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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............. to ............
Commission file number: 0-11676
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BEL FUSE INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1463699
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
198 VAN VORST STREET
JERSEY CITY, NEW JERSEY 07302
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(Address of principal executive offices)
(Zip Code)
201-432-0463
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At November 1, 1999, there were 2,627,694 shares of Class A Common Stock,
$.10 par value, outstanding and 2,632,994 shares of Class B Common Stock, $.10
par value, outstanding.
<PAGE>
BEL FUSE INC.
INDEX
Page Number
-----------
Part I.--FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheets as of
September 30, 1999 (unaudited) and
December 31, 1998 2 - 3
Consolidated Statements of Operations
and Comprehensive Income for the
Three and Nine Months Ended
September 30, 1999 and 1998 (unaudited) 4 - 5
Consolidated Statements of
Cash Flows for the Nine
Months Ended September 30, 1999
and 1998 (unaudited) 6 - 7
Notes to Consolidated Financial
Statements (unaudited) 8 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11 - 16
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
The results of operations for the nine month period ended September 30,
1999 are not necessarily indicative of the results for the entire fiscal year or
for any other period.
-1-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 21,219,756 $ 14,923,685
Marketable securities 1,901,596 --
Accounts receivable, less allowance
for doubtful accounts of $317,000 20,139,746 17,072,537
Inventories 24,799,782 21,847,563
Prepaid expenses and other current
assets 593,191 353,869
Deferred income taxes 300,000 284,000
------------ ------------
Total Current Assets 68,954,071 54,481,654
Property, plant and equipment - net 36,806,591 35,471,498
Goodwill-net of amortization of
$1,656,263 and $523,423 12,133,189 13,222,223
Other assets 389,832 449,253
------------ ------------
TOTAL ASSETS $118,283,683 $103,624,628
============ ============
(Continued)
See notes to consolidated financial statements.
-2-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
Current Liabilities:
Accounts payable $ 3,203,791 $ 4,985,840
Accrued expenses 8,017,432 8,416,051
Income taxes payable 1,641,514 10,247
Dividends payable 262,469 260,331
------------- -------------
Total Current Liabilities 13,125,206 13,672,469
Deferred income taxes 1,115,000 1,146,000
------------- -------------
Total Liabilities 14,240,206 14,818,469
------------- -------------
Stockholders' Equity:
Preferred stock, no par value -
authorized 1,000,000 shares;
none issued -- --
Class A common stock, par value
$.10 per share - authorized
10,000,000 shares; outstanding
2,627,194 and 2,603,310 shares
(net of 1,072,770 treasury shares) 262,720 260,331
Class B common stock, par value
$.10 per share - authorized
10,000,000 shares; outstanding
2,627,194 and 2,603,310 shares
(net of 1,072,770 treasury shares) 262,719 260,331
Additional paid-in capital 9,084,108 8,561,421
Retained earnings 94,095,850 79,728,787
Cumulative other comprehensive
income (loss) 338,080 (4,711)
------------- -------------
Total Stockholders' Equity 104,043,477 88,806,159
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 118,283,683 $ 103,624,628
============= =============
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $89,747,178 $60,195,036 $30,536,478 $21,148,681
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 57,858,865 39,616,162 19,605,012 13,591,527
Selling, general and
administrative expenses 14,817,201 10,886,493 5,168,857 3,852,983
----------- ----------- ----------- -----------
72,676,066 50,502,655 24,773,869 17,444,510
----------- ----------- ----------- -----------
Income from operations 17,071,112 9,692,381 5,762,609 3,704,171
Other income - net 537,898 1,441,573 206,789 547,590
----------- ----------- ----------- -----------
Earnings before income taxes 17,609,010 11,133,954 5,969,398 4,251,761
Income tax provision 2,455,000 1,477,000 654,000 600,000
----------- ----------- ----------- -----------
Net earnings $15,154,010 $ 9,656,954 $ 5,315,398 $ 3,651,761
=========== =========== =========== ===========
Basic earnings per common share $2.90 $1.87 $1.01 $.70
===== ===== ===== ====
Diluted earnings per common share $2.82 $1.85 $ .99 $.70
===== ===== ===== ====
Weighted average number of
common shares outstanding-basic 5,229,700 5,172,873 5,240,829 5,202,078
=========== =========== =========== ===========
Weighted average number of
common shares outstanding and
potential common shares - diluted 5,377,399 5,222,696 5,373,013 5,222,378
=========== =========== =========== ===========
(Continued)
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings $15,154,010 $ 9,656,954 $ 5,315,398 $ 3,651,761
Other comprehensive income
(expense), net of income
taxes:
Foreign currency
translation adjustment 14,585 (20,254) 5,360 (128)
Unrealized gain on marketable
securities 328,206 -- 328,206 --
----------- ----------- ----------- -----------
Comprehensive income $15,496,801 $ 9,636,700 $ 5,648,964 $ 3,651,633
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30
------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 15,154,010 $ 9,656,954
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,495,684 2,547,636
Other (187,000) 351,530
Changes in operating assets and
liabilities (6,845,336) 3,216,730
------------ ------------
Net Cash Provided by Operating
Activities 12,617,358 15,772,850
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and
equipment (4,683,352) (3,026,344)
Payment for acquisition (43,806) --
Purchase of marketable securities (1,353,396) (2,830,415)
Proceeds from sale of marketable
securities -- 1,000,000
Proceeds from repayment by contractors 96,750 124,728
------------ ------------
Net Cash Used in Investing
Activities (5,983,804) (4,732,031)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 449,464 835,387
Dividends (786,947) --
------------ ------------
Net Cash (Used in) Provided by
Financing Activities (337,483) 835,387
------------ ------------
Net increase in Cash 6,296,071 11,876,206
Cash and Cash Equivalents -
beginning of period 14,923,685 29,231,967
------------ ------------
Cash and Cash Equivalents -
end of period $ 21,219,756 $ 41,108,173
============ ============
(Continued)
See notes to consolidated financial statements.
-6-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(unaudited)
Nine Months Ended
September 30,
------------------------------
1999 1998
----------- -----------
Changes in operating assets and
liabilities consist of:
Increase in accounts receivable $(3,067,209) $(1,879,062)
(Increase) decrease in inventories (2,952,219) 2,592,177
Increase in prepaid expenses and
other current assets (336,072) (344,172)
Decrease in other assets 59,421 137,124
Increase (decrease) in accounts payable (1,782,049) 443,267
Increase (decrease) in accrued expenses (400,613) 1,989,948
Increase in income taxes payable 1,631,267 277,448
Increase in dividends payable 2,138 --
----------- -----------
$(6,845,336) $ 3,216,730
=========== ===========
Supplementary information:
Cash paid during the period for:
Interest ................................. $ -- $ --
=========== ===========
Income taxes ............................. $ 1,018,000 $ 555,000
=========== ===========
Non-cash investing activities:
Unrealized gain on
marketable securities .................... $ 328,206 $ --
=========== ===========
See notes to consolidated financial statements.
-7-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of September 30, 1999, and the consolidated
statements of operations and comprehensive income and cash flows for the periods
presented herein have been prepared by the Company and are unaudited. In the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and comprehensive income and cash flows for all periods presented
have been made. Certain items in the September 30, 1998 financial statements
have been reclassified to conform to 1999 classifications. The information for
December 31, 1998 was derived from audited financial statements.
2. Earnings Per Share - Basic earnings per common share are computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share are computed using the weighted average number of
common shares and potential common shares outstanding during the period.
3. Acquisition
On October 2, 1998, the Company acquired the manufacturing assets,
primarily consisting of inventory and fixed assets, of Lucent Technologies,
Inc.'s ("Lucent") signal transformer product line in exchange for approximately
$27 million in cash plus acquisition costs of approximately $500,000. Under the
terms of the agreement, the Company, among other things, continued to supply
certain of Lucent's telecom magnetics requirements. As of September 30, 1999,
the Company had moved the majority of the manufacturing for this business to the
Republic of China.
The acquisition has been accounted for under the purchase method of
accounting and includes the results of operations of the acquired entity from
the date of acquisition. Intangible assets and goodwill which arose in
connection with the acquisition in the amount of $13.5 million, are being
amortized over three and one-half to 15 years using the straight line method.
Proforma unaudited results of operations for the nine months ended September 30,
1998 reflect the consolidated operations of the Company assuming the acquisition
occurred on January 1, 1998. Proforma adjustments have been made for
amortization of intangibles, depreciation, reduction of interest income and
income taxes. The proforma results are as follows:
-8-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisition (Continued)
Nine Months Ended Three Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
(Dollars in thousands except per share data)
Sales $ 89,854 $ 32,443
Net earnings (1) 16,951 6,614
Diluted earnings per
common share $3.25 $1.27
(1) In arriving at net earnings, income taxes were estimated based upon
assumptions as to the geographic area in which the operating income would
have been earned by the Company.
4. Subsequent Event
On November 5, 1999 the Board of Directors declared a two for one stock
split to be paid in the form of a special dividend of one share of Class B
common stock for each share of Class A and Class B outstanding. The special
stock dividend is payable on December 1, 1999 to all Class A and Class B
shareholders of record on November 22, 1999. The Board also approved an
amendment to the Company's certificate of incorporation (to be filed on or after
December 1, 1999) increasing the number of authorized shares of Class B common
stock from 10,000,000 shares to 30,000,000 shares. The pro forma effect on basic
and diluted shares and earnings per share giving effect to the dividend for all
periods presented is as follows:
Nine Months Ended Three Months Ended
---------------------- ----------------------
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Basic income per share $1.49 $.93 $.51 $.35
===== ==== ==== ====
Basic weighted average shares 10,459,451 10,345,791 10,481,658 10,405,111
========== ========== ========== ==========
Diluted income per share $1.43 $.93 $.50 $.35
===== ==== ==== ====
Diluted weighted average shares 10,607,240 10,395,614 10,613,482 10,425,411
========== ========== ========== ==========
-9-
<PAGE>
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Business Segment Information
The Company does not have reportable operating segments as defined in
Statement of Financial Accounting Standards No.131, "Disclosures about Segments
of an Enterprise and Related Information". The method for attributing revenues
for interim purposes is based on total shipments from the country of origination
less intergeographic revenues. The Company operates facilities in the United
States, Europe and the Far East. The primary criteria by which financial
performance is evaluated and resources are allocated include revenues and
operating income. The following is a summary of key financial data:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues:
United States $ 56,020,435 $ 30,790,750 $ 17,674,263 $ 10,971,872
Asia 86,094,564 55,160,430 32,136,515 19,640,240
Less intergeographic
revenues (52,367,821) (25,756,144) (19,274,300) (9,463,431)
------------ ------------ ------------ ------------
$ 89,747,178 $ 60,195,036 $ 30,536,478 $ 21,148,681
============ ============ ============ ============
Income from Operations:
United States $ 1,732,530 $ 1,533,421 $ 1,051,172 $ 618,270
Asia 15,338,582 8,158,960 4,711,437 3,085,901
------------ ------------ ------------ ------------
$ 17,071,112 $ 9,692,381 $ 5,762,609 $ 3,704,171
============ ============ ============ ============
</TABLE>
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect revenues and
profitability, including competition from other suppliers; unanticipated
logistical problems related to the transfer of the signal transformer line to
the Republic of China; changes in the regulatory and trade environment; changes
in consumer preferences and spending habits; the inability to successfully
manage growth; seasonality; the ability to introduce and the timing of the
introduction of new products and the inability to obtain adequate supplies or
materials at acceptable prices. 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 1955 with respect to the
business of the Company. These forward-looking statements are subject to certain
risks and uncertainties, including those mentioned above, and those detailed in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
which may cause actual results to differ significantly from these
forward-looking statements. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be necessary to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. An investment in the Company
involves various risks, including those mentioned above and those which are
detailed from time to time in the Company's SEC filings.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
consolidated statements of operations.
Percentage of Net Sales
----------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
------ ------ ------ --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.5 65.8 64.2 64.3
Selling, general and
administrative expenses 16.5 18.1 16.9 18.2
Other income-net .6 2.4 .7 2.6
Earnings before income
tax provision 19.6 18.5 19.5 20.1
Income tax provision 2.7 2.5 2.1 2.8
Net earnings 16.9 16.0 17.4 17.3
-11-
<PAGE>
The following table sets forth, for the periods indicated, the percentage
increase (decrease) of items included in the Company's consolidated statements
of operations.
Increase (Decrease) from Prior Period
-------------------------------------------------
Nine Months Ended Three Months Ended
September 30, 1999 September 30, 1999
compared with 1998 compared with 1998
------------------ ------------------
Net sales 49.1% 44.4%
Cost of sales 46.0 44.2
Selling, general and
administrative
expenses 36.1 34.2
Other income - net (62.7) (62.2)
Earnings before
income tax provi-
sion 58.2 40.4
Income tax provision 66.2 9.0
Net earnings 56.9 45.6
On October 2, 1998, the Company acquired Lucent Technologies' signal
transformer product line and the related manufacturing assets, primarily
consisting of inventory and fixed assets. See Note 3 of the Notes to
Consolidated Financial Statements. This transaction was accounted for as a
purchase and the results of operations of the acquisition have been included in
the results of operations since the date of acquisition. The 1998 periods
described do not reflect this acquisition.
Nine Months ended September 30,1999 vs.
Nine Months ended September 30, 1998
Net Sales
Net sales increased 49.1% from $60,195,036 during the first nine months of
1998 to $89,747,178 during the first nine months of 1999. The Company attributes
this increase primarily to sales growth of telecom magnetic products of the
signal transformer product line recently acquired from Lucent, increased fuse
sales and initial sales of the new BELMAG(TM) high speed RJ-45 modular connector
for computer network and hub applications.
Cost of Sales
Cost of sales as a percentage of net sales decreased 1.3 % to 64.5 % during
the first nine months of 1999 from 65.8 % during the first nine months of 1998.
The decrease in the cost of sales percentage is primarily attributable to lower
material content and lower labor costs as a percentage of sales offset in part
by higher overhead, principally attributed to increased depreciation expense and
increased overheads associated with the telecom magnetic product line. The
Company moved the telecom magnetic product line to China during the third
quarter of 1999.
-12-
<PAGE>
Selling, General and Administrative Expenses
The percentage relationship of selling, general and administrative
expenses to net sales decreased from 18.1% for the first nine months of 1998 to
16.5% for the first nine months of 1999. The Company attributes the percentage
decrease primarily to increased sales. Selling, general and administrative
expenses increased in dollar amount by 36.1%. The Company attributes the
increase in dollar amount of such expenses primarily to increases in sales and
marketing salaries and other sales related expenses and amortization of goodwill
resulting from the acquisition of the signal transformer product line recently
acquired from Lucent.
Other Income and Expenses
Other income, consisting principally of interest earned on cash equivalents
and marketable securities, decreased by approximately $904,000 during the first
nine months of 1999 compared to the first nine months of 1998. The decrease is
primarily due to the use of cash and cash equivalents in the acquisition of the
signal transformer business from Lucent.
Provision for Income Taxes
The provision for income taxes for the first nine months of 1999 was
$2,455,000 as compared to $1,477,000 for the first nine months of 1998. The
increase in the provision is due primarily to higher United States and foreign
earnings in 1999 versus 1998.
Three Months ended September 30,1999 vs.
Three Months ended September 30,1998
Net Sales
Net sales increased 44.4 % to $30,536,478 during the third quarter of 1999
from $21,148,681 during the third quarter of 1998. The Company attributes the
increase primarily to the reasons set forth in the nine month analysis.
Cost of Sales
Cost of sales as a percentage of net sales remained relatively constant
during the third quarter of 1999 compared to the third quarter of 1998. The
Company incurred lower labor costs as a percentage of sales offset in part by
higher material content associated with the current sales mix. Factory overheads
increased in dollar amount during the third quarter of 1999 compared to the
third quarter of 1998 but remained constant as a percentage of sales.
Selling, General and Administrative Expenses
The percentage relationship of selling, general and administrative expenses
to net sales decreased 1.3% to 16.9% during the third quarter of 1999 from 18.2%
during the third quarter of 1998. Selling, general and administrative expenses
increased in dollar amount by approximately $1,316,000. The Company attributes
the decrease in such percentage relationship and the increase in dollar amount
to the reasons set forth in the nine month analysis.
-13-
<PAGE>
Other Income and Expense
Other income decreased for the third quarter of 1999 compared to the third
quarter of 1998 due to the reasons set forth in the nine month analysis.
Provision for Income Taxes
The provision for income taxes increased to $654,000 for the third quarter
of 1999 from $600,000 for the third quarter of 1998. The Company attributes the
increase in the provision to the reasons set forth in the nine month analysis.
Liquidity and Capital Resources
Historically, the Company has financed its capital expenditures through
cash flows from operating activities. Management believes that the cash flow
from operations, combined with its existing capital base and the Company's
available lines of credit, will be sufficient to fund its operations for the
near term. This statement represents a Forward-Looking Statement. Actual results
could differ materially from such statement if the Company experiences
substantial unanticipated cash requirements.
The Company has lines of credit, all of which were unused at September 30,
1999, in the aggregate amount of $14 million, of which $12 million is from
domestic banks and $2 million is from foreign banks.
During the first nine months of 1999, the Company's cash and cash
equivalents increased by approximately $6.3 million, reflecting approximately
$12.6 million provided by operating activities and approximately $.4 million
from the exercise of stock options, offset, in part, by approximately $4.7
million in purchases of plant and equipment, $1.4 million in purchases of
marketable securities and approximately $.8 million in dividends.
Cash and cash equivalents and accounts receivable comprised approximately
36.6% and 30.9% of the Company's total assets at September 30, 1999 and
December 31, 1998, respectively. The Company's current ratio (i.e., the ratio of
current assets to current liabilities) was 5.3 to 1 and 4.0 to 1 at September
30, 1999 and December 31, 1998, respectively.
Other Matters
Year 2000
Background
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable years. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
-14-
<PAGE>
The Company relies heavily on computer technologies to operate its
business. In 1997, the Company conducted an initial assessment of its
information technology to determine which Year 2000 related problems might cause
processing errors or computer system failures. The Company also did a complete
analysis of its computer system. Based on the results of that analysis, the
management began to focus on the Year 2000 issue as a top corporate priority and
established a group to develop a solution. Based on the group's evaluation,
management decided to upgrade the entire computer system at the same time as
addressing the Year 2000 issue. Though the cost of the Year 2000 issue is not
material, the estimate for upgrading the computer system, including the solution
for the Year 2000 issue, is approximately $350,000.
The following discussion of the implications of the Year 2000 issue for the
Company contains numerous Forward-Looking Statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete its internal Year 2000 modifications are based on management's
best estimates, which were derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ.
Moreover, although the Company believes it will be able to make the necessary
modifications in advance, there can be no guarantee that failure to modify the
systems would not have a material adverse effect on the Company.
In addition, the Company places a high degree of reliance on computer
systems of third parties, such as customers, trade suppliers and computer
hardware and commercial software suppliers. Although the Company is assessing
the readiness of these third parties and preparing contingency plans, there can
be no guarantee that the failure of these third parties to modify their systems
in advance of December 31, 1999, would not have a material adverse effect on the
Company.
In as much as the Company has international operations, Y2K issues arising
in foreign locations could have a material adverse effect on the Company. The
Company cannot provide an opinion that Y2K issues outside the United States will
not impact the Company.
Readiness
The Year 2000 project is intended to ensure that all critical systems,
devices and applications, as well as data exchanged with customers, trade
suppliers and other third parties have been evaluated and will be suitable for
continued use into and beyond the Year 2000.
Responsibility for implementation of the project has been assigned to an
internal group of the Company. General priorities have been defined,
dependencies identified, preliminary delivery dates assigned, detailed project
plans developed, and internal and external technical resources assigned or
hired. In addition, internal management reporting requirements have been
established. Plans and progress against these plans are reviewed by the
Company's Chief Financial Officer.
-15-
<PAGE>
The Company has completed the majority of the project. The Company is
currently conducting a rigorous final level testing under Post-Year 2000
conditions.
Since early 1997, the Company has required Year 2000 compliance statements
from all suppliers of the Company's computer hardware and commercial software.
Regardless of the compliance statements, all third party hardware and software
will also be subjected to testing to reconfirm Year 2000 readiness.
Cost
The Company estimates that the total cost of achieving Year 2000 readiness
for its internal systems, devices and applications (including the cost of
replacement systems) is approximately $350,000. Year 2000 project costs are
difficult to estimate accurately and the projected cost could change due to
unanticipated technological difficulties and Year 2000 readiness of third
parties. Through September 30, 1999 approximately $325,000 has been expended.
Contingency Plans
In the event that the efforts of the Company's Year 2000 project do not address
all potential systems problems, the Company has developed business interruption
contingency plans, including installation of a dedicated back-up computer system
in the new Dallas, Texas office that can run all corporate functions. The
Company believes, however, that due to the widespread nature of potential Year
2000 issues, the contingency planning process is an ongoing one which will
require further modifications as the Company obtains additional information
regarding (1) the Company's internal systems during the remediation and testing
phases of its Year 2000 project and (2) the status of third party Year 2000
readiness. Contingency planning for possible Year 2000 disruptions will continue
to be defined, improved and implemented.
Risks
The Company believes that completed and planned modifications and
conversions of its critical systems, devices and applications will allow it to
be Year 2000 compliant in a timely manner. There can be no assurances, however,
that the Company's internal systems, devices and applications or those of third
parties on which the Company relies will be Year 2000 compliant by year 2000 or
that the Company's or third parties' contingency plans will mitigate the effects
of any noncompliance. An interruption of the Company's ability to conduct its
business due to a Year 2000 readiness problem could have a material adverse
effect on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable - no significant changes to the information included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
-16-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
See Item 3 of the Company's Form 10-K for the year ended
December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) There were no Current Reports on Form 8-K filed by the
registrant during the quarter ended September 30, 1999.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEL FUSE INC.
By: /s/ DANIEL BERNSTEIN
---------------------------
Daniel Bernstein, President
(Principal Financial and
Accounting Officer)
Dated: November 12, 1999
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BEL FUSE
INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AT SEPTEMBER 30, 1999 AND THE NINE
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,219,756
<SECURITIES> 1,901,596
<RECEIVABLES> 20,456,746
<ALLOWANCES> 317,000
<INVENTORY> 24,799,782
<CURRENT-ASSETS> 68,954,071
<PP&E> 67,357,102
<DEPRECIATION> 30,550,511
<TOTAL-ASSETS> 118,283,683
<CURRENT-LIABILITIES> 13,125,206
<BONDS> 0
<COMMON> 525,439
0
0
<OTHER-SE> 103,518,038
<TOTAL-LIABILITY-AND-EQUITY> 118,283,683
<SALES> 89,747,178
<TOTAL-REVENUES> 89,747,178
<CGS> 57,858,865
<TOTAL-COSTS> 72,676,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,609,010
<INCOME-TAX> 2,455,000
<INCOME-CONTINUING> 15,154,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,154,010
<EPS-BASIC> 2.90
<EPS-DILUTED> 2.82
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