0001437749-22-019132.txt : 20220805 0001437749-22-019132.hdr.sgml : 20220805 20220805151847 ACCESSION NUMBER: 0001437749-22-019132 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 81 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220805 DATE AS OF CHANGE: 20220805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEL FUSE INC /NJ CENTRAL INDEX KEY: 0000729580 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COILS, TRANSFORMERS & OTHER INDUCTORS [3677] IRS NUMBER: 221463699 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11676 FILM NUMBER: 221140430 BUSINESS ADDRESS: STREET 1: 206 VAN VORST ST. CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2014320463 MAIL ADDRESS: STREET 1: 206 VAN VORST ST. CITY: JERSEY CITY STATE: NJ ZIP: 07302 10-Q 1 belfb20220630_10q.htm FORM 10-Q belfb20220630_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

(MARK ONE)

 

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

 

For the Quarterly Period Ended June 30, 2022

or

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

 

For the transition period from ___________ to ____________

 

Commission File No. 000-11676

 


 

BEL FUSE INC.

(Exact name of registrant as specified in its charter)

 

206 Van Vorst Street
Jersey City, NJ  07302
(201) 432-0463

 

(Address of principal executive offices and zip code)

(Registrant’s telephone number, including area code)

 

New Jersey

 

22-1463699

(State of incorporation)

 

(I.R.S. Employer Identification No.)

 

 

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

 

Title of Each Class

 

 Trading Symbol

 

Name of Exchange on Which Registered

Class A Common Stock ($0.10 par value)

 

 BELFA

 

Nasdaq Global Select Market

Class B Common Stock ($0.10 par value)

 

 BELFB

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

No ☐

 

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

No ☐

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated

filer ☐

Accelerated
filer
 ☒

Non-accelerated

filer ☐

Smaller reporting

company 

Emerging growth

company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

 No ☒

 


Title of Each Class

 

Number of Shares of Common Stock Outstanding

 as of August 1, 2022

Class A Common Stock ($0.10 par value)

 

2,141,589

Class B Common Stock ($0.10 par value)

 

10,343,260

 

 

 

 

 

BEL FUSE INC. AND SUBSIDIARIES

 

FORM 10-Q INDEX

 

 

 

 

Page

Part I

 

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited)

2

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)

4

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7 - 17

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18 - 23

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

 

Part II

 

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

 

 

Item 1A.

Risk Factors

24

 

 

 

 

  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
       
  Item 3. Defaults Upon Senior Securities 25
       
  Item 4. Mine Safety Disclosures 25
       
  Item 5. Other Information 25
       

 

Item 6.

Exhibits

26

 

 

 

 

 

Signatures

 

27

 

 

 

 

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION

 

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

 

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in Item 1A of our 2021 Annual Report on Form 10-K and the risk factors described in this or other Quarterly Reports on Form 10-Q filed thereafter, and from time to time in our other filings with the Securities and Exchange Commission (“SEC”). As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, operating results, and common stock prices.  Furthermore, this document and other documents filed by the Company with the SEC contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 (“Forward-Looking Statements”) with respect to the business of the Company.  Forward-Looking Statements are necessarily subject to risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from these statements. Forward-Looking Statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods.  All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives and regarding the anticipated impact of COVID-19 are Forward-Looking Statements.  These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 2021 Annual Report on Form 10-K and in the risk factors described in this or other Quarterly Reports on Form 10-Q filed thereafter, and from time to time in our other filings with the SEC, which could cause actual results to differ materially from these Forward-Looking Statements.  The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Any Forward-Looking Statement made by the Company is based only on information currently available to us and speaks only as of the date on which it is made.

 

 

1

 

 

 

PART I.  Financial Information

 

Item 1.  Financial Statements (Unaudited)

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $65,830  $61,756 

Accounts receivable, net of allowance for doubtful accounts of $1,380 and $1,536, respectively

  98,777   87,135 

Inventories

  160,593   139,383 

Unbilled receivables

  23,277   28,275 

Assets held for sale

  1,626   1,626 

Other current assets

  10,999   10,841 

Total current assets

  361,102   329,016 
         

Property, plant and equipment, net

  36,105   38,210 

Right-of-use assets

  24,234   21,252 

Intangible assets, net

  56,563   60,995 

Goodwill

  24,771   26,651 

Deferred income taxes

  7,422   4,461 

Other assets

  32,163   31,261 

Total assets

 $542,360  $511,846 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current Liabilities:

        

Accounts payable

 $70,020  $65,960 

Accrued expenses

  37,551   34,453 

Operating lease liabilities, current

  7,251   6,880 

Other current liabilities

  13,928   4,719 

Total current liabilities

  128,750   112,012 
         

Long-term Liabilities:

        

Long-term debt

  112,500   112,500 

Operating lease liabilities, long-term

  17,065   14,668 

Liability for uncertain tax positions

  24,576   28,434 

Minimum pension obligation and unfunded pension liability

  24,177   23,909 

Deferred income taxes

  1,286   1,487 

Other liabilities

  8,011   10,093 

Total liabilities

  316,365   303,103 
         

Commitments and contingencies (see Note 14)

          
         

Stockholders' Equity:

        

    Preferred stock, no par value, 1,000,000 shares authorized; none issued

  -   - 

Class A common stock, par value $.10 per share, 10,000,000 shares authorized; 2,141,589 and 2,144,912 shares outstanding at June 30, 2022 and December 31, 2021, respectively (net of 1,072,769 restricted treasury shares)

  214   214 

Class B common stock, par value $.10 per share, 30,000,000 shares authorized; 10,343,260 and 10,377,102 shares outstanding at June 30, 2022 and December 31, 2021, respectively (net of 3,218,307 restricted treasury shares)

  1,036   1,038 

    Treasury stock (unrestricted, consisting of 3,323 Class A shares and 17,342 Class B shares)

  (349)  - 

Additional paid-in capital

  39,509   38,419 

Retained earnings

  208,326   187,935 

Accumulated other comprehensive loss

  (22,741)  (18,863)

Total stockholders' equity

  225,995   208,743 

Total liabilities and stockholders' equity

 $542,360  $511,846 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net sales

 $170,572  $138,741  $307,290  $249,385 

Cost of sales

  125,120   104,537   227,879   190,241 

Gross profit

  45,452   34,204   79,411   59,144 
                 

Research and development costs

  4,661   5,464   9,505   10,384 

Selling, general and administrative expenses

  23,965   21,828   44,992   43,569 

Restructuring charges

  31   277   31   277 

Gain on sale of property

  -   -   -   (6,175)

Income from operations

  16,795   6,635   24,883   11,089 
                 

Interest expense

  (779)  (721)  (1,467)  (1,523)

Other (expense) income, net

  (1,724)  113   (2,496)  660 

Earnings before provision for income taxes

  14,292   6,027   20,920   10,226 
                 

Benefit from income taxes

  (2,746)  (1,853)  (1,182)  (854)

Net earnings available to common stockholders

 $17,038  $7,880  $22,102  $11,080 
                 
                 

Net earnings per common share:

                

Class A common share - basic and diluted

 $1.30  $0.61  $1.68  $0.85 

Class B common share - basic and diluted

 $1.37  $0.64  $1.78  $0.91 
                 

Weighted-average number of shares outstanding:

                

Class A common share - basic and diluted

  2,144   2,145   2,145   2,145 

Class B common share - basic and diluted

  10,362   10,237   10,368   10,220 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net earnings available to common stockholders

 $17,038  $7,880  $22,102  $11,080 
                 

Other comprehensive (loss) income:

                

Currency translation adjustment, net of taxes of ($31), ($333), ($43) and ($324), respectively

  (6,764)  2,540   (7,980)  11 

Unrealized gains (losses) on interest rate swap cash flow hedge, net of taxes of $0 in all periods presented

  1,008   -   3,992   - 
    Unrealized holding losses on marketable securities, net of taxes of $0 in all periods presented  (12)  -   (12)  (1)

Change in unfunded SERP liability, net of taxes of ($17), ($28), ($35) and ($56), respectively

  61   100   122   199 

Other comprehensive (loss) income

  (5,707)  2,640   (3,878)  209 
                 

Comprehensive income

 $11,331  $10,520  $18,224  $11,289 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except per share data)

 (unaudited)

 

          

Accumulated

                 
          

Other

  

Class A

  

Class B

      

Additional

 
      

Retained

  

Comprehensive

  

Common

  

Common

  

Treasury

  

Paid-In

 
  

Total

  

Earnings

  

(Loss) Income

  

Stock

  

Stock

  

Stock

  

Capital

 
                             

Balance at December 31, 2021

 $208,743  $187,935  $(18,863) $214  $1,038  $-  $38,419 

Net earnings

  5,064   5,064   -   -   -   -   - 

Dividends declared:

                            

Class A Common Stock, $0.06/share

  (129)  (129)  -   -   -   -   - 

Class B Common Stock, $0.07/share

  (727)  (727)  -   -   -   -   - 

Forfeiture of restricted common stock

  -   -   -   -   (1)  -   1 

Foreign currency translation adjustment, net of taxes of ($12)

  (1,216)  -   (1,216)  -   -   -   - 

Unrealized gains on interest rate swap cash flow hedge

  2,984   -   2,984   -   -   -   - 

Stock-based compensation expense

  576   -   -   -   -   -   576 

Change in unfunded SERP liability, net of taxes of ($17)

  61   -   61   -   -   -   - 

Balance at March 31, 2022

  215,356   192,143   (17,034)  214   1,037   -   38,996 
                             

Net earnings

  17,038   17,038   -   -   -   -   - 

Dividends declared:

                            

Class A Common Stock, $0.06/share

  (129)  (129)  -   -   -   -   - 

Class B Common Stock, $0.07/share

  (726)  (726)  -   -   -   -   - 

Forfeiture of restricted common stock

  -   -   -   -   (1)  -   1 

Repurchase of treasury stock

  (349)  -   -   -   -   (349)  - 

Foreign currency translation adjustment, net of taxes of ($31)

  (6,764)  -   (6,764)  -   -   -   - 

Unrealized gains on interest rate swap cash flow hedge

  1,008   -   1,008   -   -   -   - 

Unrealized holding losses on marketable securities arising during the period, net of taxes of $0

  (12)  -   (12)  -   -   -   - 

Stock-based compensation expense

  512   -   -   -   -   -   512 

Change in unfunded SERP liability, net of taxes of ($17)

  61   -   61   -   -   -   - 

Balance at June 30, 2022

 $225,995  $208,326  $(22,741) $214  $1,036  $(349) $39,509 

 

 

          

Accumulated

             
          

Other

  

Class A

  

Class B

  

Additional

 
      

Retained

  

Comprehensive

  

Common

  

Common

  

Paid-In

 
  Total  Earnings  (Loss) Income  Stock  Stock  Capital 
                         

Balance at December 31, 2020

 $185,799  $166,491  $(18,063) $214  $1,021  $36,136 

Net earnings

  3,199   3,199   -   -   -   - 

Dividends declared:

                        

Class A Common Stock, $0.06/share

  (128)  (128)  -   -   -   - 

Class B Common Stock, $0.07/share

  (716)  (716)  -   -   -   - 

Forfeiture of restricted common stock

  -   -   -   -   (1)  1 

Foreign currency translation adjustment, net of taxes of $9

  (2,529)  -   (2,529)  -   -   - 

Unrealized holding losses on marketable securities

  (1)  -   (1)  -   -   - 

Stock-based compensation expense

  600   -   -   -   -   600 

Change in unfunded SERP liability, net of taxes of ($28)

  99   -   99   -   -   - 

Balance at March 31, 2021

  186,323   168,846   (20,494)  214   1,020   36,737 
                         

Net earnings

  7,880   7,880   -   -   -   - 

Dividends declared:

                        

Class A Common Stock, $0.06/share

  (129)  (129)  -   -   -   - 

Class B Common Stock, $0.07/share

  (714)  (714)  -   -   -   - 

Issuance of restricted common stock

  -   -   -   -   8   (8)

Forfeiture of restricted common stock

  -   -   -   -   (1)  1 

Foreign currency translation adjustment, net of taxes of ($333)

  2,540   -   2,540   -   -   - 

Stock-based compensation expense

  598   -   -   -   -   598 

Change in unfunded SERP liability, net of taxes of ($28)

  100   -   100   -   -   - 

Balance at June 30, 2021

 $196,598  $175,883  $(17,854) $214  $1,027  $37,328 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

BEL FUSE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

  

Six Months Ended

 
  

June 30,

 
  

2022

  

2021

 
         

Cash flows from operating activities:

        

Net earnings

 $22,102  $11,080 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

        

Depreciation and amortization

  8,316   8,478 

Stock-based compensation

  1,087   1,198 

Amortization of deferred financing costs

  34   331 

Deferred income taxes

  (2,965)  576 

Net unrealized gains on foreign currency revaluation

  (373)  (131)

Gains on sale of property

  -   (6,175)

Other, net

  90   496 

Changes in operating assets and liabilities:

        

Accounts receivable, net

  (12,704)  (12,593)

Unbilled receivables

  4,998   (4,142)

Inventories

  (25,284)  (10,362)

Accounts payable

  6,323   11,066 

Accrued expenses

  4,421   4,148 

Other operating assets/liabilities, net

  5,101   (5,893)

Net cash provided by (used in) operating activities

  11,146   (1,923)
         

Cash flows from investing activities:

        

Purchases of property, plant and equipment

  (3,546)  (2,465)

Payments for acquisitions, net of cash acquired

  -   (16,811)

Proceeds from sale of property, plant and equipment

  87   6,756 

Net cash used in investing activities

  (3,459)  (12,520)
         

Cash flows from financing activities:

        

Dividends paid to common stockholders

  (1,646)  (1,630)

Purchase of treasury stock

  (349)  - 

Repayments of long-term debt

  -   (2,974)

Net cash used in financing activities

  (1,995)  (4,604)
         

Effect of exchange rate changes on cash and cash equivalents

  (1,618)  533 
         

Net increase (decrease) in cash and cash equivalents

  4,074   (18,514)

Cash and cash equivalents - beginning of period

  61,756   84,939 

Cash and cash equivalents - end of period

 $65,830  $66,425 
         
         

Supplementary information:

        

Cash paid during the period for income taxes, net of refunds received

 $4,614  $2,036 

Cash paid during the period for interest payments

 $1,105  $1,174 
ROU assets obtained in exchange for lease obligations $5,734  $6,032 
         

Details of acquisitions:

        

Fair value of identifiable net assets acquired

 $-  $18,215 

Goodwill

  -   2,499 

Fair value of net assets acquired

 $-  $20,714 
         

Fair value of consideration transferred

 $-  $20,714 

Less: Cash acquired in acquisitions

  -   (3,903)

Cash paid for acquisitions, net of cash acquired

 $-  $16,811 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

BEL FUSE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

The condensed consolidated balance sheets and statements of operations, comprehensive income, stockholders’ equity and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented have been made.  The results for the three and six months ended June 30, 2022 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 fiscal year ended December 31, 2021.

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from these condensed consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements, of the U.S. Securities and Exchange Commission (“SEC”).  The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

 

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.  There were no significant changes to these accounting policies during the six months ended June 30, 2022, 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 August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14").  This guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures.  The Company adopted amendments in ASU 2018-14 on a retrospective basis effective January 1, 2021.  The adoption of this guidance modified the Company's annual disclosures for its defined benefit plan, but did not have any impact on the Company's consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. This guidance was adopted by the Company effective January 1, 2021 and did not have a material impact on the Company’s consolidated financial statements.

 

7

 

Accounting Standards Issued But Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended.  The new guidance will broaden the information that an entity must consider in developing its expected credit loss estimates related to its financial instruments and adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses.  The amendment is currently effective for the Company for annual reporting periods beginning after December 15, 2022, with early adoption permitted.  Management is currently assessing the impact of ASU 2016-13, but it is not expected to have a material impact on the Company’s consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides temporary optional guidance on contract modifications and hedging accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, which refines the scope of Topic 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022.  Management is currently evaluating the impact of this accounting standard update on the Company's consolidated financial statements and related disclosures.

 

 

2.

ACQUISITIONS

 

rms Connectors

 

On January 8, 2021, the Company acquired rms Connectors, Inc. (“rms Connectors” or "rms"), from rms Company Inc., a division of Cretex Companies, Inc., for $9.0 million in cash, including a working capital adjustment.  rms Connectors is a highly regarded connector manufacturer with over 30 years of experience producing harsh environment circular connectors used in a variety of military and aerospace applications. This acquisition complemented Bel's existing military and aerospace product portfolio and enabled us to expand key customer relationships within these end markets and leverage the combined manufacturing resources to improve our operational efficiency.  Originally based in Coon Rapids, Minnesota, the rms Connectors business was relocated into Bel's existing facilities during the second quarter of 2021, and is part of Bel's Connectivity Solutions group.  The transaction was funded with cash on hand.  

 

EOS Power

 

On March 31, 2021, the Company completed the acquisition of EOS Power ("EOS") through a stock purchase agreement for $7.8 million, net of cash acquired, including a working capital adjustment.  EOS, located in Mumbai, India, had sales of $12.0 million for the year ended December 31, 2020.  EOS enhances Bel's position related to certain industrial and medical markets historically served by EOS, with a strong line of high-power density and low-profile products with high convection ratings. In addition to new products and customers acquired, this acquisition diversified Bel's manufacturing footprint in Asia.  The EOS business is part of Bel’s Power Solutions and Protection group.  The transaction was funded with cash on hand.  

 

The acquisitions of rms Connectors and EOS may hereafter be referred to collectively as either the "2021 Acquisitions" or the "2021 Acquired Companies".  As of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their fair values and the Company's condensed consolidated results of operations for the three and six months ended June 30, 2021 include the operating results of the 2021 Acquired Companies from their respective acquisition dates through June 30, 2021. During the three and six months ended June 30, 2021, the Company incurred $0.3 million and $0.5 million, respectively, of acquisition-related costs related to the 2021 Acquisitions.  No acquisition-related costs were incurred during the three or six months ended June 30, 2022.  These costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

 

The results of operations of the 2021 Acquired Companies have been included in the Company’s condensed consolidated financial statements for the periods subsequent to their respective acquisition dates.  During the three and six months ended June 30, 2021, the 2021 Acquired Companies contributed revenues of $6.0 million and $8.1 million, respectively, and estimated net earnings of $1.0 million and $1.4 million, respectively, to the Company since their respective acquisition dates.  As EOS was acquired on March 31, 2021, this acquisition did not have any contribution to revenue or net earnings during the first quarter of 2021.  The unaudited pro forma information below presents the combined operating results of the Company and the 2021 Acquired Companies assuming that the acquisition of the 2021 Acquired Companies had occurred as of January 1, 2021.  The unaudited pro forma results are presented for illustrative purposes only.  They do not reflect the realization of any potential cost savings, or any related integration costs. This unaudited pro forma information does not purport to be indicative of the results that would have actually been obtained if the 2021 Acquisitions had occurred as of January 1, 2021, nor is the pro forma data intended to be a projection of results that may be achieved in the future.

 

The following unaudited pro forma consolidated results of operations assume that the acquisition of the 2021 Acquired Companies was completed as of January 1, 2021:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30, 2021

  

June 30, 2021

 

Revenue, net

 $138,741  $252,406 

Net earnings

  7,880   11,309 

Earnings per Class A common share - basic and diluted

  0.61   0.87 

Earnings per Class B common share - basic and diluted

  0.64   0.92 

 

8

 
 

3.

REVENUE

 

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

 

  

Three Months Ended June 30, 2022

  

Six Months Ended June 30, 2022

 
  

Connectivity Solutions

  

Power Solutions and Protection

  

Magnetic Solutions

  

Consolidated

  

Connectivity Solutions

  

Power Solutions and Protection

  

Magnetic Solutions

  

Consolidated

 
                                 

By Geographic Region:

                                

North America

 $34,781  $52,407  $14,248  $101,436  $67,313  $94,755  $25,126  $187,194 

Europe

  8,354   11,101   3,121   22,576   17,568   20,486   5,592   43,646 

Asia

  2,961   7,518   36,081   46,560   4,928   14,574   56,948   76,450 
  $46,096  $71,026  $53,450  $170,572  $89,809  $129,815  $87,666  $307,290 
                                 

By Sales Channel:

                                

Direct to customer

 $28,544  $45,604  $39,515  $113,663  $54,597  $81,447  $65,254  $201,298 

Through distribution

  17,552   25,422   13,935   56,909   35,212   48,368   22,412   105,992 
  $46,096  $71,026  $53,450  $170,572  $89,809  $129,815  $87,666  $307,290 

 

  

Three Months Ended June 30, 2021

  

Six Months Ended June 30, 2021

 
  

Connectivity Solutions

  

Power Solutions and Protection

  

Magnetic Solutions

  

Consolidated

  

Connectivity Solutions

  

Power Solutions and Protection

  

Magnetic Solutions

  

Consolidated

 
                                 

By Geographic Region:

                                

North America

 $33,182  $37,867  $9,594  $80,643  $62,724  $67,644  $16,671  $147,039 

Europe

  7,557   9,668   2,242   19,467   14,304   19,627   3,491   37,422 

Asia

  2,307   7,855   28,469   38,631   4,074   11,760   49,090   64,924 
  $43,046  $55,390  $40,305  $138,741  $81,102  $99,031  $69,252  $249,385 
                                 

By Sales Channel:

                                

Direct to customer

 $25,785  $34,116  $32,746  $92,647  $49,422  $60,605  $57,082  $167,109 

Through distribution

  17,261   21,274   7,559   46,094   31,680   38,426   12,170   82,276 
  $43,046  $55,390  $40,305  $138,741  $81,102  $99,031  $69,252  $249,385 


The balances of the Company’s contract assets and contract liabilities at  June 30, 2022 and December 31, 2021 are as follows:

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Contract assets - current (unbilled receivables)

 $23,277  $28,275 

Contract liabilities - current (deferred revenue)

 $7,844  $2,224 

 

The change in balance of our unbilled receivables from December 31, 2021 to June 30, 2022 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 increase in our deferred revenue balance from December 31, 2021 to June 30, 2022 primarily relates to customer prepayments on raw material surcharges and expedite fees, which will be recorded as revenue in the period in which the related finished goods are shipped to the customer.

 

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of June 30, 2022 related to contracts that exceed one year in duration amounted to $96.0 million, with expected contract expiration dates that range from 2023 - 2025. It is expected that 78% of this aggregate amount will be recognized in 2023, 20% will be recognized in 2024 and the remainder will be recognized in 2025.

 

9

 
 

4.

EARNINGS PER SHARE

 

The following table sets forth the calculation of basic and diluted net earnings per common share under the two-class method for the three and six months ended June 30, 2022 and 2021:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Numerator:

                

Net earnings

 $17,038  $7,880  $22,102  $11,080 

Less dividends declared:

                

Class A

  129   129   258   257 

Class B

  726   714   1,453   1,430 

Undistributed earnings

 $16,183  $7,037  $20,391  $9,393 
                 

Undistributed earnings allocation - basic and diluted:

                

Class A undistributed earnings

 $2,664  $1,170  $3,356  $1,565 

Class B undistributed earnings

  13,519   5,867   17,035   7,828 

Total undistributed earnings

 $16,183  $7,037  $20,391  $9,393 
                 

Net earnings allocation - basic and diluted:

                

Class A net earnings

 $2,793  $1,299  $3,614  $1,822 

Class B net earnings

  14,245   6,581   18,488   9,258 

Net earnings

 $17,038  $7,880  $22,102  $11,080 
                 

Denominator:

                

Weighted-average shares outstanding:

                

Class A - basic and diluted

  2,144   2,145   2,145   2,145 

Class B - basic and diluted

  10,362   10,237   10,368   10,220 
                 

Net earnings per share:

                

Class A - basic and diluted

 $1.30  $0.61  $1.68  $0.85 

Class B - basic and diluted

 $1.37  $0.64  $1.78  $0.91 

 

 

5.

FAIR VALUE MEASUREMENTS

 

Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date.  Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.  There are three levels of inputs that may be used to measure fair value:

 

Level 1 – Observable inputs such as quoted market prices in active markets;

 

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

 

Level 3 – Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

10

 

As of June 30, 2022 and December 31, 2021, our equity securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations.  These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs and amounted to $0.1 million at  June 30, 2022 and $0.3 million at December 31, 2021

 

Throughout 2022 and 2021, the Company entered into a series of foreign currency forward contracts, the fair value of which was ($0.3million at  June 30, 2022 and less than $0.1 million at  December 31, 2021.  The estimated fair value of foreign currency forward contracts is based on quotes received from the applicable counterparty, and represents the estimated amount we would receive or pay to settle the contracts, taking into consideration current exchange rates which can be validated through readily observable data from external sources (Level 2).

 

During the fourth quarter of 2021, the Company entered into two interest rate swap agreements as further described in Note 9, "Derivative Instruments and Hedging Activities".  The fair value of the interest rate swap agreements was $3.9 million at  June 30, 2022 and $0.1 million at  December 31, 2021, which was based on market data, and represents the estimated amount we would receive or pay to settle the agreements, taking into consideration current and projected future interest rates as well as the creditworthiness of the parties, all of which can be validated through readily observable data from external sources.

 

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, 2022 or  June 30, 2021.  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, 2022 or  June 30, 2021.

 

There were no financial assets accounted for at fair value on a nonrecurring basis as of  June 30, 2022 or December 31, 2021.

 

The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, 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 each  June 30, 2022 and December 31, 2021, the estimated fair value of total debt was $112.5 million, compared to a carrying amount of $112.5 million at each date.  The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2022.

 

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.  Based on the Company's assessment, it was concluded that no triggering events occurred during the six months ended June 30, 2022 or June 30, 2021.  

 

 

6.

INVENTORIES

 

The components of inventories are as follows:

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Raw materials

 $69,038  $67,127 

Work in progress

  46,462   31,103 

Finished goods

  45,093   41,153 

Inventories

 $160,593  $139,383 

 

 

7.

 PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consist of the following:

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Land

 $1,093  $1,105 

Buildings and improvements

  21,301   20,915 

Machinery and equipment

  122,537   120,961 

Construction in progress

  2,195   5,081 
   147,126   148,062 

Accumulated depreciation

  (111,021)  (109,852)

Property, plant and equipment, net

 $36,105  $38,210 

 

Depreciation expense was $2.3 million and $2.5 million, respectively, for the three months ended  June 30, 2022 and 2021 and $4.7 million and $5.0 million, respectively, for the six months ended June 30, 2022 and 2021.  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.

 

At each of  June 30, 2022 and December 31, 2021, a total of $1.6 million of property was classified as assets held for sale on the accompanying condensed consolidated balance sheet related to our corporate headquarters in Jersey City, New Jersey. See Note 16, "Subsequent Event", for additional information.  

 

11

 
 

8.

ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Sales commissions

 $2,369  $2,049 

Subcontracting labor

  3,301   1,622 

Salaries, bonuses and related benefits

  21,725   21,342 

Warranty accrual

  1,177   1,056