ITEM 1. BUSINESS
GENERAL
Bel Fuse Inc. (the "Company"), organized under New Jersey law, is engaged in the design, manufacture and sale of products used in networking, telecommunication, high speed data transmission, automotive and consumer electronic applications. The Company operates facilities in the United States, Europe and the Far East. The Company maintains its principal executive offices at 198 Van Vorst Street, Jersey City, New Jersey 07302; telephone (201) 432-0463. The term "Company" as used in this Annual Report on Form 10-K refers to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements"). Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Certain factors which could materially affect such results and the future performance of the Company are described below under "Risks and Uncertainties" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Other Matters".
PRODUCT GROUPS
Magnetic Components
The Company manufactures a broad range of magnetic components. These wire-wound devices perform such functions as signal delay, signal timing, signal conditioning, impedance matching, filtering, isolation, power conversion and power transfer. The Company directs its design and marketing efforts to supply the needs of the following markets: manufacturers of networking and telecommunication equipment, computer manufacturers, and consumer, automotive and industrial electronic manufacturers. Although applications tend to overlap, the magnetic components manufactured by the Company fall into three major groups:
1. Pulse Transformers
These small transformers offer the end user an inexpensive method to provide isolation, impedance matching, and removal of DC from a data signal. The major customers are manufacturers of network and telecommunications hardware.
2. Delay Lines, Filters and DC/DC Converters
These components are primarily supplied to the same customer base as pulse transformers. They are densely packaged combinations of wire-wound components and other passive and active components such as capacitors, resistors and silicon integrated circuits (IC's). They perform the functions of timing, signal conditioning and power conversion.
3. Power Transformers, Line Chokes, Coils
The basic functions of power transformers include AC voltage conversion and isolation. Power transformers convert the power from the supply line to the supply circuitry of a given electronic instrument such as a telecommunications device, TV set-top box, computer, add-in card, or peripheral. Generally these products include a switchmode or flyback power supply transformer, various DC filtering inductors and line chokes used to block the conducted and radiated emissions of power supplies.
Packaged Modules and Thick Film Hybrids
The Company supplies packaged modules to end users in several other industries whose requirements can be satisfied by combining in one integrated package one or more of the Company's capabilities in surface mount assembly, automatic winding, hybrid fabrication and component encapsulation.
Thick film hybrids are dense, reliable, high quality electronic microcircuits. The term "thick film hybrid" describes a method for screen printing conductors, resistors and capacitors onto a ceramic substrate. This substrate
becomes a hybrid circuit when components such as integrated circuits, transistors, capacitors, and inductors are added to the substrate in order to form a functioning electrical circuit. The Company incorporates facets of this technology in the design and manufacture of many of its other products including packaged modules.
Miniature and Micro Fuses
Fuses prevent currents in an electrical or electronic circuit from exceeding certain predetermined levels. Fuses act as a safety valve to protect expensive components from damage or to cut off high currents before they can generate enough heat to cause smoke or fire. The Company manufactures miniature and micro fuses for supplementary circuit protection. The Company sells its fuses to a worldwide market. They are used in such products as televisions, VCR's, power supplies, computers, telephones and networking assemblies.
Marketing
The Company sells its products to approximately 450 customers throughout North America, Western Europe and the Far East. Sales are made through independent sales representative organizations and authorized distributors who are overseen by the Company's regional sales personnel throughout the world. As of December 31, 1997, the Company had a sales staff of 23 persons that supported 48 sales representative organizations and 12 non-exclusive distributors. In February 1998, the Company opened a new marketing office with four employees in San Diego, California.
The Company has written agreements with all of its sales representative organizations and major distributors. Written agreements terminable on short notice by either party are standard in the industry.
Finished products manufactured by the Company in its Far East facilities are, in general, either sold to the Company's Jersey City facility for resale to customers or are shipped directly to customers throughout the world. For further information regarding the Company's geographic operations, see Note 6 of Notes to Consolidated Financial Statements.
The Company had sales to two customers who manufacture electronic equipment in excess of ten percent of 1997 consolidated sales. The amounts and percentage of consolidated sales were approximately $19,217,000 (26.1%) and $8,272,000 (11.3%), respectively.
Research and Development
The Company's research and development efforts in 1997 were spread amongst all of the Company's current product groups. The Company maintains continuing programs to improve the reliability of its products and to design specialized assembly equipment to increase manufacturing efficiencies. The Company's research and development facilities are located in California, Indiana, and Hong Kong. Research and development costs amounted to $3,895,000 in 1997.
Suppliers
The Company has multiple suppliers for most of the raw materials that it purchases. Where possible, the Company has contractual agreements with suppliers to assure continuing supply of critical components.
With respect to those items which are purchased from single sources, the Company believes that comparable items would be available in the event that there were a termination of the Company's existing business relationships with any such particular supplier. While such a termination could produce a disruption in production, the Company does not believe that the termination of business with any of its suppliers would have a material adverse effect on its long-term operations.
Backlog
The Company normally manufactures products against firm orders. Cancellation and return arrangements are normally negotiated by the Company on a transactional basis. The Company's backlog of orders as of February 25, 1998 was approximately $15.6 million, as compared with a backlog of $19.5 million as of February 25,1997. Management expects that all of the Company's backlog as of February 25, 1998 will be shipped by December 31, 1998.
Trademarks and Patents
The Company has been granted a number of U.S. patents and has additional U.S. patent applications pending relating to its products. While the Company believes that the issued patents are defendable and that the pending patent applications relate to patentable inventions, there can be no assurance that a patent will issue from the applications or that its existing patents can be successfully defended. It is management's opinion that the successful continuation and operation of the Company's business does not depend upon the ownership of patents or the granting of pending patent applications, but upon the innovative skills, technical competence and marketing and managerial abilities of its personnel. The patents have a life of seventeen years from the date of issue or twenty years from filing ofpatent applications. The Company's existing patents expire on various dates from September 30, 2002 to December 15, 2013.
The Company utilizes six U.S. registered trademarks -- BELIMITER, BELFUSE, BEL, SLO-BEL, MICROBEL and SURFUSE--to identify various products that it manufactures. The trademarks survive as long as they are in use and the registrations of these trademarks are renewed.
Competition
There are numerous independent companies and divisions of major companies which manufacture products that are competitive with one or more of the Company's products. Some of the Company's competitors possess greater financial, marketing and other resources than those available to the Company. The Company's ability to compete is dependent upon several factors, including product performance, quality, reliability, design and price. For information regarding the effect of price competition on the Company's consolidated results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Employees
As of December 31, 1997, the Company had 995 full-time employees. The Company employed 84 people in its U.S. facilities and 911 throughout the rest of the world excluding workers employed by independent contractors. The Company's employees are not represented by any labor union. The Company believes that its relations with employees are satisfactory.
Risks and Uncertainties
The Company's business is subject to several risks and uncertainties, including (a) the risk that it may be unable to respond adequately to rapidly changing technological developments in its industry, (b) risks associated with its Far East operations described herein under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other Matters", (c) the highly competitive nature of the Company's industry and the impact that competitors' new products and pricing may have upon the Company, (d) the likelihood that revenues may vary significantly from one accounting period to another accounting period due to a variety of factors, including customers' buying decisions, the Company's product mix and general market and economic conditions, and (e) the Company's reliance on certain substantial customers. Such factors, as well as shortfalls in the Company's results of operations as compared with analysts' expectations, capital market conditions and general economic conditions, may also cause substantial volatility in the market price of the Company's common stock.
ITEM 2.
ITEM 2. PROPERTIES
The Company currently occupies approximately 308,000 square feet of manufacturing, warehouse, office, technical and staff quarter space worldwide. The Company has additional production processing arrangements with subcontractors in the People's Republic of China occupying approximately 61,000 square feet of manufacturing space. In addition to the Company's principal corporate offices in New Jersey, the Company maintains facilities in The People's Republic of China, Hong Kong and Macau in the Far East, in California and Indiana in the U.S.A. and in the United Kingdom in Europe. The Company also owns an idle facility of 46,300 square feet in Illinois. Approximately 59% of the 308,000 square feet the Company occupies is owned while the remainder is leased. See Note 9 of Notes to Consolidated Financial Statements for additional information pertaining to leased properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any legal proceedings which are material to the consolidated results of operations or financial condition of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and biographical outlines set forth the positions and offices within the Company presently held by each executive officer of the Company and a brief account of the business experience of each such officer for the past five years.
POSITIONS AND OFFICES OFFICER WITH THE COMPANY/ NAME AND AGE SINCE BUSINESS EXPERIENCE - ------------ ----- -------------------
Elliot Bernstein, 74 ..... 1954 Chairman of the Board, Chief Executive Officer and Director
Daniel Bernstein, 44 ..... 1985 President, Managing Director of the Company's Macau Subsidiary and Director
Robert H. Simandl, 69 .... 1967 Secretary and Director
Arnold Sutta, 71 ......... 1985 Vice President of Sales
Peter Christoffer, 56 .... 1986 Vice President of Research and Development
Colin Dunn, 53 ........... 1992 Vice President and Treasurer
Joseph Meccariello, 47 ... 1995 Vice President of Manufacturing
Elliot Bernstein has been a Director of the Company since its inception in January 1949, served as President and Chief Executive Officer from 1954 to 1992, and has served as Chairman of the Board and Chief Executive Officer since 1992. One of his sons (Daniel Bernstein) is the President and a Director of the Company and his brother (Howard Bernstein) is a Director of the Company.
Daniel Bernstein has served the Company as President since June, 1992. He previously served as Vice President (1985-1992)and Treasurer (1986-1992) and has served as a Director since 1986. He occupied other positions with the Company since 1978. He was appointed Managing Director of the Company's Macau subsidiary during 1991. Daniel Bernstein is Elliot Bernstein's son, and Howard Bernstein's nephew.
Robert H. Simandl, a Director and Secretary of the Company since 1967, is a member of the law firm of Robert H. Simandl, Counselor At Law. He has been a practicing attorney in New Jersey since 1953.
Arnold Sutta joined the Company in 1966 and has served the Company as Vice President, Sales since 1985. Mr. Sutta supervises the worldwide sales force of the Company.
Peter Christoffer has served the Company as Vice President since 1986. Since 1991, he has supervised the engineering and production of thick film hybrids at the Company's Indiana facility.
Colin Dunn joined the Company in 1991 as Finance Manager and in 1992 was named Vice President of Finance and Treasurer. Prior to joining the Company, Mr. Dunn was Vice President of Finance and Operations at Kentek Information Systems, Inc. from 1985 to 1991 and had previously held a series of senior management positions with Braintech Inc. and Weyerhaeuser Company.
Joseph Meccariello joined the Company in 1979 as a Manager of Mechanical Engineering and in 1994 became the Deputy Managing Director of the Company's Hong Kong subsidiary, Bel Fuse, Ltd. In 1995 he was named Vice President of Manufacturing with responsibility for Far East production operations.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, par value $.10 per share (the "Common Stock"), is traded in the over-the-counter market. The following table sets forth the high and low closing sales price range (as reported by National Quotation Bureau, Inc.) for the Common Stock in the over-the-counter market for each quarter during the past two years.
HIGH LOW ---- ---
Year Ended December 31, 1996: First Quarter ......................... $20 1/4 $10 1/2 Second Quarter ........................ 22 1/8 15 1/4 Third Quarter ......................... 17 8 1/4 Fourth Quarter ........................ 14 1/8 10 1/4
Year Ended December 31, 1997: First Quarter ......................... 12 7/16 12 1/8 Second Quarter ........................ 13 3/8 13 5/16 Third Quarter ......................... 19 3/8 19 Fourth Quarter ........................ 19 3/4 19
The Common Stock is reported under the symbol BELF in the Nasdaq National Market.
(b) Holders
As of March 13, 1998 there were 207 registered shareholders of the Company's Common Stock plus an estimated 2,140 beneficial shareholders.
(c) Dividends
The Company has not paid any cash dividends and has no current plans to pay any such dividends. There are no contractual restrictions on the Company's ability to pay dividends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(a) Includes gains of $-0-, $1,267 and $1,359 from the sale of marketable securities during 1997, 1996 and 1995, respectively.
ITEM 7.
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes related thereto. The discussion of results, causes and trends should not be construed to imply any conclusion that such results, causes or trends will necessarily continue in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the past three years, the percentage relationship to net sales of certain items included in the Company's consolidated statements of operations.
PERCENTAGE OF NET SALES ----------------------- YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ----- ----- ----- Net sales ........................................ 100.0% 100.0% 100.0% Cost of sales .................................... 69.0 71.1 71.5 Selling, general and administrative expenses ..... 18.8 17.6 17.8 Other income, net of interest expense ............ 1.9 3.5 2.5 Earnings before income taxes ..................... 14.2 14.9 13.2 Income tax provision ............................. 2.1 2.9 1.7 Net earnings ..................................... 12.0 11.9 11.5
The following table sets forth, for the periods indicated, the percentage increase or decrease of certain items included in the Company's consolidated statements of operations.
SALES
Net sales increased 12.3% from 1996 to 1997 from approximately $65.5 million to $73.5 million. The Company attributes this increase primarily to sales growth in magnetic components for network and fuse products offset, in part, by reduced sales of customer-specific value-added circuits and assemblies. Such reduced sales reflect the termination of certain contracts. Sales growth consisted primarily of growth in unit sales, including sales of certain new products.
Net sales decreased 7.4% from 1995 to 1996 from approximately $70.7 million to $65.5 million. The Company attributes this decrease primarily to a general softening in the market place during the second and third quarters of 1996 and the elimination of certain low margin products.
COST OF SALES
Cost of sales as a percentage of net sales decreased 2.1% from 71.1% in 1996 to 69.0% in 1997. The decrease in the cost of sales percentage is primarily attributable to lower material content offset, in part, by increases in direct labor costs due to the current sales mix (which is more labor intensive) and to a lesser extent increases in overheads required to support the increase in unit production. The Company regularly reviews its inventory for slow moving, obsolete and over-stocked inventory. As at December 31, 1997 the inventory reserve for those items was approximately $522,000.
Cost of sales as a percentage of net sales decreased .4% from 71.5% in 1995 to 71.1% in 1996. The decrease in the cost of sales percentage is primarily attributable to lower material content associated with sales mix and the elimination of certain low margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The percentage relationship of selling, general and administrative expenses to net sales increased from 17.6% in 1996 to 18.8% in 1997. The Company attributes the increase primarily to increases in sales salaries and sales related
expenses. Selling, general and administrative expenses increased in dollar amount by 20.3%. The Company attributes the increase in dollar amount of such expenses primarily to increased sales and increases in sales salaries and sales related expenses and to a lesser extent increased professional fees and severance expenses.
The percentage relationship of selling, general and administrative expenses to net sales remained relatively constant for the year 1996 compared to the year 1995. Selling, general and administrative expenses decreased in dollar amount by 8.4%. The Company attributes the decrease in dollar amount of such expenses primarily to accrued severance amounts principally associated with the closing of the Company's sales office in France during 1995 along with the Company's continued cost containment measures during 1996.
OTHER INCOME AND EXPENSES; GAIN ON SALE
Other income, consisting principally of interest and dividends earned on cash equivalents and marketable securities, decreased by $878,179 from the year 1996 to 1997. The decrease is primarily due to the gain on the sale of 112,485 shares of Technitrol, Inc. common stock recognized during the year 1996 offset in part by higher earnings on invested funds due to greater average balances in 1997 compared to 1996.
Other income, consisting of net realized gains on the sale of marketable securities and interest and dividends earned on marketable securities and on cash equivalents, increased by $544,374 or 30.9%, in 1996 from 1995. The increase is primarily due to the gain on the sale of 112,485 shares of Technitrol, Inc. common stock and to higher earnings on invested funds due to higher average balances in 1996 compared to 1995, offset in part by a loss on other marketable securities.
PROVISION FOR INCOME TAXES
The Company has historically followed a practice of reinvesting a portion of the earnings of foreign subsidiaries in the expansion of its foreign operations. If the unrepatriated earnings were distributed to the parent corporation rather than reinvested in the Far East, such funds would be subject to United States Federal income taxes. No earnings were repatriated during 1997, 1996 or 1995. The Company files income tax returns in every jurisdiction in which it has reason to believe it is subject to tax. Historically, the Company has been subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations. (See Note 5 of Notes to Consolidated Financial Statements).
The provision for income taxes in 1997 was $1,555,000 as compared to $1,925,000 in 1996. This decrease is due primarily to lower United States earnings before income taxes for the year 1997 versus 1996.
The provision for income taxes for 1996 was $1,925,000 as compared to $1,222,000 in 1995. This increase is due primarily to the higher pretax earnings, including the gain on the sale of the Technitrol, Inc. common stock, for the year 1996 versus 1995. The 1995 provision for income taxes was reduced by the use of a net operating loss carryforward which was no longer available in 1996.
The Company's effective tax rate has been lower than the statutory United States corporate rate primarily as a result of the lower tax rates in Hong Kong and Macau.
INFLATION
During the past two years, the effect of inflation on the Company's profitability was not material. Historically, fluctuations of the U.S. dollar against other major currencies have not significantly affected the Company's foreign operations as most transactions have been denominated in U.S. dollars.
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.
The Company has lines of credit, all of which were unused at December 31, 1997, in the aggregate amount of $7.0 million, of which $5.0 million is from domestic banks and $2.0 million is from foreign banks.
During 1997, the Company's cash increased by $5.7 million, reflecting $8.3 million provided by operating activities, $7.7 million from the sale of marketable securities and $.6 million from contractor repayments and proceeds from the exercise of stock options offset in part by $4.7 million in purchases of marketable securities and $6.1 million in purchases of plant and equipment.
Cash, marketable securities and accounts receivable comprised approximately 48.6% and 49.4% of the Company's total assets at December 31, 1997 and 1996, respectively. The Company's working capital ratio (i.e., the ratio of current assets to current liabilities) was 5.7 to 1 and 5.9 to 1 at December 31, 1997 and 1996, respectively.
OTHER MATTERS
The Company is currently addressing the year 2000 issue and its impact on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. 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. Based on preliminary information, costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. The Company plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. However, if the Company, its customers or vendors are unable to resolve such processing issues in a timely manner it could result in a material adverse effect on the Company's future financial position and results of operations.
The territory of Hong Kong reverted to the People's Republic of China pursuant to a long-term land lease which expired in the middle of 1997. The territory of Macau will revert to The People's Republic of China at the end of 1999. Management cannot presently predict what impact, if any, the expiration of these leases will have on the Company or how the political climate in China will affect its contractual arrangements in China. Substantially all of the Company's manufacturing operations and approximately 57% of its identifiable assets are located in Hong Kong, Macau, and The People's Republic of China. Accordingly, events resulting from the expiration of such leases could have a material adverse effect on the Company.
This Form 10-K, other than the historical financial information, may consist of forward looking statements that involve risks and uncertainties, including, but not limited to, statements contained in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". Such statements are based on many assumptions and are subject to risks and uncertainties. Actual results could differ materially from the results discussed in the forward looking statements due to a number of factors, including, but not limited to, those identified in the two preceding paragraphs as well as those set forth under "Business -- Risks and Uncertainties" in this Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
SEGMENT INFORMATION -- During June 1997, the Financial Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement requires the disclosure of financial and descriptive information about reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources and in assessing performance. The Company has not yet completed its evaluation of this Statement. This Statement is effective for the Company's 1998 year end financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATAPAGE
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS OF THE REGISTRANT
The Company hereby incorporates by reference the applicable information from its definitive proxy statement for its 1998 Annual Meeting of Shareholders.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the applicable information from its definitive proxy statement for its 1998 Annual Meeting of Shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the applicable information from its definitive proxy statement for its 1998 Annual Meeting of Shareholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the applicable information from its definitive proxy statement for its 1998 Annual Meeting of Shareholders.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K--(CONTINUED)
Exhibits No. ------------
3.1 Certificate of Incorporation as amended--Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992.
3.2 By-laws, as amended, are hereby incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-2 (Registration No. 33-16703) filed with the Securities and Exchange Commission on August 25, 1987.
10.1 Agency agreement dated October 1, 1988 between Bel Fuse Ltd. and Rush Profit Ltd.--Incorporated by reference to Exhibit 10.1 of the Company's annual report on Form 10-K for the year ended December 31, 1994.
10.2 Contract dated March 16, 1990 between Accessorios Electronicos (Bel Fuse Macau Ltd.) and the Government of Macau.--Incorporated by reference to Exhibit 10.2 of the Company's annual report on Form 10-K for the year ended December 31, 1994.
10.3 Loan agreement dated February 14, 1990 between Bel Fuse, Ltd. (as lender) and Luen Fat Lee Electronic Factory (as borrower).--Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
10.4 Lease dated March 20, 1992 between the Company's Central Coil Company, Inc. subsidiary (as lessee) and lessor.--Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.5 Stock Option Plan--Incorporated by reference to Exhibit 28.1 of the Company's Registration Statement on Form S-8 (Registration No. 33-53462) filed with the Securities and Exchange Commission on October 20, 1992.
10.6 Contract for purchase of the new manufacturing and office space of the Company's Macau subsidiary located in Macau, dated May 4, 1993 between Fundicio e Construciones Mecanicas (Macau) S.A.R.L. (seller) and Accessorios Electronicos "Bel Fuse" Macau LDA (buyer)--Incorporated by reference to Exhibit 10-11 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.7 Employment agreement between Elliot Bernstein and Bel Fuse Inc. dated October 29, 1997.
11.1 A statement regarding the computation of earnings per share is omitted because such computation can be clearly determined from the material contained in this Annual Report on form 10-K.
22.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27.1 Financial Data Schedule.
(c) The Company did not file any reports on Form 8-K during the quarter ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
BEL FUSE, INC.
By /s/ DANIEL BERNSTEIN -------------------------------------- DANIEL BERNSTEIN, PRESIDENT
Dated: March 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Bel Fuse Inc. Jersey City, New Jersey
We have audited the accompanying consolidated balance sheets of Bel Fuse Inc. and its subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bel Fuse Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
March 4, 1998 New York, New York
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
See notes to consolidated financial statements.
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements.
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
See notes to consolidated financial statements.
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
See notes to consolidated financial statements.
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bel Fuse Inc. and its subsidiaries (the "Company") are engaged in the design, manufacture and sale of products used in local area networking, telecommunication, business equipment and consumer electronic applications. Sales are predominantly in North America, Western Europe and the Far East.
Principles of Consolidation--The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
Use of Estimates--The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents--Cash equivalents include short-term investments in U.S. treasury bills and commercial paper with an original maturity of three months or less when purchased.
Marketable Securities-- The Company classifies its investments in debt and equity securities as "available for sale", and accordingly, reflects unrealized gains and losses, net of deferred income taxes, as a separate component of stockholders' equity.
The fair values of marketable securities are estimated based on quoted market prices. Realized gains or losses from the sales of marketable securities are based on the specific identification method.
Concentration of Credit Risk--Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable, temporary cash investments and investments. The Company grants credit primarily to original equipment manufacturers and to subcontractors of original equipment manufacturers based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company controls its exposure to credit risk through credit approvals, credit limits and monitoring procedures and establishes allowances for anticipated losses.
The Company places its temporary cash investments and investments with quality financial institutions and by policy, limits the amount of credit exposure with any one financial institution.
Inventories--Inventories are stated at the lower of weighted average cost (first-in, first-out) or market.
Depreciation--Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated
primarily using the declining-balance method for machinery and equipment and the straight-line method for buildings over their estimated useful lives.
Income Taxes--Deferred taxes are provided to reflect the tax effect of temporary differences between financial reporting and tax basis of assets and liabilities. The principal items giving rise to deferred taxes are the use of accelerated depreciation methods for plant and equipment and certain expenses which have been deducted for financial reporting purposes which are not currently deductible for income tax purposes.
Stock Based Compensation--Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The standard encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on fair value accounting rules. The Company has adopted the disclosure-only provisions of SFAS 123 for pro forma net income and earnings per share.
Earnings Per Common Share--In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share", which requires companies to present basic earnings per share (EPS) and diluted earnings per share, instead of the primary and fully diluted EPS that was required. The new standard requires additional informational disclosures, and also makes certain modifications to the currently applicable EPS calculations defined in Accounting Principles Board No. 15. The Company's interim and prior year results have been restated to conform with the provisions of this statement.
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Basic earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net earnings by the weighted average number of common and common stock equivalent shares outstanding during the year. Common stock equivalents used in computing diluted earnings per share relate to stock options which, if exercised would have a dilutive effect on earnings per share. The number of common stock equivalent shares outstanding were 70,395, 76,722 and 69,169 for the years ended December 31, 1997, 1996 and 1995, respectively. During the three years ending December 31, 1997, there were no antidilutive options omitted from the calculation of diluted earnings per share.
Fair Value of Financial Instruments--For financial instruments including cash, accounts receivable, accounts payable and accrued expenses, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments. The fair value of marketable securities are based on quoted market prices.
Segment Information--During June 1997, the Financial Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement requires the disclosure of financial and descriptive information about reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources and in assessing performance. The Company has not yet completed its evaluation of this Statement. This Statement is effective for the Company's 1998 year end financial statements.
Reclassifications-- Certain reclassifications have been made to prior year balances in order to conform with the current year's presentation.
2. MARKETABLE SECURITIES
ESTIMATED AMORTIZED FAIR COST VALUE ---------- ---------- December 31, 1996: U.S. Government agencies .............. $2,000,211 $2,000,211 Commercial paper ...................... 980,809 980,809 ---------- ---------- $2,981,020 $2,981,020 ========== ==========
Gross realized gains were $1,579 in 1997 ($1,956,597 in 1996 and $1,510,815 in 1995). Gross realized losses were $2,919 in 1997 ($690,887 in 1996 and $151,472 in 1995).
3. INVENTORIES
DECEMBER 31, ------------------------------ 1997 1996 ----------- ---------- Raw materials .......................... $ 7,029,632 $5,718,079 Work in process ........................ 115,586 89,660 Finished goods ......................... 5,057,720 2,603,801 ----------- ---------- $12,202,938 $8,411,540 =========== ==========
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, ------------------------------- 1997 1996 ----------- -----------
Land ................................... $ 835,218 $ 835,218 Buildings and improvements ............. 14,230,326 13,510,703 Machinery and equipment ................ 38,233,434 32,856,003 Idle property held for sale ............ 935,000 935,000 ----------- ----------- 54,233,978 48,136,924 Less accumulated depreciation .......... 25,181,624 21,815,910 ----------- ----------- $29,052,354 $26,321,014 =========== ===========
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $3,403,545, $2,974,622, and $2,933,835, respectively.
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
- ---------- (a) Reduced by $177,000 for utilization of a net operating loss carry-forward and $175,000 of tax credits carryforward.
(b) Reduced by $224,000 for utilization of a net operating loss.
A reconciliation of taxes on income at the federal statutory rate to amounts provided is as follows:
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INCOME TAXES--(Continued)
The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows:
The Company files income tax returns in every jurisdiction in which it has reason to believe it is subject to tax. Historically, the Company has been subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations.
It is management's intention to permanently reinvest a portion of the earnings of foreign subsidiaries in the expansion of its foreign operations. No earnings were repatriated during 1997, 1996 or 1995. Unrepatriated earnings, upon which income taxes have not been accrued, amounted to approximately $60,018,000 at December 31, 1997. The related amount of income taxes would approximate $14,445,000.
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES
- ---------- (1) Consist principally of operations in the Far East.
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES--(Continued)
Transfers between geographic areas include raw materials manufactured in the United States which are shipped to foreign countries to be manufactured into finished products and finished products manufactured in foreign countries and transferred to the United States for sale. Operating income represents total revenue less operating expenses. In computing operating income, none of the following items have been included: other income--net and income taxes.
Identifiable assets are those assets of the Company that are identified with the operations of each geographic area.
The territory of Hong Kong reverted to the People's Republic of China pursuant to a long-term land lease which expired in the middle of 1997. The territory of Macau will revert to the People's Republic of China at the end of 1999. Management cannot presently predict what impact, if any, the expiration of these leases will have on the Company or how the political climate in China will affect its contractual arrangements in China. Substantially all of the Company's manufacturing operations and approximately 57% of its identifiable assets are located in Hong Kong, Macau, and The People's Republic of China. Accordingly, events resulting from the expiration of such leases could have a material adverse effect on the Company.
The Company's research and development facilities are located in California, Indiana, and Hong Kong. Research and development costs amounted to $3,895,000 in 1997, $3,529,000 in 1996 and $3,384,000 in 1995.
The Company had sales in excess of ten percent to customers who manufacture electronic equipment as follows: The amounts and percentages were approximately $19,217,000 (26.1%) and $8,272,000 (11.3%) in 1997, $12,853,000 (19.6%), $7,313,000 (11.2%) and $6,670,000 (10.2%) in 1996 and $9,163,000 (13%) and $8,606,000 (12%) in 1995.
7. RETIREMENT FUND AND PROFIT SHARING PLAN
The Company maintains a domestic profit sharing plan, a contributory stock ownership and savings 401(K) plan which combines stock ownership and individual voluntary savings provisions to provide retirement benefits for plan participants. The plan provides for participants to voluntarily contribute a portion of their compensation, subject to certain legal maximums. The Company will match, based on a sliding scale, up to $350 for the first $600 contributed by each participant. Matching contributions plus additional discretionary contributions will be made with Company stock. The expense for the years ended December 31, 1997, 1996 and 1995 amounted to approximately $152,000, $136,000 and $137,000, respectively. As of December 31, 1997 the fund owned 79,819 shares of Bel Fuse Inc. common stock.
The Company's Far East subsidiaries have a retirement fund covering substantially all of their Hong Kong based full-time employees. Eligible employees contribute up to 5% of salary to the fund. In addition, the Company may contribute an amount equal to a percentage of eligible salary, as determined by the Company, in cash or Company stock. The expense for the years ended December 31, 1997, 1996 and 1995 amounted to approximately $385,000, $267,000 and $311,000, respectively. The Company has agreed to repurchase its stock, if no market exists, should it be requested to do soby the trustees of the Company's Far East plan. As of December 31, 1997, the fund owned 18,809 shares of Bel Fuse Inc. common stock.
8. STOCK OPTION PLAN
The Company has a Qualified Stock Option Plan (the "Plan") which provides for the granting to key employees of "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1954, as amended. The Plan provides for the issuance of 700,000 shares. Substantially all options outstanding become exercisable twenty-five (25%) percent one year from the date of grant and twenty-five (25%) percent for each year of the three years thereafter. The price of the options granted pursuant to the plan will not be less than 100 percent of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant and, in general, no option will be exercisable after six years from the date granted. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the stock option awarded. Had compensation cost for the Company's stock options plan been determined based on the fair value at the grant date for awards in 1997 and 1996 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. STOCK OPTION PLAN--(Continued)
DECEMBER 31, --------------------------- 1997 1996 ---------- ---------- Net earnings--as reported .................... $8,850,462 $7,805,530 Net earnings--pro forma ...................... $8,555,035 $7,667,434 Earnings per share--basic--as reported ....... $ 1.74 $ 1.54 Earnings per share--basic--pro forma ......... $ 1.68 $ 1.51 Earnings per share--diluted--as reported ..... $ 1.72 $ 1.52 Earnings per share--diluted--pro forma ....... $ 1.66 $ 1.49
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, respectively: dividends yield of - -0-%, expected volatility of 52% and 52%, risk-free interest rate of 5.6% and 5.1%, and expected lives of 6 years.
Information regarding the Company's Plan for 1997, 1996 and 1995 is as follows:
The following table summarizes information about fixed-price stock options outstanding at December 31, 1997:
BEL FUSE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various facilities. Certain of these leases require the Company to pay certain executory costs (such as insurance and maintenance).
Future minimum lease payments for operating leases are approximately as follows:
YEARS ENDING DECEMBER 31, - ------------------------- 1998 ............................. $471,000 1999 ............................. 287,000 2000 ............................. 99,000 2001 ............................. 66,000 2002 ............................. 6,000 -------- $929,000 ========
Rental expense was approximately $484,000, $442,000 and $474,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Credit Facilities
The Company has two domestic unsecured lines of credit amounting to $5,000,000 which was unused at December 31, 1997. The lines of credit are renewable annually.
The Company's Hong Kong subsidiary has an unsecured line of credit of approximately $2,000,000 which expires in August, 1998 and was unused at December 31, 1997. Borrowing on the line of credit is guaranteed by the U.S. parent.
BEL FUSE INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
- ---------- (1) Earnings per share is computed on a quarterly basis. The quarterly amounts of earnings per share may not agree to the total for the year.
BEL FUSE INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
- ---------- (a) Write offs.
S-1