Contact Center Solutions Industry News

TMCNet:  BEL FUSE INC /NJ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

[November 09, 2013]

BEL FUSE INC /NJ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The Company's quarterly and annual operating results are impacted by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the "SEC") contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements") with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012, 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 such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company's SEC filings.

Overview Our Company The Company designs, manufactures and markets a broad array of magnetics, modules, circuit protection devices and interconnect products. Bel's products are primarily used in the networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries. Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets.

Bel's business is operated through three geographic segments: North America, Asia and Europe. During the nine months ended September 30, 2013, 55% of the Company's revenues were derived from Asia, 34% from North America and 11% from its Europe operating segment. Sales of the Company's magnetic products represented approximately 48% of its total net sales during the nine months ended September 30, 2013. The remaining revenues related to sales of the Company's interconnect products (32%), module products (17%) and circuit protection products (3%).

The Company's expenses are driven principally by the cost of labor where the factories that Bel uses are located, the cost of the materials that it uses and its ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line, any significant shift in product mix can have an associated impact on the Company's costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. The Company's products are manufactured at various facilities in: the People's Republic of China ("PRC"); Glen Rock, Pennsylvania; Inwood, New York; McAllen, Texas; Miami, Florida; Haina, Dominican Republic; Reynosa and Cananea, Mexico; Louny, Czech Republic; and Worksop and Great Dunmow, England.

In the PRC, where the Company generally enters into processing arrangements with several independent third-party contractors and also has its own manufacturing facilities, the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday as well as economic conditions in the PRC. In addition, the Company has little visibility into the ordering habits of its customers and can be subjected to large and unpredictable variations in demand for its products. Accordingly, the Company must continually recruit and train new workers to replace those lost to attrition each year and to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet demand, can add volatility to the costs incurred by the Company for labor in the PRC.

20 --------------------------------------------------------------------------------Trends Affecting our Business The Company believes the key factors affecting Bel's results for the nine months ended September 30, 2013 and/or future results include the following: · Recent Acquisitions - The Company has completed five acquisitions since the first quarter of 2012. During the three and nine months ended September 30, 2013, the acquired companies have contributed a combined $28.2 million and $56.3 million of sales, respectively, and a combined $4.9 million and $10.1 million of income from operations, respectively.

· Restructuring Program - The Company had substantially completed its plan to effect operational efficiencies by the end of 2012. The Company continued its efforts into 2013 to bring the new manufacturing facility in McAllen, Texas up to full operating capacity. The Company faced certain challenges with the transition, resulting in $3.2 million of unanticipated costs during the first nine months of 2013, of which only $0.3 million was incurred during the third quarter. These costs included additional overtime, scrap, a higher volume of purchased materials, expedited freight charges and other costs. During the second quarter of 2013, the Company also initiated additional restructuring actions which resulted in $1.3 million of severance and other charges in the second quarter. The Company does not anticipate any significant costs related to restructuring programs for the foreseeable future.

· Revenues - Excluding the revenue contributions from recent acquisitions as described above, the Company's revenues for the nine months ended September 30, 2013 decreased by $12.0 million as compared to the same period of 2012. The decrease in sales was primarily due to reduced orders of module products from one customer in North America. The order volume related to this customer has now stabilized, but we expect to report large year-over-year decreases (2013 vs. 2012) in our module products group through the end of 2013 as a result of the lower volume in 2013. Revenue reductions resulting from manufacturing inefficiencies associated with the restructuring of Cinch operations described above were partially offset by increases in the sales volume of Bel's DC-DC products. During the third quarter of 2013, Bel implemented price increases for certain products as our current pricing structure did not reflect the rising labor costs in the PRC as discussed below.

· Product Mix - Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the Company's gross margin percentage. During the nine months ended September 30, 2013, the Company experienced a favorable shift in the mix of products sold as compared to the same period of 2012, which partially mitigated the effects of reduced sales and operational inefficiencies at our Texas facility.

· Pricing and Availability of Materials - Component pricing and availability have been stable for most of the Company's product lines, although lead times on electrical components are still extended. With regard to commodities, the Company has experienced some price decreases related to precious metals during the latter part of 2012 and that trend has continued into 2013. Costs for certain commodities, including gold and copper, were lower during the nine months ended September 30, 2013 as compared to the same period of 2012. Any fluctuations in component prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on Bel's profit margins.

· Labor Costs - Labor costs as a percentage of sales during the nine months ended September 30, 2013 were slightly lower as compared to the first half of 2012. Following the 2012 Lunar New Year holiday, additional recruiting, training and overtime charges were incurred in the PRC; this trend did not recur in 2013. However, rising labor costs in the PRC and the strengthening of the Chinese Renminbi continue to impact our overall profit margins. With the addition of TRP, approximately half of Bel's total sales are now generated from labor-intensive magnetic products, which are primarily manufactured in the PRC. In February 2013, the PRC government increased the minimum wage by 19% in regions where the factories that Bel uses are located. This increase was effective May 1, 2013.

· Impact of Pending Lawsuits - As further described in Note 13 to the accompanying condensed consolidated financial statements, there has been additional legal activity in 2013 related to the SynQor and Molex lawsuits. Ongoing legal costs related to these lawsuits will impact the Company's profit margins in future quarters.

· Acquisition-Related Costs - The acquisitions of TRP and Array in 2013 and the valuations of the 2012 Acquired Companies gave rise to acquisition-related costs of $0.7 million during the nine months ended September 30, 2013. The valuations of the 2013 Acquired Companies will, and Bel's continuing strategy to actively consider potential acquisitions could, result in additional legal and other professional costs in future periods.

· Effective Tax Rate - The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments.

The change in the effective tax rate during the nine months ended September 30, 2013 is primarily attributable to a significant increase in the pretax income earned in the Asia segment, with minimal tax effect. Additionally, the Company had a significantly lower net reversal of liabilities for uncertain tax positions during the nine months ended September 30, 2013 compared to the same period in 2012.

21-------------------------------------------------------------------------------- With the completion of the three acquisitions in 2012, and the acquisitions of TRP and Array during 2013, management is optimistic that the resulting opportunities will fuel growth in our core product groups in future periods. The difficulties experienced during the first half of 2013 related to the transition of Cinch's manufacturing operations were largely resolved prior to the start of the third quarter and the benefits of the restructuring efforts completed over the past fifteen months had begun to materialize by the end of the third quarter of 2013. Statements regarding future results constitute Forward-Looking Statements and could be materially adversely affected by the risk factors identified by the Company in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Summary by Reportable Operating Segment Net sales to external customers by reportable operating segment for the three and nine months ended September 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 North America $ 31,613 31 % $ 31,370 41 % $ 87,058 34 % $ 96,866 45 % Asia 60,751 60 % 36,074 48 % 142,323 55 % 94,963 44 % Europe 8,800 9 % 8,615 11 % 28,792 11 % 23,013 11 % $ 101,164 100 % $ 76,059 100 % $ 258,173 100 % $ 214,842 100 % Net sales and income from operations by reportable operating segment for the three and nine months ended September 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Total segment sales: North America $ 34,273 $ 34,370 $ 95,796 $ 106,349 Asia 69,602 47,238 166,362 125,881 Europe 9,313 8,983 30,029 24,200 Total segment sales 113,188 90,591 292,187 256,430 Reconciling item: Intersegment sales (12,024 ) (14,532 ) (34,014 ) (41,588 ) Net sales $ 101,164 $ 76,059 $ 258,173 $ 214,842 Income (loss) from operations: North America $ (96 ) $ (189 ) $ (3,591 ) $ 4,074 Asia 8,400 1,048 12,377 8 Europe 24 21 644 560 $ 8,328 $ 880 $ 9,430 $ 4,642 During the three and nine months ended September 30, 2013, the recent acquisition of TRP contributed $25.6 million and $47.8 million, respectively, in sales and $5.0 million and $9.5 million, respectively, of income from operations to the Company's Asia operating segment. The Company is still in the process of revising its corporate overhead allocations, and the results disclosed related to TRP do not yet include such allocations. Sales in the Company's Europe operating segment were favorably impacted by the acquisitions of Fibreco and Bel Power Europe (formerly Powerbox) which occurred in the second half of 2012. During the three-month periods ended September 30, 2013 and 2012, Fibreco and Bel Power Europe contributed combined revenues of $1.8 million and $0.9 million, respectively, and combined operating income of $0.1 million and $0.1 million, respectively, to the Company's Europe operating segment. During the nine-month periods ended September 30, 2013 and 2012, Fibreco and Bel Power Europe contributed combined revenues of $7.7 million and $0.9 million, respectively, and combined operating income of $1.3 million and $0.1 million, respectively, to the Company's Europe operating segment. The decrease in sales in North America primarily related to reduced demand in 2013 for Bel's module products which are manufactured in China. Thus, the decrease in North American sales caused a corresponding decrease in intersegment sales of module products from Asia to North America. North America sales and income from operations were also impacted by the transition of operations from Cinch's manufacturing facility in Vinita, Oklahoma to its new manufacturing facility in McAllen, Texas. Manufacturing inefficiencies resulted in reduced production levels and lower overall sales of Cinch products. In addition, various other costs associated with the Cinch reorganization further reduced our income from operations in North America. The majority of the unanticipated costs associated with the Cinch transition were incurred during the first half of 2013, thereby impacting the nine-month period ended September 30, 2013. The decreases noted in North America sales were partially offset by $0.8 million of new sales volume related to the acquisition of Array in late August 2013.

22 --------------------------------------------------------------------------------Overview of Financial Results Sales for the nine months ended September 30, 2013 increased by 20.2% to $258.2 million from $214.8 million for the same period of 2012. Sales were favorably impacted by the contributions made by the recent acquisitions. Costs incurred related to the transition of Cinch operations to the new manufacturing facility in Texas heavily impacted our profit margin during the nine months ended September 30, 2013, but these costs were minimized during the third quarter.

Pricing to customers was adjusted beginning in the third quarter to recover some of the higher labor costs in China and other cost increases resulting from the continued strengthening of the Chinese Renminbi. Selling, general and administrative expense was $6.3 million higher in the nine months ended September 30, 2013 as compared to the same period of 2012, primarily due to the inclusion of expenses from the recent acquisitions as well as higher incentive compensation in 2013. The Company also incurred $1.4 million of restructuring charges during the nine months ended September 30, 2013 related to additional workforce reductions. These factors led to net earnings of $9.7 million for the nine months ended September 30, 2013 as compared to net earnings of $4.8 million for the same period of 2012. Additional details related to these factors affecting the nine-month results are described in the Results of Operations section below.

Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, goodwill, intangible assets, investments, SERP expense, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Recent Accounting Pronouncements The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1 to the Company's Financial Statements, "Basis of Presentation and Accounting Policies," included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations The following table sets forth, for the periods presented, the percentage relationship to net sales of certain items included in the Company's condensed consolidated statements of operations.

Percentage of Net Sales Percentage of Net Sales Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 79.8 83.5 82.4 83.6 Selling, general and administrative ("SG&A") expenses 12.0 13.1 13.4 13.2 Restructuring charges - 2.3 0.5 1.0 Impairment of investment - (0.4) - (0.4) Interest income and other, net 0.1 0.1 0.1 0.1 Earnings before provision (benefit) for income taxes 8.3 0.8 3.7 1.9 Provision (benefit) for income taxes 0.6 (2.4) - (0.3) Net earnings 7.7 3.3 3.8 2.2 23-------------------------------------------------------------------------------- The following table sets forth the year over year percentage increase of certain items included in the Company's condensed consolidated statements of operations.

Increase from Increase from Prior Period Prior Period Three Months Ended Nine Months Ended September 30, 2013 September 30, 2013 Compared with Compared with Three Months Ended Nine Months Ended September 30, 2012 September 30, 2012 Net sales 33.0 % 20.2 % Cost of sales 27.2 18.4 SG&A expenses 21.9 22.2 Net earnings 214.6 101.7 Sales Net sales increased 33.0% from $76.1 million during the three months ended September 30, 2012 to $101.2 million during the three months ended September 30, 2013. Net sales increased 20.2% from $214.8 million during the nine months ended September 30, 2012 to $258.2 million during the nine months ended September 30, 2013. The Company's net sales by major product line for the three and nine months ended September 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Magnetic products $ 52,943 52 % $ 29,799 39 % $ 122,958 48 % $ 73,557 34 % Interconnect products 29,976 30 % 28,424 38 % 83,181 32 % 83,033 39 % Module products 14,894 15 % 15,367 20 % 43,058 17 % 50,690 24 % Circuit protection products 3,351 3 % 2,469 3 % 8,976 3 % 7,562 3 % $ 101,164 100 % $ 76,059 100 % $ 258,173 100 % $ 214,842 100 % The Company's magnetic product line, which includes Bel's MagJack and the newly-acquired TRP integrated connector module (ICM) products, had a strong first nine months of 2013. TRP accounted for $25.6 million and $47.8 million, respectively, of the increase from 2012 in the three- and nine-month periods noted above. The acquisition of Array in late August 2013 contributed $0.8 million of sales to the Company's interconnect product line during the third quarter of 2013. Fibreco sales accounted for $0.6 million and $4.8 million of the increase in interconnect sales during the three and nine month ended September 30, 2013. Earlier in 2013, these increases were offset by lower sales of Cinch's interconnect products due to the transition to Cinch's new manufacturing facility in Texas. Sales of Cinch's products began to rebound in the third quarter of 2013. Sales in the Company's module product line were lower in 2013 due to reduced order volume of one customer, partially offset by higher sales of DC-DC and AC-DC module products. Automation of certain fuse manufacturing processes increased capacity and output of fuse products and improved delivery lead times, contributing to the increase in circuit protection sales.

24--------------------------------------------------------------------------------Cost of Sales The Company's cost of sales as a percentage of consolidated net sales for the three and nine months ended September 30, 2013 and 2012 was comprised of the following: Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Material costs 43.0% 46.6% 44.8% 46.0% Labor costs 15.1% 15.3% 14.6% 14.9% Research and development expenses 3.5% 3.8% 4.0% 4.3% Other expenses 18.2% 17.8% 19.0% 18.4% Total cost of sales 79.8% 83.5% 82.4% 83.6% Material costs as a percentage of sales were lower in the third quarter and nine months ended September 30, 2013 as compared to the same periods of 2012, primarily due to the reduction in sales of module products, which have a higher material content than Bel's other product lines. An increase in sales of Cinch, Fibreco and Array products in 2013 also contributed to the decrease, as these products have lower material content than Bel's other product lines. These factors were partially offset by TRP product sales, which have a higher material cost structure than Bel's ICM products. The Company also experienced operational inefficiencies and other start-up costs at the new manufacturing facility in Texas, which resulted in high material costs at the Texas facility related to third-party purchases of machined parts at premium prices, and high volumes of scrap, rejected materials and expedited freight costs. The majority of the Cinch transition-related costs and inefficiencies were incurred during the first six months of 2013.

Labor costs as a percentage of sales were slightly lower during the nine months ended September 30, 2013 as compared to the same period of 2012, as the Company incurred excessive recruiting, training and overtime costs following the 2012 Lunar New Year holiday in Asia, which did not recur in 2013. The periods for 2013 presented above also include new sales volume from TRP products, which have a lower labor cost structure than Bel's ICM products. Also during the third quarter of 2013, sales of Bel's ICM products, which have a relatively high labor content, were $2.6 million lower than ICM sales during the third quarter of 2012, thereby contributing to the decrease in labor costs as a percentage of sales. These factors were partially offset by mandatory wage increases in the PRC, which went into effect in May 2013.

The increase in other expenses as a percentage of sales for the nine months ended September 30, 2013 as compared to the same period of 2012 primarily related to the inclusion of support labor and fringe costs of the recent acquisitions, and duplication of some indirect labor costs, and travel costs during the transition of Cinch operations from Vinita, Oklahoma to McAllen, Texas, primarily during the first quarter of 2013. These increases in other expenses in 2013 were partially offset by a reduction in support labor and fringe costs at other Bel locations due to restructuring actions that took place in 2012.

Included in cost of sales are research and development (R&D) expenses of $3.5 million and $2.9 million for the three-month periods ended September 30, 2013 and 2012, respectively and $10.3 million and $9.2 million for the nine-month periods ended September 30, 2013 and 2012, respectively. The majority of the increase relates to the inclusion of R&D expenses associated with the recent acquisitions, which have been included in Bel's results since their respective acquisition dates.

Selling, General and Administrative Expenses ("SG&A") The dollar amount of SG&A expenses was $2.2 million higher during the three months ended September 30, 2013 as compared to the same period of 2012. Of this increase, $0.8 million related to the inclusion of SG&A expenses of the 2012 and 2013 acquisitions. Other factors contributing to the increase included higher incentive compensation of $2.3 million, and unfavorable foreign exchange fluctuations of $0.6 million, partially offset by insurance proceeds related to Hurricane Sandy of $0.7 million and a $0.5 million reduction in acquisition-related costs.

For the nine months ended September 30, 2013, the dollar amount of SG&A expense was $6.3 million higher as compared to the same period of 2012. Of this increase, $2.9 million related to the inclusion of SG&A expenses of the 2012 and 2013 acquisitions. Other contributing factors included a $2.8 million increase in incentive compensation, unfavorable fluctuations in foreign currency exchange rates of $0.7 million, and an increase in freight charges primarily due to the Cinch transition of $0.7, partially offset by $0.7 million of insurance proceeds related to Hurricane Sandy.

Restructuring Charges The Company recorded restructuring charges of $1.8 million and $2.2 million during the three and nine months ended September 30, 2012, respectively, related to the 2012 restructuring program. During 2013, the Company implemented additional reductions in workforce, resulting in restructuring charges of $1.4 million during the nine months ended September 30, 2013, respectively.

25 --------------------------------------------------------------------------------Provision (Benefit) for Income Taxes The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments.

The provision (benefit) for income taxes for the three months ended September 30, 2013 was $0.6 million compared to a benefit of ($1.8) million for the three months ended September 30, 2012. The Company's earnings before income taxes for the three months ended September 30, 2013 are approximately $7.8 million higher than the same period in 2012. The Company's effective tax rate, the income tax provision (benefit) as a percentage of earnings before provision for income taxes, was 7.2% and (285.6%) for the three-month periods ended September 30, 2013 and 2012, respectively. The change in the effective tax rate during the three months ended September 30, 2013 compared to the third quarter of 2012 is primarily attributed to a significant increase in the pretax income earned in the Asia segment, with minimal tax effect. Additionally, the Company had a significantly lower net reversal of liabilities for uncertain tax positions during the quarter ended September 30, 2013 compared to the same period in 2012. The favorable effective tax rate in 2012 was primarily attributable to the net reversal of liabilities for uncertain tax positions during the quarter ended September 30, 2012, combined with strong earnings in Asia, where the tax rates are lowest of all of Bel's tax regions, and a loss in the North America segment due to restructuring expenses.

The benefit for income taxes for the nine months ended September 30, 2013 was $0.1 million compared to a benefit of $0.7 million for the nine months ended September 30, 2012. The Company's earnings before income taxes for the nine months ended September 30, 2013 are approximately $5.6 million higher than the same period in 2012. The Company's effective tax rate was (0.5%) and (17.7%) for the nine-month periods ended September 30, 2013 and 2012, respectively. The change in the effective tax rate during the nine months ended September 30, 2013 compared to the same period of 2012 is primarily attributed to the same reasons as described above.

Liquidity and Capital Resources Historically, the Company has financed its capital expenditures primarily through cash flows from operating activities and has financed acquisitions through cash flows from operating activities, borrowings, and the issuance of Bel Fuse Inc. common stock. Management believes that the cash flow from operations after payments of dividends combined with its existing capital base and the Company's available line of credit will be sufficient to fund its operations for at least the next twelve months. Such statement constitutes a Forward-Looking Statement. Factors which could cause the Company to require additional capital include, among other things, a softening in the demand for the Company's existing products, an inability to respond to customer demand for new products, potential acquisitions (as discussed below) requiring substantial capital, future expansion of the Company's operations and net losses that would result in net cash being used in operating, investing and/or financing activities which result in net decreases in cash and cash equivalents. Net losses may impact availability under our credit facility and preclude the Company from raising debt or equity financing in the capital markets on affordable terms or otherwise.

The Company has an unsecured credit agreement in the amount of $30 million, which was due to expire on June 30, 2014. In August 2013, the Company borrowed $12.0 million under the line of credit in connection with its acquisition of Array. At September 30, 2013, the balance available under the credit agreement was $18.0 million. There were no previous borrowings under the credit agreement and, as a result, there was no balance outstanding as of December 31, 2012. The credit agreement bears interest at LIBOR plus 0.75% to 1.25% based on certain financial statement ratios maintained by the Company. As a result of the Company's recent acquisitions, which resulted in a lower cash balance and increased intangible assets, the Company was not in compliance with its tangible net worth debt covenant as of September 30, 2013. In November 2013, the credit agreement was amended to reflect modifications to the minimum tangible net worth and maximum leverage covenant calculations, and to extend the term of the agreement through October 14, 2016.

On March 29, 2013, the Company completed its acquisition of TRP for $22.4 million in cash and additional consideration including the assumption of $0.1 million in liabilities and the grant of a license to TE related to three of the Company's patents. During the second quarter of 2013, the Company paid an additional $6.8 million in consideration to TE related to a working capital adjustment and a final net cash payment of $0.1 million was made during the third quarter of 2013. Transpower is the sole shareholder of Dongguan Transpower Electronic Products Co., Ltd., located in the PRC. The Company's purchase of the Transpower magnetics business consisted of the ICM family of products, including RJ45, 10/100 Gigabit, 10G, PoE/PoE+, MRJ21 and RJ.5, a line of modules for smart-grid applications and discrete magnetics.

On August 20, 2013, the Company completed its acquisition of Array, a manufacturer of aerospace and mil-spec connector products based in Miami, Florida, for $10.0 million in cash. As discussed above, this acquisition was funded through borrowings under the Company's existing credit agreement.

26 --------------------------------------------------------------------------------Cash Flows During the nine months ended September 30, 2013, the Company's cash and cash equivalents decreased by $24.3 million. This resulted primarily from $30.9 million of net cash payments for the acquisitions of TRP and Array, $5.1 million paid for the purchase of property, plant and equipment, $2.3 million for payments of dividends, $3.4 million for the repurchase of 178,643 shares of the Company's Class B common stock, and $1.3 million for the purchase of an intangible asset associated with the Radiall agreement, partially offset by an increase in short-term borrowings of $12.3 million and $6.1 million provided by operating activities. As compared to the nine months ended September 30, 2012, cash provided by operating activities decreased by $1.7 million. During the nine months ended September 30, 2013, accounts receivable increased by $13.0 million primarily due to the addition of third-party receivables at TRP, which replaced intercompany receivables collected from TRP's pre-acquisition affiliates. TRP's third-party receivables are higher than its formerly-intercompany receivables due to higher gross margin and longer payment terms on third party sales. The longer payment terms in TRP customer contracts acquired from the seller led to an increase of 11 days in overall days sales outstanding (DSO), Management intends to bring TRP payment terms in line with those of Bel's existing customer base during contract renewals. Inventories increased by $7.2 million during the nine months ended September 30, 2013 primarily due to the implementation of a new stocking program, whereby certain of Bel's customers now have quicker access to commonly-ordered parts. The level of raw materials has also increased since December 31, 2012, as the Company has been building up stocks of long-lead-time materials in order to lower lead times to customers.

Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 36.3% and 41.4% of the Company's total assets at September 30, 2013 and December 31, 2012, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 2.6 to 1 and 4.1 to 1 at September 30, 2013 and December 31, 2012, respectively.

[ Back To Contact Center Solutions's Homepage ]

Subscribe here for your FREE Contact
Center Solutions
enewslettter.

Events

Weekly Live Demo
Contact Center Solutions

Register Today!


Weekly Live Demo
CaaS Small Center

Register Today!