of the billing for such customer sales. Intercompany sales include finished products manufactured in foreign
countries which are then transferred to the United States and Europe for sale; finished goods manufactured in the United States which are transferred to Europe and Asia for sale; and semi-finished components manufactured in the United States
which
are sold to Asia for further processing.
Income (loss) from operations represents net sales less operating costs and expenses and does not include any amounts related to intercompany
transactions.