NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
|
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bel Fuse Inc. and subsidiaries (“Bel” or the “Company”) design, manufacture and sell products used in the networking, telecommunication, high-speed data transmission, commercial aerospace, military, broadcasting, transportation and consumer electronic industries around the world. The Company manages its operations geographically through its three reportable operating segments: North America, Asia and Europe.
On March 9, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of GigaCom Interconnect AB (“GigaCom”). On July 31, 2012, the Company consummated its acquisition of 100% of the issued and outstanding capital stock of Fibreco Ltd. (“Fibreco”). On September 12, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Powerbox Italia S.r.L. and its subsidiary, Powerbox Design (collectively, “Powerbox”, now merged to form Bel Power Europe S.r.l.). The acquisitions of GigaCom, Fibreco and Powerbox may hereafter be referred to collectively as either the “2012 Acquisitions” or the “2012 Acquired Companies”.
On March 29, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Transpower Technologies (HK) Limited (“Transpower”) and certain other tangible and intangible assets related to the Transpower magnetics business of TE Connectivity (“TE”). These operations are now doing business as TRP Connector (“TRP”). On August 20, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Array Connector Corporation (“Array”). The acquisitions of TRP and Array may hereafter be referred to collectively as either the “2013 Acquisitions” or the “2013 Acquired Companies”.
Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values and the Company’s consolidated results of operations for the years ended December 31, 2013 and 2012 include the operating results of the acquired companies from their respective acquisition dates through the respective period end dates. The accompanying consolidated balance sheet as of December 31, 2012 have been restated to reflect the acquisition-date fair values related to property, plant and equipment, intangible assets and various other balance sheet accounts of the 2012 Acquired Companies as further outlined in Note 2 to the consolidated financial statements contained in this Annual Report. The consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2012 reflect immaterial measurement period adjustments related to the 2012 Acquisitions.
PRINCIPLES OF CONSOLIDATION
- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including businesses acquired since their respective dates of acquisition. All intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
- The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including but not limited to those related to product returns, bad debts, inventories, goodwill, intangible assets, investments, Supplemental Executive Retirement Plan (“SERP”) expense, income taxes, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
CASH EQUIVALENTS
- Cash equivalents include short-term investments in money market funds and certificates of deposit with an original maturity of three months or less when purchased.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- The Company maintains allowances for doubtful accounts for estimated losses from the inability of its customers to make required payments. The Company determines its allowances by both specific identification of customer accounts where appropriate and the application of historical loss experience to non-specific accounts. As of December 31, 2013 and 2012, the Company had an allowance for doubtful accounts of $0.9 million and $0.7 million, respectively.
MARKETABLE SECURITIES
- The Company generally classifies its equity securities as “available for sale” and, accordingly, reflects unrealized gains and losses, net of deferred income taxes, as a component of accumulated other comprehensive income (loss). The Company periodically reviews its marketable securities and determines whether the investments are other-than-temporarily impaired. If the investments are deemed to be other-than-temporarily impaired, the investments are written down to their then current fair market value. The fair values of marketable securities are based on quoted market prices. Realized gains or losses from the sale of marketable securities are based on the specific identification method. During the years ended December 31, 2013, 2012 and 2011, the Company recorded net realized gains (losses) on sales of investments in the amount of $0.1 million, ($0.1) million and $0.1 million, respectively, and an other-than-temporary impairment charge of $0.8 million during the year ended December 31, 2012.
BUSINESS COMBINATIONS
– The Company accounts for business combinations by recognizing the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the accounting literature. Acquisition-related costs, including restructuring costs, are recognized separately from the acquisition and will generally be expensed as incurred.
EFFECTS OF FOREIGN CURRENCY
- Most of the Company’s significant expenses, including raw materials, labor and manufacturing expenses, are incurred primarily in U.S. Dollars or the Chinese Renminbi, and to a lesser extent in British Pounds and Mexican Pesos. The Chinese Renminbi appreciated by approximately 2.0% in 2013 as compared to 2012. Future appreciation of the Renminbi would result in the Company’s incurring higher costs for all expenses incurred in the PRC. The Company's European entities, whose functional currencies are Euros, British Pounds and Czech Korunas, enter into transactions which include sales denominated principally in Euros, British Pounds and various other European currencies, and purchases that are denominated principally in U.S. Dollars and British Pounds. Such transactions resulted in net realized and unrealized currency exchange (losses) gains of ($0.6) million and $0.6 million for the years ended December 31, 2013 and 2012, respectively, which were included in net earnings. Realized and unrealized currency transaction losses during the year ended December 31, 2011 were not material. The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in other comprehensive income. The U.S. Dollar is used as the functional currency for certain foreign operations that conduct their business in U.S. Dollars. Translation of subsidiaries’ foreign currency financial statements into U.S. dollars resulted in translation gains (losses) of $1.0 million, $0.3 million and ($0.2) million for the years ended December 31, 2013, 2012 and 2011, respectively, which are included in accumulated other comprehensive income (loss).
CONCENTRATION OF CREDIT RISK
- Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and temporary cash investments. The Company grants credit to customers that are primarily 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. See Note 12 of notes to the Company’s consolidated financial statements for disclosures regarding significant customers.
The Company places its temporary cash investments with quality financial institutions and commercial issuers of short-term paper and, by policy, limits the amount of credit exposure in any one financial instrument.
INVENTORIES
- Inventories are stated at the lower of weighted-average cost or market.
REVENUE RECOGNITION
– Revenue is recognized when the product has been delivered and title and risk of loss has passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Substantially all of the Company's shipments are FCA (free carrier), which provides for title to pass upon delivery to the customer's freight carrier. Some product is shipped DDP/DDU with title passing when the product arrives at the customer's dock. DDP is defined as Delivered Duty Paid by the Company and DDU is Delivered Duty Unpaid by the Company.
For certain customers, the Company provides consigned inventory, either at the customer’s facility or at a third-party warehouse. Sales of consigned inventory are recorded when the customer withdraws inventory from consignment
.
The Company typically has a twelve-month warranty policy for workmanship defects. As the Company has not historically had significant warranty claims, no general reserves for warranties have been established. The Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the Company’s product specifications. However, the Company may permit its customers to return product for other reasons. In these instances, the Company would generally require a significant cancellation penalty payment by the customer. The Company estimates such returns, where applicable, based upon management's evaluation of historical experience, market acceptance of products produced and known negotiations with customers. Such estimates are deducted from sales and provided for at the time revenue is recognized.
FINITE-LIVED INTANGIBLE ASSETS
– Intangible assets with finite lives are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful life of the asset.
GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS
– The Company evaluates its goodwill and other indefinite-lived intangible assets for impairment annually as of October 1 or more frequently if impairment indicators arise in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other”.
The Company tests goodwill for impairment using a fair value approach at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment for which discrete financial information is available and reviewed regularly by management. Assets and liabilities of the Company have been assigned to the reporting units to the extent they are employed in or are considered a liability related to the operations of the reporting unit and are considered in determining the fair value of the reporting unit. Reporting units with similar economic characteristics are aggregated for purposes of the goodwill impairment test.
The goodwill impairment test is a two-step process. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of goodwill associated with each reporting unit with the carrying amount of that goodwill.
If the carrying amount of goodwill associated with a reporting unit exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. No impairment was recognized as a result of the October 1, 2013 and 2012 testing. See Note 4 of the consolidated financial statements.
The Company tests indefinite-lived intangible assets for impairment using the relief-from-royalty method (a form of the income approach). No impairment was recognized as a result of the October 1, 2013 testing. See Note 4 of the consolidated financial statements.
DEPRECIATION
- Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated primarily using the straight-line method over the estimated useful life of the asset. The estimated useful lives primarily range from 2 to 39 years for buildings and leasehold improvements, and from 1 to 13 years for machinery and equipment.
INCOME TAXES
- The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has established a valuation allowance for deferred tax assets that are not likely to be realized. In the event the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company establishes reserves for tax contingencies when, despite the belief that the Company’s tax return positions are fully supported, it is probable that certain positions may be challenged and may not be fully sustained. The tax contingency reserves are analyzed on a quarterly basis and adjusted based upon changes in facts and circumstances, such as the conclusion of federal and state audits, expiration of the statute of limitations for the assessment of tax, case law and emerging legislation. The Company’s effective tax rate includes the effect of tax contingency reserves and changes to the reserves as considered appropriate by management.
EARNINGS PER SHARE
– The Company utilizes the two-class method to report its earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. The Company’s Certificate of Incorporation, as amended, states that Class B common shares are entitled to dividends at least 5% greater than dividends paid to Class A common shares, resulting in the two-class method of computing earnings per share. In computing earnings per share, the Company has allocated dividends declared to Class A and Class B based on amounts actually declared for each class of stock and 5% more of the undistributed earnings have been allocated to Class B shares than to the Class A shares on a per share basis. Basic earnings per common share are computed by dividing net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share, for each class of common stock, are computed by dividing net earnings by the weighted-average number of common shares and potential common shares outstanding during the period. There were no potential common shares outstanding during the years ended December 31, 2013, 2012 or 2011 which would have had a dilutive effect on earnings per share.
The earnings and weighted average shares outstanding used in the computation of basic and diluted earnings per share are as follows (dollars in thousands, except share and per share data):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
15,908
|
|
|
$
|
2,373
|
|
|
$
|
3,764
|
|
Less Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
522
|
|
|
|
522
|
|
|
|
522
|
|
Class B
|
|
|
2,576
|
|
|
|
2,697
|
|
|
|
2,690
|
|
Undistributed earnings (loss)
|
|
$
|
12,810
|
|
|
$
|
(846
|
)
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings (loss) allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
Class A undistributed earnings (loss)
|
|
$
|
2,346
|
|
|
$
|
(150
|
)
|
|
$
|
98
|
|
Class B undistributed earnings (loss)
|
|
|
10,464
|
|
|
|
(696
|
)
|
|
|
454
|
|
Total undistributed earnings (loss)
|
|
$
|
12,810
|
|
|
$
|
(846
|
)
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocation - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A net earnings
|
|
$
|
2,868
|
|
|
$
|
372
|
|
|
$
|
620
|
|
Class B net earnings
|
|
|
13,040
|
|
|
|
2,001
|
|
|
|
3,144
|
|
Net earnings
|
|
$
|
15,908
|
|
|
$
|
2,373
|
|
|
$
|
3,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - basic and diluted
|
|
|
2,174,912
|
|
|
|
2,174,912
|
|
|
|
2,174,912
|
|
Class B - basic and diluted
|
|
|
9,239,646
|
|
|
|
9,624,578
|
|
|
|
9,597,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - basic and diluted
|
|
$
|
1.32
|
|
|
$
|
0.17
|
|
|
$
|
0.28
|
|
Class B - basic and diluted
|
|
$
|
1.41
|
|
|
$
|
0.21
|
|
|
$
|
0.33
|
|
RESEARCH AND DEVELOPMENT (“R&D”)
- The Company’s engineering groups are strategically located around the world to facilitate communication with and access to customers’ engineering personnel. This collaborative approach enables partnerships with customers for technical development efforts. On occasion, Bel executes non-disclosure agreements with customers to help develop proprietary, next generation products destined for rapid deployment. Research and development costs are expensed as incurred, and are included in cost of sales. Generally, research and development is performed internally for the benefit of the Company. Research and development costs include salaries, building maintenance and utilities, rents, materials, administration costs and miscellaneous other items. Research and development expenses for the years ended December 31, 2013, 2012 and 2011 amounted to $14.1 million, $12.4 million and $12.0 million, respectively, and are included in cost of sales in the accompanying consolidated statements of operations. The increase in 2013 R&D resulted primarily from the inclusion of results of the 2013 Acquired Companies and a full year of the 2012 Acquired Companies.
EVALUATION OF LONG-LIVED ASSETS
– Property, plant and equipment represent an important component of the Company’s total assets. The Company depreciates its property, plant and equipment on a straight-line basis over the estimated useful lives of the assets. Management reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists, the resulting writedown would be the difference between fair market value of the long-lived asset and the related net book value. In connection with the closure of its Vinita, Oklahoma manufacturing facility, the Company recorded $1.4 million of impairment charges related to property, plant and equipment during the year ended December 31, 2012. Of this amount, $1.0 million related to the carrying value of the building and land, which the Company donated to a local university in 2012. The Company also recorded $0.3 million in asset writedowns related to property, plant and equipment damaged by Hurricane Sandy at its Jersey City, New Jersey and Inwood, New York facilities in 2012.
FAIR VALUE MEASUREMENTS
- The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1
- Observable inputs such as quoted market prices in active markets
Level 2
- Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3
- Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
For financial instruments such as cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable, the carrying amount approximates fair value because of the short maturities of such instruments. See Note 5 for additional disclosures related to fair value measurements.
NEW FINANCIAL ACCOUNTING STANDARDS
Accounting Standards Update No. 2012-02 – Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU No. 2012-02”)
ASU No. 2012-02 amends ASU No. 2011-08,
Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,
and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30,
Intangibles - Goodwill and Other - General Intangibles Other than Goodwill
. The amendments became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU No. 2012-02 did not have any impact on the Company’s financial position or results of operations.
Accounting Standards Update No. 2013-02 – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”)
ASU No. 2013-02 requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the consolidated statements of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net earnings but only if the amount reclassified is required to be reclassified to net earnings in its entirety in the same reporting period. For amounts not reclassified in their entirety to net earnings, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. ASU No. 2013-02 became effective prospectively for the Company for annual and interim periods beginning January 1, 2013. The adoption of ASU No. 2013-02 did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards Update No. 2013-11 – Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU No. 2013-11”)
ASU No. 2013-11 provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. The guidance in ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The Company does not expect the adoption of this ASU to have a material impact on the Company’s results of operations, financial condition or cash flows.
2013 Acquisitions
:
On March 29, 2013, the Company completed its acquisition of TRP for $21.0 million, net of cash acquired. The Company’s purchase of TRP consisted of the integrated connector module (“ICM”) family of products, including RJ45, 10/100 Gigabit, 10G, PoE/PoE+, MRJ21 and RJ.5, a line of modules for smart-grid applications, and discrete magnetics.
On August 20, 2013, the Company completed its acquisition of Array, a manufacturer of aerospace and mil-spec connector products based in Miami, Florida, for $10.0 million in cash. The acquisition of Array expands the Company’s portfolio of connector products that can be offered to the combined customer base, and provides an opportunity to sell other products that Bel manufactures to Array’s customers. Array has become part of Bel’s Cinch Connector business.
During the years ended December 31, 2013 and 2012, the Company incurred $0.7 million and $0.5 million, respectively, of acquisition-related costs associated with the 2013 Acquisitions. These costs are included in selling, general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2013 and 2012.
While the initial accounting related to the acquisitions of TRP and Array is not complete as of the filing date of this Annual Report on Form 10-K, the following table depicts the Company’s current estimate of the respective acquisition date fair values of the consideration paid and identifiable net assets acquired (in thousands):
|
|
TRP
|
|
|
Array
|
|
|
2013 Acquisitions
|
|
|
|
|
|
|
Measurement
|
|
|
March 29,
|
|
|
|
|
|
Measurement
|
|
|
August 20,
|
|
|
Acquisition-Date
|
|
|
|
March 29,
|
|
|
Period
|
|
|
2013
|
|
|
August 20,
|
|
|
Period
|
|
|
2013
|
|
|
Fair Values
|
|
|
|
2013
|
|
|
Adjustments
|
|
|
(As adjusted)
|
|
|
2013
|
|
|
Adjustments
|
|
|
(As adjusted)
|
|
|
(As adjusted)
|
|
Cash
|
|
$
|
8,388
|
|
|
$
|
(29
|
)
|
|
$
|
8,359
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,359
|
|
Accounts receivable
|
|
|
11,580
|
|
|
|
(39
|
)
|
|
|
11,541
|
|
|
|
994
|
|
|
|
-
|
|
|
|
994
|
|
|
|
12,535
|
|
Inventories
|
|
|
6,258
|
|
|
|
1,097
|
|
|
|
7,355
|
|
|
|
2,588
|
|
|
|
(1,595
|
)
|
|
|
993
|
|
|
|
8,348
|
|
Other current assets
|
|
|
1,953
|
|
|
|
(181
|
)
|
|
|
1,772
|
|
|
|
83
|
|
|
|
345
|
|
|
|
428
|
|
|
|
2,200
|
|
Property, plant and equipment
|
|
|
4,693
|
|
|
|
1,097
|
|
|
|
5,790
|
|
|
|
2,285
|
|
|
|
1,225
|
|
|
|
3,510
|
|
|
|
9,300
|
|
Intangible assets
|
|
|
-
|
|
|
|
6,110
|
|
|
|
6,110
|
|
|
|
-
|
|
|
|
1,470
|
|
|
|
1,470
|
|
|
|
7,580
|
|
Other assets
|
|
|
1,151
|
|
|
|
84
|
|
|
|
1,235
|
|
|
|
84
|
|
|
|
1,663
|
|
|
|
1,747
|
|
|
|
2,982
|
|
Total identifiable assets
|
|
|
34,023
|
|
|
|
8,139
|
|
|
|
42,162
|
|
|
|
6,034
|
|
|
|
3,108
|
|
|
|
9,142
|
|
|
|
51,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(8,565
|
)
|
|
|
331
|
|
|
|
(8,234
|
)
|
|
|
(677
|
)
|
|
|
1
|
|
|
|
(676
|
)
|
|
|
(8,910
|
)
|
Accrued expenses
|
|
|
(4,003
|
)
|
|
|
(219
|
)
|
|
|
(4,222
|
)
|
|
|
(206
|
)
|
|
|
(79
|
)
|
|
|
(285
|
)
|
|
|
(4,507
|
)
|
Other current liabilities
|
|
|
(25
|
)
|
|
|
(791
|
)
|
|
|
(816
|
)
|
|
|
(214
|
)
|
|
|
214
|
|
|
|
-
|
|
|
|
(816
|
)
|
Noncurrent liabilities
|
|
|
-
|
|
|
|
(586
|
)
|
|
|
(586
|
)
|
|
|
(643
|
)
|
|
|
(1,105
|
)
|
|
|
(1,748
|
)
|
|
|
(2,334
|
)
|
Total liabilities assumed
|
|
|
(12,593
|
)
|
|
|
(1,265
|
)
|
|
|
(13,858
|
)
|
|
|
(1,740
|
)
|
|
|
(969
|
)
|
|
|
(2,709
|
)
|
|
|
(16,567
|
)
|
Net identifiable assets acquired
|
|
|
21,430
|
|
|
|
6,874
|
|
|
|
28,304
|
|
|
|
4,294
|
|
|
|
2,139
|
|
|
|
6,433
|
|
|
|
34,737
|
|
Goodwill
|
|
|
8,278
|
|
|
|
(7,234
|
)
|
|
|
1,044
|
|
|
|
5,666
|
|
|
|
(2,094
|
)
|
|
|
3,572
|
|
|
|
4,616
|
|
Net assets acquired
|
|
$
|
29,708
|
|
|
$
|
(360
|
)
|
|
$
|
29,348
|
|
|
$
|
9,960
|
|
|
$
|
45
|
|
|
$
|
10,005
|
|
|
$
|
39,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
22,400
|
|
|
$
|
6,948
|
|
|
$
|
29,348
|
|
|
$
|
9,960
|
|
|
$
|
45
|
|
|
$
|
10,005
|
|
|
$
|
39,353
|
|
Assumption of severance payment
|
|
|
109
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fair value of consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred
|
|
|
22,509
|
|
|
|
6,839
|
|
|
|
29,348
|
|
|
|
9,960
|
|
|
|
45
|
|
|
|
10,005
|
|
|
|
39,353
|
|
Deferred consideration
|
|
|
7,199
|
|
|
|
(7,199
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total consideration paid
|
|
$
|
29,708
|
|
|
$
|
(360
|
)
|
|
$
|
29,348
|
|
|
$
|
9,960
|
|
|
$
|
45
|
|
|
$
|
10,005
|
|
|
$
|
39,353
|
|
The measurement period adjustments noted above primarily relate to adjustments to fair value based on the preliminary appraisals on inventory, property, plant and equipment, and intangible assets. Various other asset and liability accounts had measurement period adjustments related to deferred taxes.
The preliminary fair value of identifiable intangible assets related to the 2013 Acquired Companies is shown in the table below (dollars in thousands). For those intangible assets with finite lives, the acquisition-date fair values will be amortized over their respective estimated future lives utilizing the straight-line method.
|
Weighted-Average Life
|
|
Acquisition-Date Fair Value
|
|
Trademarks
|
Indefinite
|
|
$
|
40
|
|
Technology
|
22 years
|
|
|
1,540
|
|
Customer relationships
|
17.5 years
|
|
|
5,840
|
|
Non-compete agreements
|
2 years
|
|
|
160
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
7,580
|
|
The results of operations of the 2013 Acquired Companies have been included in the Company’s consolidated financial statements for the period subsequent to their respective acquisition dates. During the year ended December 31, 2013, the 2013 Acquired Companies contributed $68.6 million of revenue and $9.2 million of net earnings to the Company’s consolidated financial results.
The unaudited pro forma information below presents the combined operating results of the Company and the 2013 Acquired Companies. The unaudited pro forma results are presented for illustrative purposes only. They do not reflect the realization of any potential cost savings, or any related integration costs. Certain cost savings may result from the 2013 Acquisitions; however, there can be no assurance that these cost savings will be achieved. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the 2013 Acquisitions had occurred as of January 1, 2012, nor is the pro forma data intended to be a projection of results that may be obtained in the future. The following unaudited pro forma consolidated results of operations assume that the acquisitions of the 2013 Acquired Companies were completed as of January 1, 2012. The pro forma results noted below for 2012 also include the effects of the 2012 Acquisitions discussed below. The 2013 unaudited pro forma net earnings were adjusted to exclude $0.9 million of acquisition-related costs ($0.6 million after tax) incurred in 2013 and $0.4 million ($0.4 million after tax) of nonrecurring expense related to the fair value adjustments to acquisition-date inventory. The 2012 unaudited pro forma net earnings were adjusted to include these charges (dollars in thousands except per share data):
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
374,153
|
|
|
$
|
376,921
|
|
Net earnings
|
|
|
17,774
|
|
|
|
8,800
|
|
Earnings per Class A common share - basic and diluted
|
|
|
1.48
|
|
|
|
0.69
|
|
Earnings per Class B common share - basic and diluted
|
|
|
1.58
|
|
|
|
0.76
|
|
2012 Acquisitions
:
On March 9, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of GigaCom with a cash payment of $2.7 million (£1.7 million). GigaCom, located in Gothenburg, Sweden, is a supplier of expanded beam fiber optic technology. GigaCom has become part of Bel’s Cinch Connector business. Management believes that GigaCom’s offering of expanded beam fiber optic (“EBOSA®”) products will enhance the Company’s position within the growing aerospace and military markets.
On July 31, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Fibreco with a cash payment, net of $2.7 million of cash acquired, of $13.7 million (£8.7 million). Fibreco, located in the United Kingdom, is a supplier of a broad range of expanded beam fiber optic components for use in military communications, outside broadcast and offshore exploration applications. Fibreco has become part of Bel’s interconnect product group under the Cinch Connector business. Management believes that the addition of Fibreco’s fiber optic-based product line to Cinch’s broad range of copper-based products will increase Cinch’s presence in emerging fiber applications within the military, aerospace and industrial markets. In addition, management believes the acquisition provides access to a range of customers for the recently acquired GigaCom EBOSA® product.
On September 12, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Powerbox, now known as Bel Power Europe, with a cash payment, net of $0.2 million of cash acquired, of $3.0 million. The Company also granted 30,000 restricted shares of the Company’s Class B common stock in connection with this acquisition. Compensation expense equal to the grant date fair value of these restricted shares of $0.6 million is being recorded ratably through September 2014. Bel Power Europe, located near Milan, Italy, develops high-power AC-DC power conversion solutions targeted at the broadcasting market. The acquisition of Bel Power Europe will allow Bel to expand its portfolio of power product offerings to include AC-DC products and will also establish a European design center located close to several of Bel’s existing customers.
During the years ended December 31, 2013 and 2012, the Company incurred $0.2 million and $0.8 million of acquisition-related costs relating to the 2012 acquisitions. These costs are included in selling, general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2012.
During the year ended December 31, 2012, the Company completed the purchase accounting related to the GigaCom and Fibreco acquisitions. During the third quarter of 2013, the Company completed the purchase accounting related to its acquisition of Bel Power Europe. The following table reflects the finalized acquisition date fair values of the consideration transferred and identifiable net assets acquired related to the 2012 acquisitions (in thousands):
|
|
|
|
|
Measurement
|
|
|
Acquisition-Date
|
|
|
|
Acquisition-Date
|
|
|
Period
|
|
|
Fair Values
|
|
|
|
Fair Values
|
|
|
Adjustments
|
|
|
(As finalized)
|
|
Cash and cash equivalents
|
|
$
|
2,991
|
|
|
$
|
-
|
|
|
$
|
2,991
|
|
Accounts receivable
|
|
|
3,750
|
|
|
|
3
|
|
|
|
3,753
|
|
Inventories
|
|
|
1,061
|
|
|
|
(16
|
)
|
|
|
1,045
|
|
Other current assets
|
|
|
90
|
|
|
|
-
|
|
|
|
90
|
|
Property, plant and equipment
|
|
|
502
|
|
|
|
263
|
|
|
|
765
|
|
Intangible assets
|
|
|
30
|
|
|
|
11,626
|
|
|
|
11,656
|
|
Total identifiable assets
|
|
|
8,424
|
|
|
|
11,876
|
|
|
|
20,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,702
|
)
|
|
|
-
|
|
|
|
(1,702
|
)
|
Accrued expenses
|
|
|
(1,736
|
)
|
|
|
-
|
|
|
|
(1,736
|
)
|
Notes payable
|
|
|
(216
|
)
|
|
|
-
|
|
|
|
(216
|
)
|
Income taxes payable
|
|
|
(264
|
)
|
|
|
(60
|
)
|
|
|
(324
|
)
|
Deferred income tax liability, current
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
(70
|
)
|
Deferred income tax liability, noncurrent
|
|
|
-
|
|
|
|
(2,700
|
)
|
|
|
(2,700
|
)
|
Other long-term liabilities
|
|
|
(216
|
)
|
|
|
-
|
|
|
|
(216
|
)
|
Total liabilities assumed
|
|
|
(4,204
|
)
|
|
|
(2,760
|
)
|
|
|
(6,964
|
)
|
Net identifiable assets acquired
|
|
|
4,220
|
|
|
|
9,116
|
|
|
|
13,336
|
|
Goodwill
|
|
|
17,965
|
|
|
|
(8,900
|
)
|
|
|
9,065
|
|
Net assets acquired
|
|
$
|
22,185
|
|
|
$
|
216
|
|
|
$
|
22,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
22,138
|
|
|
|
263
|
|
|
$
|
22,401
|
|
Deferred consideration
|
|
|
47
|
|
|
|
(47
|
)
|
|
|
-
|
|
Fair value of consideration transferred
|
|
$
|
22,185
|
|
|
$
|
216
|
|
|
$
|
22,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of identifiable intangible assets related to the 2012 Acquired Companies is shown in the table below (dollars in thousands). For those intangible assets with finite lives, the acquisition-date fair values will be amortized over their respective estimated future lives utilizing the straight-line method.
|
Weighted-Average Life
|
|
Acquisition-Date Fair Value
|
|
Trademarks
|
Indefinite
|
|
$
|
1,264
|
|
Technology
|
20 years
|
|
|
6,542
|
|
Customer relationships
|
16 years
|
|
|
3,292
|
|
Non-compete agreements
|
2 years
|
|
|
558
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
11,656
|
|
The results of operations of the 2012 Acquired Companies have been included in the Company’s consolidated financial statements for the periods subsequent to their respective acquisition dates. During the years ended December 31, 2013 and 2012, Fibreco and Bel Power Europe contributed combined revenues of $10.7 million and $3.1 million, respectively, and combined net earnings of $1.0 million and $0.2 million, respectively, to the Company’s consolidated financial results. The acquisition of GigaCom has contributed to Bel’s research and development efforts, and its technology has been incorporated into products now being sold by Fibreco. GigaCom incurred expenses, primarily related to research and development, of $1.0 million and $0.6 million during the years ended December 31, 2013 and 2012, respectively.
3.
|
RESTRUCTURING ACTIVITIES
|
During 2012, Bel initiated the closure of its Cinch North American manufacturing facility in Vinita, Oklahoma, and transition of the operations to Reynosa, Mexico and a new facility in McAllen, Texas. The Company accrued the full amount of termination benefits related to the Vinita, Oklahoma employees during 2012, as noted in the table below. During December 2012, the Company donated the Vinita building and land to a local university, and recorded a $1.0 million loss on disposal related to this donation. The Company also recorded a $0.4 million impairment on certain equipment at the Vinita facility. These amounts are classified as restructuring charges in the accompanying 2012 consolidated statement of operations.
In addition to the closure of the Vinita, Oklahoma facility, the Company implemented other overhead cost reductions during 2012 and 2013 which contributed to the severance costs noted in the table below.
Activity and liability balances related to restructuring costs for the years ended December 31, 2012 and 2013 are as follows:
|
|
|
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
Cash Payments
|
|
|
Liability at
|
|
|
|
|
|
Cash Payments
|
|
|
Liability at
|
|
|
|
December 31,
|
|
|
New
|
|
|
and Other
|
|
|
December 31,
|
|
|
New
|
|
|
and Other
|
|
|
December 31,
|
|
|
|
2011
|
|
|
Charges
|
|
|
Settlements
|
|
|
2012
|
|
|
Charges
|
|
|
Settlements
|
|
|
2013
|
|
Severance costs
|
|
$
|
-
|
|
|
$
|
3,227
|
|
|
$
|
(3,105
|
)
|
|
$
|
122
|
|
|
$
|
1,239
|
|
|
$
|
(1,361
|
)
|
|
$
|
-
|
|
Transportation of equipment
|
|
|
-
|
|
|
|
528
|
|
|
|
(528
|
)
|
|
|
-
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
-
|
|
Set-up costs
|
|
|
-
|
|
|
|
71
|
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment/loss on disposal of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets related to restructuring
|
|
|
-
|
|
|
|
1,389
|
|
|
|
(1,389
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other restructuring costs
|
|
|
-
|
|
|
|
30
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
48
|
|
|
|
(48
|
)
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
5,245
|
|
|
$
|
(5,123
|
)
|
|
$
|
122
|
|
|
$
|
1,387
|
|
|
$
|
(1,509
|
)
|
|
$
|
-
|
|
During the year ended December 31, 2011, the Company recorded $0.3 million in restructuring charges related primarily to severance costs associated with the reorganization of Cinch operations in the U.K. The Company also settled its remaining lease obligation related to the Westborough, Massachusetts facility during 2011, which resulted in an immaterial gain.
4.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Goodwill represents the excess of the purchase price and related acquisition costs over the fair value assigned to the net tangible and other intangible assets acquired in a business acquisition.
Other intangible assets include patents, technology, license agreements, supply agreements, non-compete agreements and trademarks. Amounts assigned to these intangible assets have been determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. Trademarks have indefinite lives and are reviewed for impairment on an annual basis. Other intangible assets, excluding trademarks, are being amortized over 1 to 20 years.
The changes in the carrying value of goodwill classified by reportable operating segment for the years ended December 31, 2013 and 2012 are as follows (dollars in thousands):
|
|
Total
|
|
|
Asia
|
|
|
North America
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross
|
|
|
31,104
|
|
|
|
12,875
|
|
|
|
15,293
|
|
|
|
2,936
|
|
Accumulated impairment charges
|
|
|
(26,941
|
)
|
|
|
(12,875
|
)
|
|
|
(14,066
|
)
|
|
|
-
|
|
Goodwill, net
|
|
|
4,163
|
|
|
|
-
|
|
|
|
1,227
|
|
|
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill allocation related to acquisition
|
|
|
9,065
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,065
|
|
Foreign currency translation
|
|
|
331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross
|
|
|
40,500
|
|
|
|
12,875
|
|
|
|
15,293
|
|
|
|
12,332
|
|
Accumulated impairment charges
|
|
|
(26,941
|
)
|
|
|
(12,875
|
)
|
|
|
(14,066
|
)
|
|
|
-
|
|
Goodwill, net
|
|
$
|
13,559
|
|
|
$
|
-
|
|
|
$
|
1,227
|
|
|
$
|
12,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill allocation related to acquisition
|
|
|
4,616
|
|
|
|
1,044
|
|
|
|
3,572
|
|
|
|
-
|
|
Foreign currency translation
|
|
|
185
|
|
|
|
58
|
|
|
|
-
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross
|
|
|
45,301
|
|
|
|
13,977
|
|
|
|
18,865
|
|
|
|
12,459
|
|
Accumulated impairment charges
|
|
|
(26,941
|
)
|
|
|
(12,875
|
)
|
|
|
(14,066
|
)
|
|
|
-
|
|
Goodwill, net
|
|
$
|
18,360
|
|
|
$
|
1,102
|
|
|
$
|
4,799
|
|
|
$
|
12,459
|
|
During the year ended December 31, 2013, the Company recorded $4.6 million of additional goodwill related to the 2013 Acquisitions. The goodwill related to the acquisition of TRP was assigned to the Company’s Asia operating segment and the goodwill related to the acquisition of Array was assigned to the Company’s North America operating segment. During the year ended December 31, 2012, the Company recorded $9.1 million of additional goodwill in connection with the 2012 Acquisitions. The goodwill related to the 2012 Acquired Companies was assigned to the Company’s Europe operating segment. The Company completed its annual goodwill impairment test during the fourth quarter of 2013, noting no impairment. Management determined that the fair value of the goodwill at December 31, 2013 exceeded its carrying value and that no impairment existed as of that date.
The Company tests indefinite-lived intangible assets for impairment using a fair value approach, the relief-from-royalty method (a form of the income approach) . At December 31, 2013, the Company’s indefinite-lived intangible assets related to the trademarks acquired in the Cinch and Fibreco acquisitions. The Company completed its annual indefinite-lived intangible assets impairment test during the fourth quarter of 2013, noting no impairment. Management has concluded that the fair value of these trademarks exceeded the related carrying values at December 31, 2013 and that no impairment existed as of that date.
The components of intangible assets other than goodwill are as follows (dollars in thousands):
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, licenses and technology
|
|
$
|
11,919
|
|
|
$
|
1,864
|
|
|
$
|
10,055
|
|
|
$
|
8,900
|
|
|
$
|
873
|
|
|
$
|
8,027
|
|
Customer relationships
|
|
|
11,923
|
|
|
|
1,191
|
|
|
|
10,732
|
|
|
|
5,977
|
|
|
|
566
|
|
|
|
5,411
|
|
Non-compete agreements
|
|
|
787
|
|
|
|
483
|
|
|
|
304
|
|
|
|
613
|
|
|
|
157
|
|
|
|
456
|
|
Trademarks
|
|
|
8,381
|
|
|
|
-
|
|
|
|
8,381
|
|
|
|
8,297
|
|
|
|
-
|
|
|
|
8,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,010
|
|
|
$
|
3,538
|
|
|
$
|
29,472
|
|
|
$
|
23,787
|
|
|
$
|
1,596
|
|
|
$
|
22,191
|
|
During 2013, the Company paid $1.3 million and received $0.3 million associated with licensing agreements entered into with Radiall SA. The agreements cover the parties’ respective technologies for EBOSA
®
fibre optic termini and the EPX
®
connector range. The $1.3 million paid by the Company is reflected as an intangible asset and the $0.3 million received by the Company is included in accrued expenses and other long-term liabilities on the accompanying consolidated balance sheet at December 31, 2013. Each will be amortized over the life of the respective agreement of 20 years.
During the years ended December 31, 2013 and 2012, the Company recorded $7.6 million and $11.7 million, respectively, of various intangible assets in connection with the recent acquisitions. A listing of intangible assets acquired with the 2012 and 2013 Acquired Companies and the related weighted-average lives of those assets is detailed in Note 2. Amortization expense was $1.9 million, $0.8 million and $0.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Estimated amortization expense for intangible assets for the next five years is as follows (dollars in thousands):
December 31,
|
|
Amortization Expense
|
|
|
|
|
|
2014
|
|
$
|
2,198
|
|
2015
|
|
|
1,668
|
|
2016
|
|
|
1,509
|
|
2017
|
|
|
1,509
|
|
2018
|
|
|
1,506
|
|
5.
|
FAIR VALUE MEASUREMENTS
|
As of December 31, 2013 and 2012, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of securities that are among the Company’s investments in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations, and other marketable securities described below. The securities that are held in the rabbi trust are categorized as available-for-sale securities and are included as other assets in the accompanying consolidated balance sheets at December 31, 2013 and 2012. The gross unrealized gains associated with the investments held in the rabbi trust were $0.4 million at each of December 31, 2013 and December 31, 2012. Such unrealized gains are included, net of tax, in accumulated other comprehensive income.
As of December 31, 2013 and December 31, 2012, the Company had marketable securities with a combined fair value of less than $0.1 million at each date, and gross unrealized gains of less than $0.1 million at each date. Such unrealized gains are included, net of tax, in accumulated other comprehensive income. The fair value of the equity securities is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during 2013 or 2012. There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during 2013.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2013 and 2012 (dollars in thousands).
|
|
|
|
|
Assets at Fair Value Using
|
|
|
|
Total
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in rabbi trust
|
|
$
|
3,313
|
|
|
$
|
3,313
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable securities
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,316
|
|
|
$
|
3,316
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in rabbi trust
|
|
$
|
6,014
|
|
|
$
|
6,014
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable securities
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,016
|
|
|
$
|
6,016
|
|
|
$
|
-
|
|
|
$
|
-
|
|
There were no financial assets accounted for at fair value on a nonrecurring basis as of December 31, 2013 or 2012.
The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued expenses and notes payable, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2013.
Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. The Company performed its annual impairment tests related to its goodwill and indefinite-lived intangible assets during the fourth quarter of 2013. These valuations indicated that the fair value of the Company’s aggregated reporting units and indefinite-live intangible assets exceeded the respective carrying values as of the testing date and the Company has concluded that no impairment exists at December 31, 2013.
At December 31, 2013 and 2012, the Company has obligations of $10.8 million and $11.0 million, respectively, associated with its SERP. As a means of informally funding these obligations, the Company has invested in life insurance policies related to certain employees and marketable securities held in a rabbi trust. At December 31, 2013 and 2012, these assets had a combined fair value of $11.9 million and $11.1 million, respectively.
Company-Owned Life Insurance
Investments in company-owned life insurance policies (“COLI”) were made with the intention of utilizing them as a long-term funding source for the Company’s SERP obligations. However, the cash surrender value of the COLI does not represent a committed funding source for these obligations. Any proceeds from these policies are subject to claims from creditors. The fair market value of the COLI of $8.6 million and $5.1 million at December 31, 2013 and 2012, respectively, is included in other assets in the accompanying consolidated balance sheets. During 2013, the Company sold $2.8 million of other investments, as described below, and utilized the proceeds to purchase additional COLI policies. The volatility in global equity markets in recent years has also had a significant effect on the cash surrender value of the COLI policies. The Company recorded income (expense) to account for the increase (decrease) in cash surrender value in the amount of $0.7 million, $0.3 million and $(0.1) million during the years ended December 31, 2013, 2012 and 2011, respectively. These fluctuations in the cash surrender value were allocated between cost of sales and selling, general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011. The allocation is consistent with the costs associated with the long-term employee benefit obligations that the COLI is intended to fund.
Other Investments
At December 31, 2013 and 2012, the Company held, in the aforementioned rabbi trust, available-for-sale investments at a cost of $2.9 million and $5.6 million, respectively. Together with the COLI described above, these investments are intended to fund the Company’s SERP obligations and are classified as other assets in the accompanying consolidated balance sheets. The Company monitors these investments for impairment on an ongoing basis. During 2013, the Company sold a portion of these investments for $2.8 million, realizing a gain on the sale of $0.1 million. At December 31, 2013 and 2012, the fair market value of these investments was $3.3 million and $6.0 million, respectively. The gross unrealized gain of $0.4 million at each of December 31, 2013 and 2012, respectively, has been included, net of tax, in accumulated other comprehensive income (loss).
The components of inventories are as follows (dollars in thousands):
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Raw materials
|
|
$
|
29,428
|
|
|
$
|
26,157
|
|
Work in progress
|
|
|
8,783
|
|
|
|
8,200
|
|
Finished goods
|
|
|
31,808
|
|
|
|
20,567
|
|
|
|
$
|
70,019
|
|
|
$
|
54,924
|
|
8.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consist of the following (dollars in thousands):
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Land
|
|
$
|
3,229
|
|
|
$
|
3,234
|
|
Buildings and improvements
|
|
|
25,216
|
|
|
|
23,579
|
|
Machinery and equipment
|
|
|
82,420
|
|
|
|
70,384
|
|
Construction in progress
|
|
|
4,042
|
|
|
|
2,340
|
|
Assets held for sale
|
|
|
-
|
|
|
|
14
|
|
|
|
|
114,907
|
|
|
|
99,551
|
|
Accumulated depreciation
|
|
|
(74,011
|
)
|
|
|
(64,549
|
)
|
|
|
$
|
40,896
|
|
|
$
|
35,002
|
|
Depreciation expense for the years ended December 31, 2013, 2012 and 2011 was $10.5 million, $8.4 million and $8.0 million, respectively.
9.
INCOME TAXES
At December 31, 2013 and 2012, the Company has approximately $2.2 million and $2.7 million, respectively, of liabilities for uncertain tax positions ($1.0 million and $0.5 million, respectively, included in income taxes payable and $1.2 million and $2.2 million, respectively, included in liability for uncertain tax positions) all of which, if recognized, would reduce the Company’s effective tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2010 and for state examinations before 2007. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2006 in Asia and generally 2006 in Europe. During September 2010 and April 2011, the Company was notified of an Internal Revenue Service (“IRS”) tax audit for the years ended December 31, 2004 through 2009. The Company settled the domestic and international audits with the IRS for an amount due to the IRS of $0.1 million, net of interest income paid by the IRS to the Company. Additionally, the Company’s wholly-owned subsidiary in Germany was subject to a tax audit for the tax years 2008 through 2010. This audit has been completed and resulted in a minimal tax assessment.
As a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company’s consolidated financial statements at December 31, 2013. A total of $1.0 million of previously recorded liabilities for uncertain tax positions relates principally to the 2010 tax year. The statute of limitations related to these liabilities is scheduled to expire on September 15, 2014. Additionally, a total of $0.5 million and $2.6 million of previously recorded liabilities for uncertain tax positions, interest and penalties relating to the 2006 and 2009 tax years and the 2007 through 2009 tax years, respectively, were reversed during the year ended December 31, 2013 and 2012, respectively. This was offset in part by an increase in the liability for uncertain tax positions in the amount of $1.2 million during the year ended December 31, 2012.
A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Liability for uncertain tax positions - January 1
|
|
$
|
2,711
|
|
|
$
|
4,132
|
|
|
$
|
3,835
|
|
Additions based on tax positions
|
|
|
|
|
|
|
|
|
|
|
|
|
related to the current year
|
|
|
28
|
|
|
|
1,221
|
|
|
|
297
|
|
Settlement/expiration of statutes of limitations
|
|
|
(550
|
)
|
|
|
(2,642
|
)
|
|
|
-
|
|
Liability for uncertain tax positions - December 31
|
|
$
|
2,189
|
|
|
$
|
2,711
|
|
|
$
|
4,132
|
|
The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits arising from uncertain tax positions as a component of the current provision for income taxes. During the years ended December 31, 2013 and 2011, the Company recognized an immaterial amount and approximately $0.2 million, respectively, in interest and penalties in the consolidated statements of operations. During the year ended December 31, 2012, the Company recognized a benefit of $0.5 million for the reversal of such interest and penalties. The Company has approximately $0.2 million accrued for the payment of interest and penalties at each of December 31, 2013 and 2012, which is included in both income taxes payable and liability for uncertain tax positions in the Company’s consolidated balance sheets.
The Company’s total earnings (loss) before (benefit) provision for income taxes included earnings (loss) from domestic operations of $(1.2) million, $0.4 million and $9.6 million for 2013, 2012 and 2011, respectively, and earnings (loss) before (benefit) provision for income taxes from foreign operations of $16.3 million, $0.6 million and ($1.7) million for 2013, 2012 and 2011, respectively.
The (benefit) provision for income taxes consists of the following (dollars in thousands):
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,099
|
)
|
|
$
|
(459
|
)
|
|
$
|
2,585
|
|
Foreign
|
|
|
1,120
|
|
|
|
241
|
|
|
|
478
|
|
State
|
|
|
113
|
|
|
|
76
|
|
|
|
362
|
|
|
|
|
134
|
|
|
|
(142
|
)
|
|
|
3,425
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(865
|
)
|
|
|
(807
|
)
|
|
|
599
|
|
State
|
|
|
65
|
|
|
|
(58
|
)
|
|
|
102
|
|
Foreign
|
|
|
(77
|
)
|
|
|
(369
|
)
|
|
|
(18
|
)
|
|
|
|
(877
|
)
|
|
|
(1,234
|
)
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(743
|
)
|
|
$
|
(1,376
|
)
|
|
$
|
4,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows (dollars in thousands):
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
$
|
|
|
|
%
|
|
$
|
|
|
|
%
|
|
$
|
|
|
|
%
|
Tax provision computed at the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal statutory rate
|
|
$
|
5,309
|
|
|
|
35
|
%
|
|
$
|
339
|
|
|
|
34
|
%
|
|
$
|
2,676
|
|
|
|
34
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Different tax rates and permanent differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
applicable to foreign operations
|
|
|
(4,677
|
)
|
|
|
(31
|
%)
|
|
|
(306
|
)
|
|
|
(31
|
%)
|
|
|
1,526
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in (reversal of) liability for uncertain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax positions - net
|
|
|
(522
|
)
|
|
|
(3
|
%)
|
|
|
(1,421
|
)
|
|
|
(143
|
%)
|
|
|
297
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization of research and development, solar and foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax credits
|
|
|
(1,049
|
)
|
|
|
(7
|
%)
|
|
|
-
|
|
|
|
0
|
%
|
|
|
(762
|
)
|
|
|
(10
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
117
|
|
|
|
1
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
341
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year valuation allowance - U.S. segment
|
|
|
49
|
|
|
|
0
|
%
|
|
|
298
|
|
|
|
30
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences applicable to U.S. operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including qualified production activity credits,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP/COLI income, unrealized foreign exchange gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization of purchase accounting intangibles
|
|
|
(91
|
)
|
|
|
(1
|
%)
|
|
|
(260
|
)
|
|
|
(26
|
%)
|
|
|
44
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
121
|
|
|
|
1
|
%
|
|
|
(26
|
)
|
|
|
(3
|
%)
|
|
|
(14
|
)
|
|
|
(0
|
%)
|
Tax (benefit) provision computed at the Company's
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effective tax rate
|
|
$
|
(743
|
)
|
|
|
(5
|
%)
|
|
$
|
(1,376
|
)
|
|
|
(138
|
%)
|
|
$
|
4,108
|
|
|
|
52
|
%
|
The Company holds an offshore business license from the government of Macao. With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle all of the Company’s sales to third-party customers in Asia. Sales by this company consist of products manufactured in the PRC. This company is not subject to Macao corporate profit taxes which are imposed at a tax rate of 12%. Additionally, the Company established TRP International, a China Business Trust (“CBT”), when it acquired the TRP group, as previously discussed. Sales by the CBT consists of products manufactured in the PRC and sold to third-party customers inside and outside Asia. The CBT is not subject to PRC income taxes, which are generally imposed at a tax rate of 25%.
As of December 31, 2013, the Company has gross foreign income tax net operating losses (“NOL”) of $2.7 million and capital loss carryforwards of $0.2 million which amount to a total of $0.6 million of deferred tax assets. The Company has established valuation allowances totaling $0.6 million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of $10.7 million, including $5.4 million of NOLs acquired from Array, which amount to $3.2 million of deferred tax assets; capital loss carryforwards of $1.0 million which amount to $0.3 million of deferred tax assets; and tax credit carryforwards of $2.2 million. The Company has established valuation allowances of $0.2 million, $0.3 million and $1.2 million, respectively, against these deferred tax assets. The foreign NOL's can be carried forward indefinitely, the NOL acquired from Array expires at various times during 2022 – 2031, the state NOL's expire at various times during 2014 – 2031 and the tax credit carryforwards expire at various times during 2025 - 2034.
Upon the acquisition of TRP, TRP had a deferred tax asset in the amount of $2.2 million arising from various timing differences related to depreciation and accrued expenses. Upon the acquisition of Array, Array had a deferred tax liability of $0.7 million arising from timing differences related to depreciation and a deferred tax asset of $0.9 million arising from the NOL acquired. In connection with the 2013 acquisitions, the Company was required to complete a preliminary fair market value report of property, plant and equipment and intangibles. As a result of that report, the Company established deferred tax liabilities at the date of acquisition in the amount of $0.6 million and $1.0 million respectively for TRP and Array acquisitions. At December 31, 2013, a net deferred tax asset of $2.0 million remains on the consolidated balance sheet.
The Company does not intend to make any election to step up the tax basis of the 2013 acquisitions to fair value under IRC Section 338(g) and 338(h).
Upon the acquisition of Fibreco, Fibreco had a deferred tax liability in the amount of $0.1 million arising from various timing differences. In connection with the 2012 Acquisitions, the Company was required to complete a fair market value report of property, plant and equipment and intangibles. As a result of that report, the Company established deferred tax liabilities at the date of acquisition in the amount of $1.7 million, $0.6 and $0.4 million, respectively for the Fibreco, GigaCom and Powerbox acquisitions. At December 31, 2013, a deferred tax liability of $2.4 million remains on the consolidated balance sheet.
The Company has made elections under Internal Revenue Code (“IRC”) Section 338(g) to step-up the tax basis of the 2012 Acquisitions to fair value. The elections made under Section 338(g) affect only the U.S. income taxes (not those of the foreign countries where the acquired entities were incorporated).
It is the Company’s intention to repatriate substantially all net income from its wholly owned PRC subsidiary, DG Transpower, a Chinese Limited Liability Company, to its direct Hong Kong parent Transpower Technologies (Hong Kong) Ltd. Applicable income and dividend withholding taxes have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2013. However, U.S. deferred taxes need not be provided under current U.S. tax law. Management’s intention is to permanently reinvest the majority of the remaining earnings of foreign subsidiaries in the expansion of its foreign operations. Unrepatriated earnings, upon which U.S. income taxes have not been accrued, are approximately $109 million at December 31, 2013. Such unrepatriated earnings are deemed by management to be permanently reinvested. The estimated federal income tax liability (net of estimated foreign tax credits) related to unrepatriated foreign earnings is $26 million under the current tax law.
Components of deferred income tax assets are as follows (dollars in thousands).
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Tax Effect
|
|
|
Tax Effect
|
|
Deferred Tax Assets - current:
|
|
|
|
|
|
|
State tax credits
|
|
$
|
915
|
|
|
$
|
848
|
|
Reserves and accruals
|
|
|
2,020
|
|
|
|
1,334
|
|
Federal net operating loss carryforward
|
|
|
790
|
|
|
|
-
|
|
Other accruals
|
|
|
86
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(816
|
)
|
|
|
(745
|
)
|
|
|
$
|
2,995
|
|
|
$
|
1,437
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets - noncurrent:
|
|
|
|
|
|
|
|
|
Unfunded pension liability
|
|
$
|
668
|
|
|
$
|
1,150
|
|
Depreciation
|
|
|
(83
|
)
|
|
|
(426
|
)
|
Amortization
|
|
|
(4,065
|
)
|
|
|
(2,457
|
)
|
Federal, state and foreign net operating loss
|
|
|
|
|
|
|
|
|
and credit carryforwards
|
|
|
3,844
|
|
|
|
1,114
|
|
Restructuring expenses
|
|
|
-
|
|
|
|
319
|
|
Other accruals
|
|
|
2,455
|
|
|
|
2,438
|
|
Valuation allowances
|
|
|
(1,139
|
)
|
|
|
(1,129
|
)
|
|
|
$
|
1,680
|
|
|
$
|
1,009
|
|
On January 2, 2013, President Obama signed the “American Taxpayer Relief Act” (“ATRA”). Among other things, ATRA extends the Research and Experimentation credit (“R&E”), which expired at the end of 2011, through 2013 and 2014, respectively. Under ASC 740,
Income Taxes
, the effects of the new legislation are recognized upon enactment, which is when the President signs a tax bill into law. Although the extenders were effective retroactively for 2012, the Company could only consider currently enacted tax law as of the balance sheet date in determining current and deferred taxes at December 31, 2012.
The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.
At December 31, 2012, the Company maintained a $30 million line of credit, which was due to expire on June 30, 2014. In August 2013, the Company borrowed $12.0 million under the line of credit in connection with its acquisition of Array. At December 31, 2013, the balance available under the credit agreement was $18.0 million. There were no previous borrowings under the credit agreement and, as a result, there was no balance outstanding as of December 31, 2012. Amounts outstanding under this line of credit are collateralized with a first priority security interest in 100% of the issued and outstanding shares of the capital stock of the Company's material domestic subsidiaries and 65% of all the issued and outstanding shares of the capital stock of certain of the foreign subsidiaries of the Company. The credit agreement bears interest at LIBOR plus 1.00% to 1.50% based on certain financial statement ratios maintained by the Company. The interest rate in effect on the borrowings outstanding at December 31, 2013 was 1.4%. Under the terms of the credit agreement, the Company is required to maintain certain financial ratios and comply with other financial conditions. As a result of the Company’s recent acquisitions, which resulted in a lower cash balance and increased intangible assets, the Company was not previously in compliance with its tangible net worth debt covenant. In November 2013, the credit agreement was amended to reflect modifications to the minimum tangible net worth and maximum leverage covenant calculations, and to extend the term of the agreement through October 14, 2016. The Company incurred interest expense of $0.2 million related to the borrowings under the credit agreement during the year ended December 31, 2013.
11. ACCRUED EXPENSES
Accrued expenses consist of the following (dollars in thousands):
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Sales commissions
|
|
$
|
1,431
|
|
|
$
|
1,295
|
|
Subcontracting labor
|
|
|
2,406
|
|
|
|
2,408
|
|
Salaries, bonuses and related benefits
|
|
|
13,674
|
|
|
|
6,023
|
|
Litigation reserve
|
|
|
723
|
|
|
|
11,549
|
|
Other
|
|
|
4,219
|
|
|
|
4,085
|
|
|
|
$
|
22,453
|
|
|
$
|
25,360
|
|
12. BUSINESS SEGMENT INFORMATION
The Company operates in one industry with three reportable operating segments, which are geographic in nature. The segments consist of North America, Asia and Europe. The primary criteria by which financial performance is evaluated and resources are allocated are revenues and operating income. The following is a summary of key financial data (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net Sales to External Customers:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
116,548
|
|
|
$
|
126,469
|
|
|
$
|
134,804
|
|
Asia
|
|
|
193,647
|
|
|
|
128,319
|
|
|
|
126,941
|
|
Europe
|
|
|
38,994
|
|
|
|
31,806
|
|
|
|
33,376
|
|
|
|
$
|
349,189
|
|
|
$
|
286,594
|
|
|
$
|
295,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
128,472
|
|
|
$
|
138,966
|
|
|
$
|
149,114
|
|
Asia
|
|
|
225,151
|
|
|
|
167,756
|
|
|
|
177,815
|
|
Europe
|
|
|
40,742
|
|
|
|
33,329
|
|
|
|
34,597
|
|
Less intergeographic
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues
|
|
|
(45,176
|
)
|
|
|
(53,457
|
)
|
|
|
(66,405
|
)
|
|
|
$
|
349,189
|
|
|
$
|
286,594
|
|
|
$
|
295,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(1,560
|
)
|
|
$
|
1,336
|
|
|
$
|
9,026
|
|
Asia
|
|
|
15,356
|
|
|
|
(42
|
)
|
|
|
(3,480
|
)
|
Europe
|
|
|
1,251
|
|
|
|
369
|
|
|
|
1,850
|
|
|
|
$
|
15,047
|
|
|
$
|
1,663
|
|
|
$
|
7,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
117,261
|
|
|
$
|
84,609
|
|
|
$
|
115,552
|
|
Asia
|
|
|
148,689
|
|
|
|
148,351
|
|
|
|
148,950
|
|
Europe
|
|
|
42,100
|
|
|
|
42,229
|
|
|
|
12,409
|
|
|
|
$
|
308,050
|
|
|
$
|
275,189
|
|
|
$
|
276,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,064
|
|
|
$
|
2,455
|
|
|
$
|
1,121
|
|
Asia
|
|
|
4,551
|
|
|
|
2,003
|
|
|
|
1,733
|
|
Europe
|
|
|
325
|
|
|
|
286
|
|
|
|
74
|
|
|
|
$
|
6,940
|
|
|
$
|
4,744
|
|
|
$
|
2,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
4,282
|
|
|
$
|
4,081
|
|
|
$
|
4,046
|
|
Asia
|
|
|
6,540
|
|
|
|
4,076
|
|
|
|
4,137
|
|
Europe
|
|
|
1,560
|
|
|
|
956
|
|
|
|
484
|
|
|
|
$
|
12,382
|
|
|
$
|
9,113
|
|
|
$
|
8,667
|
|
Segment Sales
– Segment sales are attributed to individual segments based on the geographic source of the billing for such customer sales. Transfers between geographic areas include finished products manufactured in foreign countries which are then transferred to the United States and Europe for sale; finished goods manufactured in the United States which are transferred to Europe and Asia for sale; and semi-finished components manufactured in the United States which are sold to Asia for further processing. Income (loss) from operations represents net sales less operating costs and expenses.
Recent Acquisitions
– During 2013, the acquisition of TRP contributed revenues of $66.1 million and income from operations of $10.9 million to the Company’s Asia operating segment. During 2013, the acquisition of Array contributed revenues of $2.1 million and a loss from operations of $0.9 million to the Company’s North America operating segment. During the years ended December 31, 2013 and 2012, Fibreco and Bel Power Europe contributed combined revenues of $10.7 million and $3.1 million, respectively, and combined operating income of $1.7 million and $0.3 million, respectively, to the Company’s Europe operating segment.
The following items are included in the income from operations presented above:
Restructuring Charges
– During the year ended December 31, 2013, the Company incurred $1.4 million in severance costs related to continued restructuring efforts ($1.0 million in the Company’s North America operating segment, $0.2 million in the Company’s Asia operating segment and $0.2 million in the Company’s Europe operating segment). During the year ended December 31, 2012, the Company incurred $5.2 million in restructuring costs related to the 2012 Restructuring Program. Of this amount, $4.5 million related to the Company’s North America operating segment, $0.6 million related to its Asia operating segment and $0.1 million related to the Company’s Europe operating segment. The amount incurred in North America primarily related to severance costs and impairment charges on property, plant and equipment related to the closure of its Vinita, Oklahoma manufacturing facility. During 2011, the Company incurred restructuring costs of $0.3 million related to severance costs associated with the reorganization of its Cinch operations in the U.K.
Litigation Charges
– During the year ended December 31, 2011, the Company recorded $3.5 million of litigation charges related to the SynQor and Halo lawsuits. These charges impacted income from operations primarily within the Company’s Asia reportable operating segment.
Loss on Disposal of Property, Plant and Equipment
– During the year ended December 31, 2012, the Company recorded a $0.3 million loss on disposal of assets in its North America operating segment related to the damage caused by Hurricane Sandy at its Jersey City, New Jersey and Inwood, New York facilities. This was partially offset by a $0.2 million pre-tax gain recorded in the Company’s Asia operating segment from the sale of a building in Macao.
Entity-Wide Information
The following is a summary of entity-wide information related to the Company’s net sales to external customers by geographic area and by major product line (dollars in thousands).
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net Sales by Geographic Area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
116,548
|
|
|
$
|
126,469
|
|
|
$
|
134,804
|
|
Macao
|
|
|
193,647
|
|
|
|
128,319
|
|
|
|
126,941
|
|
Germany
|
|
|
16,585
|
|
|
|
14,165
|
|
|
|
17,937
|
|
United Kingdom
|
|
|
16,538
|
|
|
|
13,203
|
|
|
|
11,927
|
|
Czech Republic
|
|
|
2,615
|
|
|
|
3,298
|
|
|
|
3,512
|
|
Italy
|
|
|
3,252
|
|
|
|
1,083
|
|
|
|
-
|
|
Sweden
|
|
|
4
|
|
|
|
57
|
|
|
|
-
|
|
Consolidated net sales
|
|
$
|
349,189
|
|
|
$
|
286,594
|
|
|
$
|
295,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Major Product Line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interconnect
|
|
$
|
111,653
|
|
|
$
|
109,245
|
|
|
$
|
107,346
|
|
Magnetics
|
|
|
170,166
|
|
|
|
100,529
|
|
|
|
87,104
|
|
Modules
|
|
|
55,967
|
|
|
|
66,663
|
|
|
|
90,475
|
|
Circuit protection
|
|
|
11,403
|
|
|
|
10,157
|
|
|
|
10,196
|
|
Consolidated net sales
|
|
$
|
349,189
|
|
|
$
|
286,594
|
|
|
$
|
295,121
|
|
Net sales to external customers are attributed to individual countries based on the geographic source of the billing for such customer sales.
The following is a summary of long-lived assets by geographic area as of December 31, 2013 and 2012 (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
Long-lived Assets by Geographic Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
30,102
|
|
|
$
|
27,552
|
|
People's Republic of China (PRC)
|
|
|
20,985
|
|
|
|
16,622
|
|
All other foreign countries
|
|
|
3,257
|
|
|
|
3,338
|
|
Consolidated long-lived assets
|
|
$
|
54,344
|
|
|
$
|
47,512
|
|
Long-lived assets consist of property, plant and equipment, net and other assets of the Company that are identified with the operations of each geographic area.
The territory of Hong Kong became a Special Administrative Region (“SAR”) of the PRC in the middle of 1997. The territory of Macao became a SAR of the PRC at the end of 1999. Management cannot presently predict what future impact this will have on the Company, if any, or how the political climate in the PRC will affect the Company's contractual arrangements in the PRC. A significant portion of the Company's manufacturing operations and approximately 40% of its identifiable assets are located in Asia.
Net Sales to Major Customers
The Company had sales to two customers in excess of ten percent of consolidated net sales in 2013. The combined revenue from these two customers was $103.3 million during the year ended December 31, 2013, representing 29.6% of total sales. In 2012, the Company had sales to two customers in excess of ten percent of consolidated net sales in 2012. The combined revenue from these two customers was $70.6 million during the year ended December 31, 2012, representing 24.6% of total sales. In 2011, there were two customers with sales in excess of ten percent of consolidated net sales. The combined revenue from these two customers was $65.7 million during the year ended December 31, 2011, representing 22.3% of total sales. Sales related to these significant customers were primarily reflected in the North America and Asia operating segments during each of the three years discussed.
13. RETIREMENT FUND AND PROFIT SHARING PLAN
The Company maintains the Bel Fuse Inc. Employees’ Savings Plan, a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended (the “Code”). The Employees’ Savings Plan allows eligible employees to voluntarily contribute a percentage of their eligible compensation, subject to Code limitations, which contributions are matched by the Company. For plan years beginning on and after January 1, 2012, the Company’s matching contributions are equal to 100% of the first 1% of compensation contributed by participants, and 50% of the next 5% of compensation contributed by participants. For plan years prior to January 1, 2012, the Company’s matching contributions were limited to $350 per participant and the Company made discretionary profit sharing contributions on behalf of eligible participants in amounts determined by the Company’s board of directors. Prior to January 1, 2012, the Company’s matching and profit sharing contributions were invested in shares of Bel Fuse Inc. Class A and Class B common stock. Effective January 1, 2012, Company matching contributions are made in cash and invested in accordance with participant’s instructions in various investment funds offered under the Employees’ Savings Plan other than Bel Fuse Inc. common stock. The expense for the years ended December 31, 2013, 2012 and 2011 amounted to $0.4 million, $0.5 million and $0.9 million, respectively. As of December 31, 2013, the plan owned 14,899 and 190,039 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company's subsidiaries in Asia 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 must contribute a minimum of 5% of eligible salary, as determined by Hong Kong government regulations. The Company currently contributes 7% of eligible salary in cash or Company stock. The expense for the years ended December 31, 2013, 2012 and 2011 amounted to approximately $0.3 million in each year. As of December 31, 2013, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The SERP is designed to provide a limited group of key management and highly compensated employees of the Company with supplemental retirement and death benefits. Participants in the SERP are selected by the Compensation Committee of the Board of Directors. The SERP initially became effective in 2002 and was amended and restated in April 2007 to conform with applicable requirements of Section 409A of the Internal Revenue Code and to modify the provisions regarding benefits payable in connection with a change in control of the Company. The Plan is unfunded. Benefits under the SERP are payable from the general assets of the Company, but the Company has established a rabbi trust which includes certain life insurance policies in effect on participants as well as other investments to partially cover the Company’s obligations under the Plan.
The benefits available under the Plan vary according to when and how the participant terminates employment with the Company. If a participant retires (with the prior written consent of the Company) on his normal retirement date (65 years old, 20 years of service, and 5 years of Plan participation), his normal retirement benefit under the Plan would be annual payments equal to 40% of his average base compensation (calculated using compensation from the highest five consecutive calendar years of Plan participation), payable in monthly installments for the remainder of his life. If a participant retires early from the Company (55 years old, 20 years of service, and five years of Plan participation), his early retirement benefit under the Plan would be an amount (i) calculated as if his early retirement date were in fact his normal retirement date, (ii) multiplied by a fraction, with the numerator being the actual years of service the participant has with the Company and the denominator being the years of service the participant would have had if he had retired at age 65, and (iii) actuarially reduced to reflect the early retirement date. If a participant dies prior to receiving 120 monthly payments under the Plan, his beneficiary would be entitled to continue receiving benefits for the shorter of (i) the time necessary to complete 120 monthly payments or (ii) 60 months. If a participant dies while employed by the Company, his beneficiary would receive, as a survivor benefit, an annual amount equal to (i) 100% of the participant’s annual base salary at date of death for one year, and (ii) 50% of the participant’s annual base salary at date of death for each of the following four years, each payable in monthly installments. The Plan also provides for disability benefits, and a forfeiture of benefits if a participant terminates employment for reasons other than those contemplated under the Plan. The expense related to the Plan for the years ended December 31, 2013, 2012 and 2011 amounted to $1.3 million, $1.1 million and $0.9 million, respectively.
Net Periodic Benefit Cost
The net periodic benefit cost related to the SERP consisted of the following components during the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost
|
|
$
|
556
|
|
|
$
|
438
|
|
|
$
|
371
|
|
Interest Cost
|
|
|
448
|
|
|
|
417
|
|
|
|
404
|
|
Net amortization
|
|
|
307
|
|
|
|
230
|
|
|
|
149
|
|
Net periodic benefit cost
|
|
$
|
1,311
|
|
|
$
|
1,085
|
|
|
$
|
924
|
|
Obligations and Funded Status
Summarized information about the changes in plan assets and benefit obligation, the funded status and the amounts recorded at December 31, 2013 and 2012 are as follows (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
Fair value of plan assets, January 1
|
|
$
|
-
|
|
|
$
|
-
|
|
Company contributions
|
|
|
-
|
|
|
|
-
|
|
Benefits paid
|
|
|
-
|
|
|
|
-
|
|
Fair value of plan assets, December 31
|
|
$
|
-
|
|
|
$
|
-
|
|
Benefit obligation, January 1
|
|
|
11,045
|
|
|
|
9,274
|
|
Service cost
|
|
|
556
|
|
|
|
438
|
|
Interest cost
|
|
|
448
|
|
|
|
417
|
|
Plan amendments
|
|
|
502
|
|
|
|
-
|
|
Benefits paid
|
|
|
|
|
|
|
-
|
|
Actuarial (gains) losses
|
|
|
(1,721
|
)
|
|
|
916
|
|
Benefit obligation, December 31
|
|
$
|
10,830
|
|
|
$
|
11,045
|
|
Funded status, December 31
|
|
$
|
(10,830
|
)
|
|
$
|
(11,045
|
)
|
The Company has recorded the related liability of $10.8 million and $11.0 million as a long-term liability in its consolidated balance sheets at December 31, 2013 and 2012, respectively. The plan amendment in 2013 noted above relates to a decision by the Bel Board of Directors to grant past service to certain of the plan participants. The accumulated benefit obligation for the SERP was $9.2 million and $9.3 million as of December 31, 2013 and 2012, respectively. The aforementioned company-owned life insurance policies and marketable securities held in a rabbi trust had a combined fair value of $11.9 million and $11.1 million at December 31, 2013 and 2012, respectively. See Note 6 for additional information on these investments.
The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0 and $0.2 million, respectively. The Company does not expect to make any contributions to the SERP in 2014. The Company had no net transition assets or obligations recognized as an adjustment to other comprehensive income and does not anticipate any plan assets being returned to the Company during 2014, as the plan has no assets.
The following benefit payments, which reflect expected future service, are expected to be paid (dollars in thousands):
Years Ending
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2014
|
|
$
|
-
|
|
2015
|
|
|
264
|
|
2016
|
|
|
264
|
|
2017
|
|
|
264
|
|
2018
|
|
|
264
|
|
2019 - 2023
|
|
|
3,443
|
|
The following gross amounts are recognized in accumulated other comprehensive loss, net of tax (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
Prior service cost
|
|
$
|
1,230
|
|
|
$
|
877
|
|
Net loss
|
|
|
1,004
|
|
|
|
2,884
|
|
|
|
$
|
2,234
|
|
|
$
|
3,761
|
|
Actuarial Assumptions
The weighted average assumptions used in determining the periodic net cost and benefit obligation information related to the SERP are as follows:
|
2013
|
|
2012
|
|
2011
|
Net periodic benefit cost
|
|
|
|
|
|
Discount rate
|
4.00%
|
|
4.50%
|
|
5.50%
|
Rate of compensation increase
|
3.00%
|
|
3.00%
|
|
3.00%
|
Benefit obligation
|
|
|
|
|
|
Discount rate
|
5.00%
|
|
4.00%
|
|
4.50%
|
Rate of compensation increase
|
3.00%
|
|
3.00%
|
|
3.00%
|
14. SHARE-BASED COMPENSATION
The Company has an equity compensation program (the “Program”) which provides for the granting of “Incentive Stock Options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options and restricted stock awards. The Company believes that such awards better align the interest of its employees with those of its shareholders. The 2011 Equity Compensation Plan provides for the issuance of 1.4 million shares of the Company’s Class B common stock. At December 31, 2013, 1.1 million shares remained available for future issuance under the 2011 Equity Compensation Plan.
The Company records compensation expense in its consolidated statements of operations related to employee stock-based options and awards. The aggregate pretax compensation cost recognized for stock-based compensation amounted to approximately $1.9 million, $1.8 million and $1.7 million for the years ended December 31, 2013, 2012 and 2011, respectively, and related solely to restricted stock awards. The Company did not use any cash to settle any equity instruments granted under share-based arrangements during the years ended December 31, 2013, 2012 and 2011. At December 31, 2013 and 2012, the only instruments issued and outstanding under the Program related to restricted stock awards.
Restricted Stock Awards
The Company provides common stock awards to certain officers and key employees. The Company grants these awards, at its discretion, from the shares available under the Program. Unless otherwise provided at the date of grant or unless subsequently accelerated, the shares awarded are earned in 25% increments on the second, third, fourth and fifth anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unearned shares are forfeited. The market value of these shares at the date of award is recorded as compensation expense on the straight-line method over the five-year periods from the respective award dates, as adjusted for forfeitures of unvested awards. During 2013, 2012 and 2011, the Company issued 162,200 shares, 130,000 shares and 128,300 shares of the Company’s Class B common stock, respectively, under a restricted stock plan to various officers and employees.
A summary of the restricted stock activity under the Program as of December 31, 2013 is presented below:
|
|
|
|
|
Weighted
|
|
Weighted Average
|
Restricted Stock
|
|
|
|
|
Average
|
|
Remaining
|
Awards
|
|
Shares
|
|
|
Award Price
|
|
Contractual Term
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2013
|
|
|
352,600
|
|
|
$
|
18.83
|
|
3.0 years
|
Granted
|
|
|
162,200
|
|
|
|
19.40
|
|
|
Vested
|
|
|
(82,400
|
)
|
|
|
19.84
|
|
|
Forfeited
|
|
|
(20,050
|
)
|
|
|
18.78
|
|
|
Outstanding at December 31, 2013
|
|
|
412,350
|
|
|
$
|
18.85
|
|
3.4 years
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013, there was $5.4 million of total pretax unrecognized compensation cost included within additional paid-in capital related to non-vested stock based compensation arrangements granted under the restricted stock award plan. That cost is expected to be recognized over a period of 4.8 years.
The Company's policy is to issue new shares to satisfy restricted stock awards. Currently the Company believes that substantially all restricted stock awards will vest.
15. COMMON STOCK
In July 2012, the Board of Directors of the Company authorized the purchase of up to $10 million of the Company’s outstanding Class B common shares. As of December 31, 2013, the Company had purchased and retired 547,366 Class B common shares at a cost of approximately $10.0 million. No shares of Class A or Class B common stock were repurchased during the year ended December 31, 2011.
As of December 31, 2013, to the Company’s knowledge, there were two shareholders of the Company’s common stock (other than shareholders subject to specific exceptions) with ownership in excess of 10% of Class A outstanding shares with no ownership of the Company’s Class B common stock. In accordance with the Company’s certificate of incorporation, the Class B Protection clause is triggered if a shareholder owns 10% or more of the outstanding Class A common stock and does not own an equal or greater percentage of all then outstanding shares of both Class A and Class B common stock (all of which common stock must have been acquired after the date of the 1998 recapitalization). In such a circumstance, such shareholder must, within 90 days of the trigger date, purchase Class B common shares, in an amount and at a price determined in accordance with a formula described in the Company’s certificate of incorporation, or forfeit its right to vote its Class A common shares. As of December 31, 2013, to the Company’s knowledge, these shareholders had not purchased any Class B shares to comply with these requirements. In order to vote their shares at Bel’s next shareholders’ meeting, these shareholders must either purchase the required number of Class B common shares or sell or otherwise transfer Class A common shares until their Class A holdings are under 10%. As of December 31, 2013, to the Company’s knowledge, these shareholders owned 33.6% and 12.5%, respectively, of the Company’s Class A common stock in the aggregate and had not taken steps to either purchase the required number of Class B common shares or sell or otherwise transfer Class A common shares until their Class A holdings fall below 10%. Unless and until this situation is satisfied in a manner permitted by the Company’s Restated Certificate of Incorporation, the subject shareholders will not be permitted to vote their shares of common stock.
Throughout 2011, 2012 and 2013, the Company declared dividends on a quarterly basis at a rate of $0.06 per Class A share of common stock and $0.07 per Class B share of common stock. During the years ended December 31, 2013, 2012 and 2011, the Company declared dividends totaling $3.1 million, $3.2 million and $3.2 million, respectively. There are no contractual restrictions on the Company's ability to pay dividends provided the Company is not in default under its credit agreements immediately before such payment and after giving effect to such payment.
16. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various facilities under operating leases expiring through March 2023. Some 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 (dollars in thousands):
Years Ending
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2014
|
|
$
|
4,522
|
|
2015
|
|
|
3,267
|
|
2016
|
|
|
2,363
|
|
2017
|
|
|
1,710
|
|
2018
|
|
|
944
|
|
Thereafter
|
|
|
2,499
|
|
|
|
$
|
15,305
|
|
Rental expense for all leases was approximately $4.9 million, $3.4 million and $3.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Other Commitments
The Company submits purchase orders for raw materials to various vendors throughout the year for current production requirements, as well as forecasted requirements. Certain of these purchase orders relate to special purpose material and, as such, the Company may incur penalties if an order is cancelled. The Company had outstanding purchase orders related to raw materials in the amount of $23.4 million and $18.8 million at December 31, 2013 and December 31, 2012, respectively. The Company also had outstanding purchase orders related to capital expenditures in the amount of $3.0 million and $1.7 million at December 31, 2013 and December 31, 2012, respectively.
Legal Proceedings
The Company is a defendant in a lawsuit captioned SynQor, Inc. v. Artesyn Technologies, Inc., et al. brought in the United States District Court, Eastern District of Texas in November 2007 (“SynQor I case”). The plaintiff alleged that eleven defendants, including Bel, infringed its patents covering certain power products. With respect to the Company, the plaintiff claimed that the Company infringed its patents related to unregulated bus converters and/or point-of-load (POL) converters used in intermediate bus architecture power supply systems. The case went to trial in December 2010 and a partial judgment was entered on December 29, 2010 based on the jury verdict. The jury found that certain products of the defendants directly and/or indirectly infringe the SynQor patents. The jury awarded damages of $8.1 million against the Company, which was recorded by the Company as a litigation charge in the consolidated statement of operations in the fourth quarter of 2010. On July 11, 2011, the Court awarded supplemental damages of $2.5 million against the Company. Of this amount, $1.9 million is covered through an indemnification agreement with one of Bel’s customers and the remaining $0.6 million was recorded as an expense by the Company during the second quarter of 2011. During the third quarter of 2011, the Company recorded costs and interest associated with this lawsuit of $0.2 million. A final judgment in the case was entered on August 17, 2011. The Company filed a notice of appeal with the Federal Circuit Court of Appeals on October 28, 2011. In November 2011, the Company posted a $13.0 million supersedeas bond to the Court in the Eastern District of Texas while the case was on appeal to the Federal Circuit. The amount of the bond was reflected as restricted cash in the accompanying consolidated balance sheet at December 31, 2012. The United States Court of Appeals for the Federal Circuit (“CAFC”) heard oral argument in the SynQor I case on October 2, 2012 and issued its opinion on March 13, 2013. In its opinion, the CAFC affirmed the district court’s findings and judgment on all issues up on appeal. The Company and the other Defendants jointly filed a Petition for Rehearing En Banc with the CAFC on April 12, 2013, which was denied by the CAFC on May 14, 2013. The Defendants filed a joint petition for certiorari with the Supreme Court on September 23, 2013. In November 2013, the Supreme Court denied the joint petition for certiorari, and the Company released a payment to SynQor of $10.9 million. The Company subsequently received a $2.1 million payment from one of its customers related to the aforementioned indemnification agreement and reimbursement of certain legal fees. The remaining $2.1 million in escrow was released back to the Company in December 2013 and as such, there was no balance in restricted cash remaining on the consolidated balance sheet at December 31, 2013.
In a related matter, on September 29, 2011, the United States District Court for the Eastern District of Texas ordered SynQor, Inc.’s continuing causes of action for post-injunction damages to be severed from the original action and assigned to a new case number. The new action captioned SynQor, Inc. v. Artesyn Technologies, Inc., et al. (Case Number 2:11cv444) is a patent infringement action for damages in the form of lost profits and reasonable royalties for the period beginning January 24, 2011 (“SynQor II case”). SynQor, Inc. also seeks enhanced damages. The Company has an indemnification agreement in place with one of its customers specifically covering post-injunction damages related to this case. As a result, the Company does not anticipate that its consolidated statement of operations will be materially impacted by any potential post-injunction damages. This case went to trial on July 30, 2013. A decision has yet to be rendered on this case.
The Company is a plaintiff in a lawsuit captioned Bel Fuse Inc. et al. v. Molex Inc. brought in the United District Court of New Jersey in April 2013. The Company claims that Molex infringed three of the Company’s patents related to integrated magnetic connector products. Molex filed a motion to dismiss the complaint on August 6, 2013. The Company filed an amended complaint and response on August 20, 2013. Molex withdrew its original Motion to Dismiss and filed a second, revised Motion to Dismiss on September 6, 2013. The Company filed its response on October 7, 2013.
The Company, through its subsidiary Cinch Connectors Inc., is a defendant in an asbestos lawsuit captioned
Richard G. Becker vs. Adience Inc., et al.
The lawsuit was filed in the Circuit Court for the County of Wayne in the State of Michigan. The complaint was amended to include Cinch Connectors Inc. and other defendants on August 13, 2012. The Company filed its answer to the complaint on October 19, 2012. This case was settled for a de minimis amount on September 25, 2013.
The Company was a defendant in a lawsuit captioned Halo Electronics, Inc. (“Halo”) v. Bel Fuse Inc., Pulse Engineering, Inc. and Technitrol, Inc. brought in Nevada Federal District Court. The plaintiff claimed that the Company had infringed its patents covering certain surface mount discrete magnetic products made by the Company. Halo sought unspecified damages, which it claimed should be trebled. In December 2007, this case was dismissed by the Nevada Federal District Court for lack of personal jurisdiction. Halo then re-filed this suit, with similar claims against the Company, in the Northern California Federal District Court, captioned Halo Electronics, Inc. v. Bel Fuse Inc., Elec & Eltek (USA) Corporation, Wurth Electronics Midcom, Inc., and Xfmrs, Inc. In June 2011, a memorandum of understanding was signed by the Company and Halo with regard to this lawsuit, whereby the Company has agreed to pay Halo a royalty on past sales. The Company recorded a $2.6 million liability related to past sales during the second quarter of 2011. This was included as a litigation charge in the accompanying consolidated statement of operations for the year ended December 31, 2011. Bel also agreed to take a license with respect to the Halo patents at issue in the lawsuit and pay an 8% royalty on all net worldwide sales of the above-mentioned products from June 7, 2011 through August 10, 2015.
The Company was a plaintiff in a lawsuit captioned Bel Fuse Inc. v. Halo brought in the United States District Court of New Jersey during June 2007. The Company claimed that Halo infringed a patent covering certain integrated connector modules made by Halo. The Company was seeking an unspecified amount of damages plus interest, costs and attorney fees. In August 2011, a settlement agreement was signed by the Company and Halo with regard to this lawsuit, whereby Halo agreed to pay the Company a 10% royalty related to its net worldwide sales of its integrated connector modules in exchange for a fully paid-up license of the Bel patent. This royalty income was included in net sales in the accompanying consolidated statement of operations for the year ended December 31, 2011.
The Company is not a party to any other legal proceeding, the adverse outcome of which is likely to have a material adverse effect on the Company's consolidated financial condition or results of operations.
17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) as of December 31, 2013 and 2012 are summarized below (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
1,904
|
|
|
$
|
927
|
|
Unrealized holding gain on available-for-sale
|
|
|
|
|
|
|
|
|
securities, net of taxes of $169 and $161 as of
|
|
|
|
|
|
|
|
|
December 31, 2013 and 2012
|
|
|
282
|
|
|
|
256
|
|
Unfunded SERP liability, net of taxes of $(693) and
|
|
|
|
|
|
|
|
|
$(1,151) as of December 31, 2013 and 2012
|
|
|
(1,541
|
)
|
|
|
(2,610
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
645
|
|
|
$
|
(1,427
|
)
|
Changes in accumulated other comprehensive loss by component during the year ended December 31, 2013 are as follows. All amounts are net of tax (dollars in thousands).
|
|
|
|
|
Unrealized Holding
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
|
Gains on
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Available-for-
|
|
|
|
Unfunded
|
|
|
|
|
|
|
|
Adjustment
|
|
|
Sale Securities
|
|
|
|
SERP Liability
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2013
|
|
$
|
927
|
|
|
$
|
256
|
|
|
|
$
|
(2,610
|
)
|
|
|
$
|
(1,427
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
977
|
|
|
|
87
|
|
|
|
|
761
|
|
|
|
|
1,825
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss)
|
|
|
-
|
|
|
|
(61
|
)
|
(a)
|
|
|
308
|
|
(b)
|
|
|
247
|
|
Net current period other comprehensive income (loss)
|
|
|
977
|
|
|
|
26
|
|
|
|
|
1,069
|
|
|
|
|
2,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
1,904
|
|
|
$
|
282
|
|
|
|
$
|
(1,541
|
)
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) This reclassification relates to the gain on sale of SERP investments during the third quarter of 2013. This is reflected as
|
|
|
|
|
|
|
a gain on sale of investment in the accompanying condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP plan.
|
|
|
|
|
This expense is allocated between cost of sales and selling, general and administrative expense based upon the employment
|
|
|
|
|
|
|
classification of the plan participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. RELATED PARTY TRANSACTIONS
As of December 31, 2012, the Company had $2.0 million invested in a money market fund with GAMCO Investors, Inc. (“GAMCO”). This investment was sold in 2013 and as such, there were no holdings with GAMCO at December 31, 2013. GAMCO is a current shareholder of the Company, with holdings of its Class A stock of approximately 33.6%. However, as discussed in Note 15, GAMCO’s voting rights are currently suspended.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly results (unaudited) for the years ended December 31, 2013 and 2012 are summarized as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Year
|
|
|
|
Quarter Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2013 (c)
|
|
|
2013 (c)
|
|
|
2013
|
|
|
2013 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
63,028
|
|
|
$
|
93,981
|
|
|
$
|
101,164
|
|
|
$
|
91,016
|
|
|
$
|
349,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
53,932
|
|
|
|
78,724
|
|
|
|
81,136
|
|
|
|
73,160
|
|
|
|
286,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(558
|
)
|
|
|
1,689
|
|
|
|
7,380
|
|
|
|
7,397
|
|
|
|
15,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common share - basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.14
|
|
|
$
|
0.62
|
|
|
$
|
0.61
|
|
|
$
|
1.32
|
|
Class B common share - basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.15
|
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Year
|
|
|
|
Quarter Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2012 (b)
|
|
|
2012 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
65,561
|
|
|
$
|
73,222
|
|
|
$
|
76,059
|
|
|
$
|
71,752
|
|
|
$
|
286,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
55,136
|
|
|
|
61,081
|
|
|
|
63,472
|
|
|
|
60,426
|
|
|
|
240,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
872
|
|
|
|
1,441
|
|
|
|
2,492
|
|
|
|
(2,432
|
)
|
|
|
2,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common share - basic and diluted
|
|
$
|
0.07
|
|
|
$
|
0.11
|
|
|
$
|
0.20
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.17
|
|
Class B common share - basic and diluted
|
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
$
|
0.21
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.21
|
|
(a)
|
Quarterly amounts of earnings per share may not agree to the total for the year due to rounding.
|
(b)
|
The net loss for the quarter ended December 31, 2012 includes $3.1 million of restructuring charges primarily related to severance charges and the writedown of assets associated with the closure of the Company’s Vinita, Oklahoma manufacturing facility.
|
(c)
|
The net earnings for the quarters ended June 30, 2013 and September 30, 2013 have been restated to include the effects of measurement period adjustments related to the acquisitions of TRP and Array. These measurement period adjustments reduced the previously-reported net earnings by $0.7 million and $0.5 million for the quarters ended June 30, 2013 and September 30, 2013, respectively, and primarily related to the step-up of inventory to fair value, and higher depreciation and amortization expense related to the appraised fair values of property, plant and equipment, and the various intangible assets as further described in Note 2.
|