Bel Fuse Inc. — 2012 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2012; it is an annual report, not a standalone fourth-quarter filing. Bel designs and manufactures magnetics, modules, circuit-protection devices and interconnect products for networking, telecommunications, computing, aerospace, military and related markets. It reports North America, Asia and Europe as geographic segments. Three acquisitions closed during 2012: GigaCom, Fibreco and Powerbox.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $286.6 million | $295.1 million |
| Gross profit / gross margin | $46.5 million / 16.2% | $50.4 million / 17.1% |
| Operating income / margin | $1.7 million / 0.6% | $7.4 million / 2.5% |
| Net earnings | $2.4 million | $3.8 million |
| EPS, Class A / Class B | $0.17 / $0.21 | $0.28 / $0.33 |
| Cash from operations | $11.6 million | $30.3 million |
Net sales fell 2.9%. Module revenue decreased $23.8 million, mainly due to changed ordering patterns at two major customers; higher magnetics and interconnect sales partly offset the decline. Cost of sales rose to 83.8% of revenue from 82.9%, with increased Asian labor costs and other expenses partly offset by lower material costs. The 2012 tax benefit was $1.4 million, versus a $4.1 million tax provision in 2011; the reported 2012 effective tax rate was negative 131.4%, reflecting, among other things, reversals of uncertain-tax-position liabilities.
Quarterly context: fourth-quarter 2012 sales were $71.8 million, versus $68.6 million in fourth-quarter 2011. Bel reported a fourth-quarter 2012 net loss of $2.5 million, compared with net earnings of $0.1 million a year earlier; the 2012 quarter included $3.1 million of restructuring charges, primarily related to the Vinita facility closure.
Cash, liquidity and capital
- Cash and cash equivalents were $71.3 million at year-end, down $17.0 million; an additional $13.0 million was classified as restricted cash. Cash from operations was $11.6 million, down from $30.3 million.
- Investing cash use was $18.9 million, including $19.4 million for the three acquisitions, net of acquired cash, and $4.7 million of capital expenditures. Financing cash use was $9.9 million, including $3.2 million of dividends and $6.6 million of Class B share repurchases.
- Working capital was $144.7 million, versus $165.3 million; the current ratio was 4.1, down from 4.9. Total assets were $275.2 million and stockholders’ equity was $215.4 million.
- Bel reported no borrowings under its $30 million credit facility at year-end. However, it was not in compliance with the tangible-net-worth covenant after the acquisitions; any borrowing would require a lender waiver. The facility expires June 30, 2014.
- Management said operating cash flow, existing capital and the available credit line should fund operations for at least 12 months, subject to risks and the covenant issue. Foreign subsidiaries held $45.8 million of cash, which management intended to keep invested abroad.
Material changes, outlook and risks
- Bel recorded $5.2 million of restructuring charges. The program included closing the Vinita, Oklahoma facility and moving operations to McAllen, Texas, as well as Asian overhead reductions. Management forecast approximately $5.6 million in annual savings beginning in 2013; actual savings may differ.
- The 2012 acquisitions contributed $3.2 million of revenue after their respective closing dates. Bel agreed to buy TE Connectivity’s Transpower magnetics business for approximately $22.4 million in cash, with closing expected at the end of first-quarter 2013. The business had approximately $75 million in 2012 sales; Bel expected it to be accretive beginning in second-quarter 2013. Both savings and accretion statements are forward-looking.
- Management said it had limited visibility into customer requirements and could not predict 2013 sales with certainty. Backlog was approximately $80.4 million at February 28, 2013, versus $83.4 million a year earlier; substantially all was expected to ship by year-end, but cancellations, demand changes and supply issues could affect shipments.
- Cost pressures include higher PRC wages, a government-announced 19% minimum-wage increase effective May 1, 2013 in relevant regions, currency exposure and elevated commodity costs. Electrical-component lead times had recently lengthened.
- Two customers represented 14.4% and 10.2% of 2012 revenue, respectively; management warned loss of either could materially affect results. Approximately 64% of revenue came from customers outside the United States.
- Bel was appealing the SynQor patent verdict; $13.0 million of restricted cash secured a supersedeas bond while the appeal was pending. A separate post-injunction damages action remained, although Bel cited a customer indemnification agreement. Bel also agreed to pay Halo an 8% royalty on specified product sales through August 10, 2015.
- Other notable items include a $0.9 million impairment and realized loss on the Pulse Electronics investment and $0.3 million of storm-related asset losses, primarily from Hurricane Sandy. Goodwill and indefinite-lived intangible impairment tests identified no impairment at year-end.
- The independent auditor gave unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management and the auditor excluded the 2012 acquired companies from the internal-control assessment; those companies represented 6.3% of assets and 1.1% of 2012 sales.
Important facts for investors to verify
- Whether Bel obtained a waiver or amendment for the tangible-net-worth covenant, and the practical availability of the credit line.
- Progress and final purchase accounting for the 2012 acquisitions, and the closing, integration and realized performance of the Transpower acquisition.
- Whether projected restructuring savings and Transpower earnings accretion materialized, given continuing labor, materials and integration risks.
- The outcome of the SynQor appeal and post-injunction litigation, including the restricted-cash bond and any indemnification coverage.
- Customer concentration, backlog conversion and trends in module demand, PRC labor costs and gross margin.
- Cash availability in the United States, given the foreign-cash reinvestment policy and estimated $20.9 million tax cost associated with repatriating unrepatriated foreign earnings.