See the consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements for the information required by this item.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED December 31, 2021 and 2020
| 1. | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Bel Fuse Inc. and subsidiaries ("Bel," the "Company," "we," "us," and "our") design, manufacture and sell a broad array of products that power, protect and connect electronic circuits. These products are used in the networking, telecommunication, high-speed data transmission, commercial aerospace, military, e-Mobility, broadcasting, transportation and consumer electronic industries around the world. We manage our operations by product group through our reportable operating segments, Connectivity Solutions, Power Solutions and Protection and Magnetic Solutions, in addition to a Corporate segment.
All amounts included in the tables to these notes to consolidated financial statements, except per share amounts, are in thousands.
Principles of Consolidation - The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Estimates and Uncertainties - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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, we evaluate our estimates, including but not limited to those related to product returns, provisions for bad debt, inventories, goodwill, intangible assets, investments, Supplemental Executive Retirement Plan ("SERP") expense, income taxes, contingencies and litigation. We base our 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.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world. The impact from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, with disruptions to the business of our customers and suppliers, which has, and could continue, to impact our business and consolidated results of operations and financial condition. On March 13, 2022, the PRC government issued a notice whereby effective immediately, certain regions would be temporarily shut down to perform widespread testing in response to the recent COVID-19 outbreak, which includes our Bel Power Solutions manufacturing facility in Shenzhen, China and our Magnetics TRP manufacturing facility in Changping, China. Both are currently closed for a minimum of 3-5 business days.
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. Accounts at each U.S. institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. Some of our balances are in excess of the FDIC insured limit.
Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We determine our allowance by both specific identification of customer accounts where appropriate and the application of historical loss experience to non-specific accounts.
Effects of Foreign Currency – In non-U.S. locations that are not considered highly inflationary, we translate the non-equity components of our foreign balance sheets at the end of period exchange rates with translation adjustments accumulated within stockholders' equity on our consolidated balance sheets. We translate the statements of operations at the average exchange rates during the applicable period. In connection with foreign currency denominated transactions, including multi-currency intercompany payable and receivable transactions and loans, the Company incurred net realized and unrealized currency exchange losses of less than $0.1 million and $2.2 million for the years ended December 31, 2021 and 2020, respectively, which were included in other expense, net on the consolidated statements of operations.
Concentration of Credit Risk - Financial instruments which potentially subject us to concentrations of credit risk consist principally of accounts receivable and temporary cash investments. We grant 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. We control our exposure to credit risk through credit approvals, credit limits and monitoring procedures and establish allowances for anticipated losses. See Note 13, "Segments," for disclosures regarding significant customers.
Inventories - Inventories are stated at the lower of standard cost or market. Costs related to inventories include raw materials, direct labor and manufacturing overhead which are included in cost of sales on the consolidated statements of operations. The Company utilizes the average cost method in determining amounts to be removed from inventory.
Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods and services. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.
Product Warranties – Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties generally extend for one to three years from the date of sale, providing customers with assurance that the related product will function as intended. The Company reviews its warranty liability quarterly based on an analysis of actual expenses and failure rates accompanied with estimated future costs and projected failure rate trends. Factors taken into consideration when evaluating our warranty reserve are (i) historical claims for each product, (ii) volume increases, (iii) life of warranty, (iv) historical warranty repair costs and (v) other factors. To the extent that actual experience differs from our estimate, the provision for product warranties will be adjusted in future periods. Actual warranty repair costs are charged against the reserve balance as incurred. See Note 11, "Accrued Expenses."
Product Returns – We estimate product returns, including product exchanges under warranty, based on historical experience. In general, 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 certain 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. Distribution customers often receive what is referred to as "ship and debit" arrangements, whereby Bel will invoice them at an agreed upon unit price upon shipment of product and a price reduction may be granted if the market price of the product declines after shipment. Distributors may also be entitled to special pricing discount credits, and certain customers are entitled to return allowances based on previous sales volumes. Bel deducts estimates for anticipated credits, refunds and returns from sales each quarter based on historical experience.
Goodwill and Identifiable Intangible Assets – Goodwill represents the excess of the aggregate of the following (1) consideration transferred, (2) the fair value of any noncontrolling interest in the acquiree and, (3) if the business combination is achieved in stages, the acquisition-date fair value of our previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Identifiable intangible assets consist primarily of patents, licenses, trademarks, trade names, customer lists and relationships, non-compete agreements and technology-based intangibles and other contractual agreements. We amortize finite-lived identifiable intangible assets over the shorter of their stated or statutory duration or their estimated useful lives, ranging from 1 to 16 years, on a straight-line basis to their estimated residual values and periodically review them for impairment. Total identifiable intangible assets comprise 11.9% and 14.5% at December 31, 2021 and 2020, respectively, of our consolidated total assets.
We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired.
44
Impairment and Disposal of Long-Lived Assets – For definite-lived intangible assets, such as customer relationships, contracts, intellectual property, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we perform a review for impairment. We calculate the undiscounted value of the projected cash flows associated with the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over the fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate.
For indefinite-lived intangible assets, such as trademarks and trade names, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over the fair value, if any. In addition, in all cases of an impairment review we re-evaluate whether continuing to characterize the asset as indefinite-lived is appropriate. See Note 4, "Goodwill and Other Intangible Assets," for additional details.
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 1 to 33 years for buildings and leasehold improvements, and from 2 to 14 years for machinery and equipment.
Derivative Financial Instruments - As part of our risk management strategy, when considered appropriate, the Company uses derivative financial instruments including foreign currency forward contracts and interest rate swap agreements to hedge against certain foreign currency and interest rate exposures. The intent is to mitigate gains and losses caused by the underlying exposures with offsetting gains and losses on the derivative contracts. By policy, Bel does not enter into speculative positions with derivative instruments.
The Company records all derivatives as assets or liabilities on our consolidated balance sheets at their fair values. Gains and losses from the changes in values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting.
The counterparties to our derivative financial instruments consist of several major international financial institutions. We regularly monitor the financial strength of these institutions. While the counterparties to these contracts expose us to credit-related losses in the event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such affected contracts.
Income Taxes - We account 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. See Note 9, “Income Taxes”.
We record net deferred tax assets to the extent we believe these assets will more-likely-than-not be realized. In making such determination, we consider 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. We have established valuation allowances for deferred tax assets that are not likely to be realized. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of our net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
We establish liabilities for tax contingencies when, despite the belief that our tax return positions are fully supported, it is more likely than not that certain positions may be challenged and may not be fully sustained. The tax contingency liabilities 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. Our effective tax rate includes the effect of tax contingency liabilities and changes to the liabilities as considered appropriate by management.
Earnings per Share – We utilize the two-class method to report our 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, 2021 and 2020 which would have had a dilutive effect on earnings per share.
45
The earnings and weighted average shares outstanding used in the computation of basic and diluted earnings per share are as follows:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Numerator: | | | | | | | | |
| Net earnings | | $ | 24,821 | | | $ | 12,795 | |
| Less dividends declared: | | | | | | | | |
| Class A | | | 515 | | | | 515 | |
| Class B | | | 2,862 | | | | 2,852 | |
| Undistributed earnings | | $ | 21,444 | | | $ | 9,428 | |
| | | | | | | | | |
| Undistributed earnings allocation: | | | | | | | | |
| Class A undistributed earnings | | $ | 3,561 | | | $ | 1,574 | |
| Class B undistributed earnings | | | 17,883 | | | | 7,854 | |
| Total undistributed earnings | | $ | 21,444 | | | $ | 9,428 | |
| | | | | | | | | |
| Net earnings allocation: | | | | | | | | |
| Class A net earnings | | $ | 4,076 | | | $ | 2,089 | |
| Class B net earnings | | | 20,745 | | | | 10,706 | |
| Net earnings | | $ | 24,821 | | | $ | 12,795 | |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | |
| Class A | | | 2,145 | | | | 2,145 | |
| Class B | | | 10,258 | | | | 10,185 | |
| | | | | | | | | |
| Net earnings per share: | | | | | | | | |
| Class A | | $ | 1.90 | | | $ | 0.97 | |
| Class B | | $ | 2.02 | | | $ | 1.05 | |
Research and Development ("R&D") - Our 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, we execute non-disclosure agreements with our customers to help develop proprietary, next generation products destined for rapid deployment. R&D costs are expensed as incurred, and are shown as a separate line within operating expenses on the consolidated statements of operations. Generally, R&D is performed internally for the benefit of the Company. R&D costs include salaries, building maintenance and utilities, rents, materials, administration costs and miscellaneous other items. R&D expenses for the years ended December 31, 2021 and 2020 amounted to $21.9 million and $23.6 million, respectively.
Fair Value Measurements - We utilize 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. We classify our fair value measurements based on the lowest level of input included in the established 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 and accrued expenses, the carrying amount approximates fair value because of the short maturities of such instruments. See Note 5, "Fair Value Measurements," for additional disclosures related to fair value measurements.
46
Recently Issued Accounting Standards
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"). This guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The Company adopted amendments in ASU 2018-14 on a retrospective basis effective January 1, 2021. The adoption of this guidance modified the Company's annual disclosures for its defined benefit plan, but did not have any impact on the Company's consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. This guidance was adopted by the Company effective January 1, 2021 and did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the updated provisions effective January 1, 2020. The adoption did not have a material impact on the Company's consolidated financial position or consolidated results of operations.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Cost. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company adopted this guidance effective January 1, 2020 and it did not have a material impact on its consolidated financial position or consolidated results of operations.
47
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended. The new guidance will broaden the information that an entity must consider in developing its expected credit loss estimates related to its financial instruments and adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. The amendment is currently effective for the Company for annual reporting periods beginning after December 15, 2022, with early adoption permitted. Management is currently assessing the impact of ASU 2016-13, but it is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides temporary optional guidance on contract modifications and hedging accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, which refines the scope of Topic 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022. Management is currently evaluating the impact of this accounting standard update on the Company's consolidated financial statements and related disclosures.
rms Connectors
On January 8, 2021, the Company acquired rms Connectors, Inc. (“rms Connectors” or "rms"), from rms Company Inc., a division of Cretex Companies, Inc., for $9.0 million in cash, including a working capital adjustment. rms Connectors is a highly regarded connector manufacturer with over 30 years of experience producing harsh environment circular connectors used in a variety of military and aerospace applications. This acquisition complements Bel's existing military and aerospace product portfolio and we anticipate will allow us to expand key customer relationships within these end markets and leverage the combined manufacturing resources to improve our operational efficiency. Originally based in Coon Rapids, Minnesota, the rms Connectors business was relocated into Bel's existing facilities during the second quarter of 2021, and is part of Bel's Connectivity Solutions group. The transaction was funded with cash on hand.
EOS Power
On March 31, 2021, the Company completed the acquisition of EOS Power ("EOS") through a stock purchase agreement for $7.8 million, net of cash acquired, including a working capital adjustment. EOS, located in Mumbai, India, had sales of $12.0 million for the year ended December 31, 2020. EOS will further assist Bel’s penetration of certain industrial and medical markets currently being served by EOS, with a strong line of high-power density and low-profile products with high convection ratings. In addition to new products and customers acquired, this acquisition has diversified Bel's manufacturing footprint in Asia. The EOS business is part of Bel’s Power Solutions and Protection group. The transaction was funded with cash on hand.
The acquisitions of rms Connectors and EOS may hereafter be referred to collectively as either the "2021 Acquisitions" or the "2021 Acquired Companies". 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 year ended December 31, 2021 include the operating results of the 2021 Acquired Companies from their respective acquisition dates through December 31, 2021. During the year ended December 31, 2021, the Company incurred $0.5 million of acquisition-related costs related to the 2021 Acquisitions. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
The final accounting related to the 2021 Acquisitions was completed as of the filing date of this Annual Report on Form 10-K. The following table depicts the Company's final acquisition date fair values of the consideration transferred and identifiable net assets acquired in these transactions:
| | | Acquisition Date Fair Values | |
| | | rms | | | EOS | | | Total | |
| Cash and cash equivalents | | $ | - | | | $ | 3,903 | | | $ | 3,903 | |
| Accounts receivable | | | 1,283 | | | | 1,805 | | | | 3,088 | |
| Inventories | | | 3,946 | | | | 1,878 | | | | 5,824 | |
| Other current assets | | | 9 | | | | 1,340 | | | | 1,349 | |
| Property, plant and equipment | | | 4,035 | | | | 721 | | | | 4,756 | |
| Intangible assets | | | - | | | | 2,160 | | | | 2,160 | |
| Other assets | | | - | | | | 60 | | | | 60 | |
| Total identifiable assets | | | 9,273 | | | | 11,867 | | | | 21,140 | |
| | | | | | | | | | | | | |
| Accounts payable | | | (62 | ) | | | (2,148 | ) | | | (2,210 | ) |
| Accrued expenses | | | (209 | ) | | | (506 | ) | | | (715 | ) |
| Total liabilities assumed | | | (271 | ) | | | (2,654 | ) | | | (2,925 | ) |
| Net identifiable assets acquired | | | 9,002 | | | | 9,213 | | | | 18,215 | |
| Goodwill | | | - | | | | 2,499 | | | | 2,499 | |
| Net assets acquired | | $ | 9,002 | | | $ | 11,712 | | | $ | 20,714 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash paid | | $ | 9,002 | | | $ | 11,712 | | | $ | 20,714 | |
| Fair value of consideration transferred | | $ | 9,002 | | | $ | 11,712 | | | $ | 20,714 | |
Measurement period adjustments recorded during 2021 on the EOS acquisition related to finalization of EOS' pre-acquisition balance sheet and the Company's completion of its preliminary valuation of EOS whereby $2.2 million of intangible assets were identified and recorded on the consolidated balance sheet as of the acquisition date. These intangible assets are comprised of customer relationships valued at $1.9 million (to be amortized over an estimated life of 16 years) and the tradename, valued at $0.3 million (to be amortized over an estimated life of 2 years).
Based upon the purchase price allocation above, there is no goodwill associated with the rms acquisition. The goodwill recognized in connection with the EOS acquisition as noted above has been allocated to the Company's Power Solutions and Protection segment and is not deductible for tax purposes.
The results of operations of the 2021 Acquired Companies have been included in the Company’s consolidated financial statements for the periods subsequent to their respective acquisition dates. During the year ended December 31, 2021, the 2021 Acquired Companies together contributed aggregate revenues of $17.1 million and total estimated net earnings of $1.9 million to the Company since their respective acquisition dates. The unaudited pro forma information below presents the combined operating results of the Company and the 2021 Acquired Companies assuming that the acquisition of the 2021 Acquired Companies had occurred as of January 1, 2020. 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. This unaudited pro forma information does not purport to be indicative of the results that would have actually been obtained if the 2021 Acquisitions had occurred as of January 1, 2020, nor is the pro forma data intended to be a projection of results that may be achieved in the future.
The following unaudited pro forma consolidated results of operations assume that the acquisition of the 2021 Acquired Companies was completed as of January 1, 2020:
| | | Year Ended | |
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Revenue, net | | $ | 546,516 | | | $ | 484,294 | |
| Net earnings | | | 25,051 | | | | 13,549 | |
| Earnings per Class A common share - basic and diluted | | | 1.92 | | | | 1.03 | |
| Earnings per Class B common share - basic and diluted | | | 2.04 | | | | 1.11 | |
Nature of Goods and Services
Our revenues are substantially derived from sales of our products.
In our Connectivity Solutions product group, we provide connectors and cable assemblies to the aerospace, military/defense, commercial, rugged harsh environment and communication markets. This group also includes passive jacks, plugs and cable assemblies that provide connectivity in networking equipment, as well as modular plugs and cable assemblies used within the structured cabling system, known as premise wiring.
In our Power Solutions and Protection group, we provide AC/DC and DC/DC power conversion devices and circuit protection products. Applications range from board-mount power to system-level architectures for servers, storage, networking, industrial and transportation.
In our Magnetic Solutions group, we provide an extensive line of integrated connector modules (ICM), where an Ethernet magnetic solution is integrated into a connector package. Products within the Company's magnetic solutions group are primarily used in networking and industrial applications.
The Company also provides incremental services to our customers in the form of training, technical support, special tooling, and other support as deemed necessary from time to time. For purposes of ASC 606, all such incremental services were concluded to be immaterial in the context of the contracts.
50
Types of Contracts
Substantially all of the Company's revenue is derived from contracts with its customers under one of the following types of contracts:
| | • | Direct with customer: This includes contracts with original equipment manufacturers (OEMs), original design manufacturers (ODMs), and contract manufacturers (CMs). The nature of Bel's products are such that they represent components which are installed in various end applications (e.g., servers, aircraft, missiles and rail applications). The OEMs, ODMs or CMs that purchase our product for further installation are our end customers. Contracts with these customers are broad-based and cover general terms and conditions. Details such as order volume and pricing are typically contained in individual purchase orders, and as a result, we view each product on each purchase order as an individual performance obligation. Incremental services included in the contracts, such as training, tooling and other customer support are determined to be immaterial in the context of the contract, both individually and in the aggregate. Revenue under these contracts is generally recognized at a point in time, generally upon shipping or delivery, which closely mirrors the shipping terms dictated by the applicable contract. |
| | • | Distributor: Distribution customers buy product directly from Bel and sell it in the marketplace to end customers. Bel contracts directly with the distributor. These contracts are typically global in nature and cover a variety of our product groups. Similar to contracts with OEMs, ODMs and CMs, each product on each purchase order is considered an individual performance obligation. Revenue is recognized at a point in time, generally upon shipping or delivery, which closely mirrors the shipping terms dictated by the applicable contract. |
| | • | Customer-Designated Hub Arrangements: These customers operate under a type of concession agreement whereby the Company ships goods to a warehouse or hub, where they will be pulled by the customer at a later date. The terms specified in the customer-designated hub contracts specify that the Company will not invoice the customer for product until it is pulled from the warehouse or hub. Once product arrives at the hub, it is generally not returned to Bel unless there is a warranty issue (see Note 1, "Description of Business and Summary of Significant Accounting Policies - Product Warranties" above). Similar to the contracts described above, each product on each purchase order is considered an individual performance obligation. Under ASC 606, it was determined that the majority of these hubs are customer-controlled, and therefore control transfers to the customer upon either delivery from Bel's warehouse, or arrival at the customer-controlled hub, depending upon the applicable shipping terms. Revenue is therefore recognized as control of the product is transferred to the customer (for customer-controlled hubs, this is at the time product is shipped to the hub). The accompanying consolidated balance sheet reflects a corresponding unbilled receivable balance, as we do not have the right to invoice the customer until product is pulled from the hub. |
| | • | Licensing Agreements: License agreements are only applicable to our Power Solutions and Protection product group, and include provisions for Bel to receive sales-based royalty income related to the licensing of Bel's patents or other intellectual property (IP) utilized by a third-party entity. Income related to these agreements is tracked by the licensee throughout the year based on their sales of product that utilize Bel's IP, and that data is reported to Bel either on a quarterly or annual basis, with payment generally received within 30 days of the reporting date. Our performance obligation is satisfied upon delivery of the IP at the beginning of the license period, as the licenses are functional in nature. However, the recognition of revenue associated with these licenses is subject to the sales- or usage-based constraint on variable consideration. As such, the Company records a constrained estimate of this variable consideration as royalty income in the period of the underlying customers' product sales, with adjustments made as actual licensee sales data becomes available. |
Significant Payment Terms
Contracts with customers indicate the general terms and conditions in which business will be conducted for a set period of time. Individual purchase orders state the description, quantity and price of each product purchased. Payment for products sold under direct contracts with customers or contracts with distributors is typically due in full within 30-90 days from the transfer of title to customer. Payment for products sold under our customer-designated hub arrangements is typically due within 60 days of the customer pulling the product from the hub. Payment due related to our licensing agreements is generally within 30 days of receiving the licensee sales data, which is either on a quarterly or annual basis.
Since the customer agrees to a stated price for each product on each purchase order, the majority of contracts are not subject to variable consideration. However, the "ship and debit" arrangements with distributors, royalty income associated with our licensing agreements, and the product returns described above are each deemed to be variable consideration which requires the Company to make constrained estimates based on historical data.
51
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographic region and sales channel, and includes a reconciliation of the disaggregated revenue to our reportable segments:
| | | Year Ended December 31, 2021 | |
| | | Cinch Connectivity | | | Power Solutions | | | Magnetic | | | | | |
| | | Solutions | | | and Protection | | | Solutions | | | Consolidated | |
| | | | | | | | | | | | | | | | | |
| By Geographic Region: | | | | | | | | | | | | | | | | |
| North America | | $ | 126,303 | | | $ | 152,799 | | | $ | 38,335 | | | $ | 317,437 | |
| Europe | | | 30,241 | | | | 38,068 | | | | 8,252 | | | | 76,561 | |
| Asia | | | 8,483 | | | | 27,168 | | | | 113,845 | | | | 149,496 | |
| | | $ | 165,027 | | | $ | 218,035 | | | $ | 160,432 | | | $ | 543,494 | |
| | | | | | | | | | | | | | | | | |
| By Sales Channel: | | | | | | | | | | | | | | | | |
| Direct to customer | | $ | 99,221 | | | $ | 134,635 | | | $ | 131,300 | | | $ | 365,156 | |
| Through distribution | | | 65,806 | | | | 83,400 | | | | 29,132 | | | | 178,338 | |
| | | $ | 165,027 | | | $ | 218,035 | | | $ | 160,432 | | | $ | 543,494 | |
| | | Year Ended December 31, 2020 | |
| | | Cinch Connectivity | | | Power Solutions | | | Magnetic | | | | | |
| | | Solutions | | | and Protection | | | Solutions | | | Consolidated | |
| | | | | | | | | | | | | | | | | |
| By Geographic Region: | | | | | | | | | | | | | | | | |
| North America | | $ | 112,663 | | | $ | 123,014 | | | $ | 29,999 | | | $ | 265,676 | |
| Europe | | | 30,017 | | | | 34,447 | | | | 6,328 | | | | 70,792 | |
| Asia | | | 8,051 | | | | 24,027 | | | | 97,225 | | | | 129,303 | |
| | | $ | 150,731 | | | $ | 181,488 | | | $ | 133,552 | | | $ | 465,771 | |
| | | | | | | | | | | | | | | | | |
| By Sales Channel: | | | | | | | | | | | | | | | | |
| Direct to customer | | $ | 95,853 | | | $ | 113,570 | | | $ | 108,727 | | | $ | 318,150 | |
| Through distribution | | | 54,878 | | | | 67,918 | | | | 24,825 | | | | 147,621 | |
| | | $ | 150,731 | | | $ | 181,488 | | | $ | 133,552 | | | $ | 465,771 | |
52
Contract Assets and Contract Liabilities:
A contract asset results when goods or services have been transferred to the customer but payment is contingent upon a future event, other than passage of time. In the case of our customer-controlled hub arrangements, we are unable to invoice the customer until product is pulled from the hub by the customer, which generates an unbilled receivable (a contract asset) when revenue is initially recognized.
A contract liability results when cash payments are received or due in advance of our performance obligation being met. We have certain customers who provide payment in advance of product being shipped, which results in deferred revenue (a contract liability).
The balances of the Company's contract assets and contract liabilities at December 31, 2021 and December 31, 2020 are as follows:
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | | | |
| Contract assets - current (unbilled receivables) | | $ | 28,275 | | | $ | 14,135 | |
| Contract liabilities - current (deferred revenue) | | $ | 2,224 | | | $ | 2,077 | |
The change in balance of our unbilled receivables from December 31, 2020 to December 31, 2021 primarily relates to a timing difference between the Company's performance (i.e. when our product is shipped to a customer-controlled hub) and the point at which the Company can invoice the customer per the terms of the customer contract (i.e. when the customer pulls our product from the customer-controlled hub). The deferred revenue balance is included within other current liabilities on the accompanying balance sheets.
A tabular presentation of the activity within the deferred revenue account for the year ended December 31, 2021 is presented below:
| | | Year Ended | |
| | | December 31, 2021 | |
| Balance, January 1 | | $ | 2,077 | |
| New advance payments received | | | 3,984 | |
| Recognized as revenue during period | | | (2,665 | ) |
| Other adjustments | | | (1,175 | ) |
| Currency translation | | | 3 | |
| Balance, December 31 | | $ | 2,224 | |
Transaction Price Allocated to Future Obligations:
The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of December 31, 2021 related to contracts that exceed one year in duration amounted to $39.8 million, with expected contract expiration dates that range from 2023 - 2025. It is expected that 96% of this aggregate amount will be recognized in 2023, 0% will be recognized in 2024 and the remainder will be recognized in years beyond 2024. The majority of the Company's total backlog of orders at December 31, 2021 is related to contracts that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations. The Company will generally satisfy the remaining performance obligations as we transfer control of the products ordered to our customers. The transaction price related to these future obligations also excludes variable consideration consisting of sales or usage-based royalties earned on licensing agreements. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the licensed intellectual property.
| 4. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Goodwill
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. At December 31, 2021 and 2020, the Company's reportable operating segments were as follows:
| | • | Connectivity Solutions: includes the 2010 acquisition of Cinch Connectors, the 2012 acquisitions of Fibreco Limited and GigaCom Interconnect, the 2013 acquisition of Array Connector, the 2014 acquisition of Emerson Network Power Connectivity Solutions, the 2021 acquisition of rms Connectors, in addition to sales and an estimated allocation of expenses related to connectivity products manufactured at Bel sites that are not product group specific. |
| | | |
| | • | Power Solutions and Protection: includes the 2012 acquisition of Powerbox Italia, the 2014 acquisition of Power-One's Power Solutions business, the 2019 acquisition of the majority of CUI Inc.'s power products business, the 2021 acquisition of EOS, in addition to sales and an estimated allocation of expenses related to power products manufactured at Bel sites that are not product group specific. |
| | | |
| | • | Magnetic Solutions: includes the 2013 acquisition of TE Connectivity's Coil Wound Magnetics business, our Signal Transformer business, in addition to sales and an estimated allocation of expenses related to Bel's ICM and discrete magnetic products that are manufactured at Bel sites that are not product group specific. |
The changes in the carrying value of goodwill classified by our segment reporting structure for the year ended December 31, 2021 are as noted in the table below.
| | | | | | | | | | | | | | | | | |
| | | Total | | | Connectivity Solutions | | | Power Solutions & Protection | | | Magnetic Solutions | |
| Balance at January 1, 2021: | | | | | | | | | | | | | | | | |
| Goodwill, gross | | $ | 23,966 | | | $ | 7,855 | | | $ | 16,111 | | | $ | - | |
| Goodwill, net | | $ | 23,966 | | | $ | 7,855 | | | $ | 16,111 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Goodwill allocation related to acquisition | | | 2,499 | | | | - | | | | 2,499 | | | | - | |
| Foreign currency translation | | | 186 | | | | (120 | ) | | | 306 | | | | - | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021: | | | | | | | | | | | | | | | | |
| Goodwill, gross | | $ | 26,651 | | | $ | 7,735 | | | $ | 18,916 | | | $ | - | |
| Goodwill, net | | $ | 26,651 | | | $ | 7,735 | | | $ | 18,916 | | | $ | - | |
The Company has accumulated impairment charges totaling $137.5 million, which were incurred under a former segment and reporting unit structure which was in place prior to October 1, 2019.
As discussed in Note 5, Fair Value Measurements, goodwill is reviewed for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. We estimated the fair value of these reporting units using a weighting of fair values derived from income and market approaches. Under the income approach, we determine the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.
2021 Annual Impairment Test
On October 1, 2021, the Company completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair value of the Company's Connectivity Europe, Power Europe and CUI reporting units (the only reporting units with goodwill aside from the 2021 acquisitions) exceeded the carrying value and that there was no indication of impairment.
The excess of estimated fair values over carrying value, including goodwill for each of our reporting units that had goodwill as of the 2021 annual impairment test were as follows:
| Reporting Unit | | % by Which Estimated Fair Value Exceeds Carrying Value | |
| Connectivity Europe | | | 40.3 | % |
| Power Europe | | | 64.6 | % |
| CUI | | | 136.7 | % |
2020 Impairment Tests
On October 1, 2020, the Company completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair value of the Company's Connectivity Europe, Power Europe and CUI reporting units (the only reporting units with goodwill) exceeded the carrying value and that there was no indication of impairment.
As noted above, the fair value determined in connection with the goodwill impairment test completed in the fourth quarter of 2021 exceeded the carrying value for each reporting unit. Therefore, there was no impairment of goodwill. However, if the fair value decreases in future periods, the Company may need to complete an interim goodwill impairment test and any potential goodwill impairment charge would be dependent upon the estimated fair value of the reporting unit at that time and the outcome of the impairment test. The fair values of the assets and liabilities of the reporting unit, including the intangible assets, could vary depending on various factors.
The future occurrence of a potential indicator of impairment, such as a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in our common stock price, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, unanticipated competition, strategic decisions made in response to economic or competitive conditions, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could require an interim assessment for some or all of the reporting units before the next required annual assessment. In the event of significant adverse changes of the nature described above, it may be necessary for us to recognize an additional non-cash impairment of goodwill, which could have a material adverse effect on our consolidated financial condition and consolidated results of operations.
Other Intangible Assets
Other identifiable intangible assets include patents, technology, license 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, or when there is a triggering event. Other intangible assets, excluding trademarks, are being amortized over 1 to 16 years.
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, 2021, the Company's indefinite-lived intangible assets related to the trademarks acquired in the CUI, Power Solutions, Connectivity Solutions, Cinch and Fibreco acquisitions.
The components of definite and indefinite-lived intangible assets are as follows:
| | | December 31, 2021 | | | December 31, 2020 | |
| | | Gross Carrying | | | Accumulated | | | Net Carrying | | | Gross Carrying | | | Accumulated | | | Net Carrying | |
| | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Patents, licenses and technology | | $ | 38,957 | | | $ | 28,353 | | | $ | 10,604 | | | $ | 39,056 | | | $ | 25,160 | | | $ | 13,896 | |
| Customer relationships | | | 58,008 | | | | 24,766 | | | | 33,242 | | | | 56,261 | | | | 21,280 | | | | 34,981 | |
| Non-compete agreements | | | 2,711 | | | | 2,711 | | | | - | | | | 2,716 | | | | 2,717 | | | | (1 | ) |
| Trademarks | | | 17,189 | | | | 40 | | | | 17,149 | | | | 16,953 | | | | 40 | | | | 16,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 116,865 | | | $ | 55,870 | | | $ | 60,995 | | | $ | 114,986 | | | $ | 49,197 | | | $ | 65,789 | |
Amortization expense was $7.1 million during each 2021 and 2020.
Estimated amortization expense for intangible assets for the next five years is as follows:
| December 31, | | Amortization Expense | |
| | | | | |
| 2022 | | $ | 5,780 | |
| 2023 | | | 4,631 | |
| 2024 | | | 4,569 | |
| 2025 | | | 4,554 | |
| 2026 | | | 4,554 | |
2021 and 2020 Impairment Tests
The Company completed its annual indefinite-lived intangible assets impairment test as of October 1, 2021 and October 1, 2020. Management has concluded that the fair value of these trademarks exceeded the related carrying values at both December 31, 2021 and December 31, 2020, with no indication of impairment at either date.
55
| 5. | FAIR VALUE MEASUREMENTS |
As of December 31, 2021 and 2020, our available-for-sale securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations. These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs and amounted to $0.3 million at December 31, 2021 and $0.7 million at December 31, 2020.
Throughout 2020 and 2021, the Company entered into a series of foreign currency forward contracts, the fair value of which less than $0.1 million at each December 31, 2021 and 2020. The estimated fair value of foreign currency forward contracts is based on quotes received from the applicable counterparty, and represents the estimated amount we would receive or pay to settle the contracts, taking into consideration current exchange rates which can be validated through readily observable data from external sources (Level 2).
During the fourth quarter of 2021, the Company entered into two interest rate swap agreements as further described in Note 12, "Derivative Instruments and Hedging Activities". The fair value of the interest rate swap agreements was $0.1 million at December 31, 2021, which was based on data received from the counterparty, and represents the estimated amount we would receive or pay to settle the agreements, taking into consideration current and projected future interest rates as well as the creditworthiness of the parties, all of which can be validated through readily observable data from external sources.
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 2021 or 2020. There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during 2021.
There were no financial assets accounted for at fair value on a nonrecurring basis as of December 31, 2021 or December 31, 2020.
The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, 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 fair value of the Company’s long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities. At December 31, 2021 and 2020, the estimated fair value of total debt was $112.5 million and $118.4 million, respectively, compared to a carrying amount of $112.5 million and $115.6 million, respectively. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2021.
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. See Note 4, "Goodwill and Other Intangible Assets," for further information about goodwill and other indefinite-lived intangible assets.
At December 31, 2021 and 2020, the Company has obligations of $23.6 million and $24.3 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, 2021 and 2020, these assets had a combined value of $16.4 million and $15.4 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 cash surrender value of the COLI of $16.1 million and $14.7 million at December 31, 2021 and 2020, respectively, is included in other assets in the accompanying consolidated balance sheets. The volatility in global equity markets in recent years has also had an effect on the cash surrender value of the COLI policies. The Company recorded income to account for the increase in cash surrender value in the amount of $1.3 million and $1.4 million during the years ended December 31, 2021 and 2020, respectively. These fluctuations are classified as other income (expense), net on the consolidated statements of operations for all periods presented. This classification 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, 2021 and 2020, the Company held, in the aforementioned rabbi trust, available-for-sale investments at a cost of $0.3 million and $0.7 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. At December 31, 2021 and 2020, the fair market value of these investments was $0.3 million and $0.7 million, respectively.
56
The components of inventories are as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Raw materials | | $ | 67,127 | | | $ | 40,846 | |
| Work in progress | | | 31,103 | | | | 25,916 | |
| Finished goods | | | 41,153 | | | | 33,371 | |
| Inventories | | $ | 139,383 | | | $ | 100,133 | |
| 8. | PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment, net consist of the following:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Land | | $ | 1,105 | | | $ | 1,115 | |
| Buildings and improvements | | | 20,915 | | | | 19,917 | |
| Machinery and equipment | | | 120,961 | | | | 124,114 | |
| Construction in progress | | | 5,081 | | | | 1,603 | |
| | | | 148,062 | | | | 146,749 | |
| Accumulated depreciation | | | (109,852 | ) | | | (112,248 | ) |
| Property, plant and equipment, net | | $ | 38,210 | | | $ | 34,501 | |
Depreciation expense for the years ended December 31, 2021 and 2020 was $9.7 million and $9.3 million, respectively. At December 31, 2021, a total of $1.6 million of property was classified as assets held for sale on the accompanying consolidated balance sheet related to our corporate headquarters in Jersey City, New Jersey.
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 2018 and for state examinations before 2015. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2011 in Asia and generally 2013 in Europe.
At December 31, 2021 and 2020, the Company has approximately $28.4 million and $28.5 million, respectively, of liabilities for uncertain tax positions (zero and $2.4 million, respectively, is included in other current liabilities on the consolidated balance sheets and $28.4 million and $26.1 million, respectively, is included in liability for uncertain tax positions on the consolidated balance sheets). These amounts, if recognized, would reduce the Company’s effective tax rate. As of December 31, 2021, approximately $4.1 million of the Company’s liabilities for uncertain tax positions are expected to be resolved during the next twelve months by way of expiration of the related statute of limitations.
A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, including the portion included in income taxes payable, is as follows:
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Liability for uncertain tax positions - January 1 | | $ | 28,516 | | | $ | 29,061 | |
| Additions based on tax positions related to the current year | | | 2,054 | | | | 764 | |
| Translation adjustment | | | 331 | | | | 887 | |
| Settlement/expiration of statutes of limitations | | | (2,467 | ) | | | (2,196 | ) |
| Liability for uncertain tax positions - December 31 | | $ | 28,434 | | | $ | 28,516 | |
57
The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the years ended December 31, 2021 and 2020, the Company recognized $0.7 million and $0.8 million, respectively, in interest and penalties in the consolidated statements of operations. During the years ended December 31, 2021 and 2020, the Company recognized a benefit of $1.0 million and $0.5 million, respectively, for the reversal of such interest and penalties, relating to the expiration of statues of limitations and settlement of the acquired liability for uncertain tax positions, respectively. The Company has approximately $5.0 million and $5.2 million accrued for the payment of interest and penalties at December 31, 2021 and 2020, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the consolidated balance sheets.
The Company’s total earnings before provision for income taxes included earnings (losses) from domestic operations of $7.3 million and ($6.0) million for 2021 and 2020, respectively, and earnings before provision for income taxes from foreign operations of $20.0 million and $18.1 million for 2021 and 2020, respectively.
The provision (benefit) for income taxes consists of the following:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Current: | | | | | | | | |
| Federal | | $ | 520 | | | $ | (1,555 | ) |
| State | | | 126 | | | | 168 | |
| Foreign | | | 1,419 | | | | 2,472 | |
| | | | 2,065 | | | | 1,085 | |
| Deferred: | | | | | | | | |
| Federal | | | 863 | | | | (1,412 | ) |
| State | | | (54 | ) | | | (151 | ) |
| Foreign | | | (368 | ) | | | (181 | ) |
| | | | 441 | | | | (1,744 | ) |
| | | | | | | | | |
| | | $ | 2,506 | | | $ | (659 | ) |
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| | | $ | | | % | | | $ | | | % | |
| Tax provision computed at the federal statutory rate | | $ | 5,739 | | | | 21 | % | | $ | 2,549 | | | | 21 | % |
| (Decrease) increase in taxes resulting from: | | | | | | | | | | | | | | | | |
| Different tax rates applicable to foreign operations | | | (1,641 | ) | | | (6 | %) | | | 311 | | | | 3 | % |
| | | | |
| Reversal of liability for uncertain tax positions - net | | | (413 | ) | | | (2 | %) | | | (1,432 | ) | | | (12 | %) |
| | | | |
| Impact of U.S. Tax Reform | | | - | | | | 0 | % | | | (1,129 | ) | | | (9 | %) |
| | | | |
| Research and experimentation and foreign tax credits | | | 343 | | | | 1 | % | | | (245 | ) | | | (2 | %) |
| | | | |
| State taxes, net of federal benefit | | | 42 | | | | 0 | % | | | 4 | | | | 0 | % |
| | | | |
| SERP/COLI and restricted stock income | | | (172 | ) | | | (1 | %) | | | (234 | ) | | | (2 | %) |
| | | | |
| Other, net | | | (1,392 | ) | | | (5 | %) | | | (483 | ) | | | (4 | %) |
| Tax provision (benefit) computed at the Company's effective tax rate | | $ | 2,506 | | | | 9 | % | | $ | (659 | ) | | | (5 | %) |
58
As of December 31, 2021, the Company has $25.1 million of deferred tax assets, which the Company evaluates for utilization on an annual basis. The Company has gross federal, state and foreign net operating losses (“NOL”) of $30.1 million which amount to $6.8 million of deferred tax assets. In addition, the Company has $1.3 million of credit carryforwards and acquired deferred tax assets of $0.9 million. The Company believes that it is more likely than not that the benefit arising from certain NOL, credit carryforwards and acquisition assets will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $8.1 million on these deferred tax assets. The federal and certain foreign NOL's can be carried forward indefinitely, the state and certain foreign NOL's expire at various times during 2025 – 2040 and the tax credit carryforwards expire at various times during 2028 - 2040.
Management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of December 31, 2021. Applicable income and dividend withholding taxes of $0.3 million have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2021. Due to the practicality of determining the deferred taxes on outside basis differences in our investments in our foreign subsidiaries, we have not provided for deferred taxes on outside basis differences and deemed that these basis differences will be indefinitely reinvested.
Components of deferred income tax assets and liabilities are as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| | | Tax Effect | | | Tax Effect | |
| | | | | | | | | |
| Deferred tax assets: | | | | | | | | |
| State tax credits | | $ | 812 | | | $ | 757 | |
| Unfunded pension liability | | | 965 | | | | 1,840 | |
| Reserves and accruals | | | 4,124 | | | | 3,181 | |
| Federal, state and foreign net operating loss and credit carryforwards | | | 7,586 | | | | 7,744 | |
| Depreciation | | | 488 | | | | 604 | |
| Amortization | | | 130 | | | | 142 | |
| Lease accounting | | | 4,592 | | | | 3,217 | |
| Other accruals | | | 6,364 | | | | 5,452 | |
| Total deferred tax assets | | | 25,061 | | | | 22,937 | |
| Deferred tax liabilities: | | | | | | | | |
| Depreciation | | | 2,450 | | | | 1,992 | |
| Amortization | | | 6,483 | | | | 6,541 | |
| Lease accounting | | | 4,522 | | | | 3,110 | |
| Other accruals | | | 573 | | | | 330 | |
| Total deferred tax liabilities | | | 14,028 | | | | 11,973 | |
| Valuation allowance | | | 8,059 | | | | 6,289 | |
| Net deferred tax assets | | $ | 2,974 | | | $ | 4,675 | |
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, 2021 and 2020, borrowings outstanding related to the respective term loans described below were $0 and $104.8 million, respectively, with $112.5 million and $12.0 million in borrowings outstanding under the revolver, respectively. The unused credit available under the applicable credit facility was $62.5 million at December 31, 2021 and $63.0 million at December 31, 2020. At December 31, 2020, the carrying value of the debt on the consolidated balance sheets is reflected net of $1.3 million of deferred financing costs.
The interest rate in effect at December 31, 2021 was 1.60%, which consisted of LIBOR of 0.10% plus the Company's margin of 1.50%. The interest rate in effect at December 31, 2020 was 2.19%, which consisted of LIBOR of 0.19% plus the Company's margin of 2.00%. In connection with its outstanding borrowings and amortization of the deferred financing costs described below, the Company incurred $3.5 million and $4.7 million of interest expense during the years ended December 31, 2021 and 2020, respectively. The interest expense for the year ended December 31, 2021 included $0.8 million of deferred financing costs amortized in connection with the extinguishment of debt under the Prior Credit Agreement (as defined below) as further described under "2021 Refinancing" below.
2014 Credit and Security Agreement
On June 19, 2014, the Company entered into a senior Credit and Security Agreement with KeyBank National Association ("KeyBank"), as administrative agent and lender, which was amended on June 30, 2014 principally to add a syndicate of additional lenders (as so amended, the "2014 CSA"). The 2014 CSA consisted of (i) a $50 million revolving credit facility ("Revolver"), (ii) a $145 million term loan facility ("Term Loan") and (iii) a $70 million delayed draw term loan ("DDTL"). The maturity date of the 2014 CSA was June 18, 2019. The Company recorded $5.8 million of deferred financing costs associated with the 2014 CSA, to be amortized through interest expense over the 5-year term of the agreement.
2016 Amendment
In March 2016, the Company amended the terms of the 2014 CSA to modify (i) the date by which the Company was obligated to make excess cash flow prepayments in 2016 on account of excess cash flow achieved for fiscal year 2015, (ii) the method of application of mandatory and voluntary prepayments related to the Company's loans, and (iii) the maximum Leverage Ratio of the Company allowed under the 2014 CSA for the period from the effective date of the amendment through September 2016. In connection with this amendment to the 2014 CSA, the Company paid $0.7 million of deferred financing costs, and the modification to the amortization schedule resulted in $0.5 million of existing deferred financing costs to be accelerated and recorded as interest expense during the first quarter of 2016.
2017 Amendment and Refinancing
On December 11, 2017, the Company refinanced the borrowings under the 2014 CSA and further amended its terms as follows: (i) extended the maturity date to December 11, 2022, (ii) revised the amount of the Term Loan to $125.0 million, (iii) increased the amount available under the Revolver to $75.0 million, (iv) reduced mandatory amortization payments over the first four years of the new 5-year term; and (v) reduced the pricing grid related to interest expense, among other items (as so amended, the "2017 CSA"). Concurrent with its entry into the 2017 CSA, the Company's outstanding balances due under the DDTL and Revolver were paid in full. In connection with 2017 CSA and related refinancing, the Company paid $1.8 million of deferred financing costs. Due to the magnitude of the modifications to the 2014 CSA, including a reduction in the number of lenders within the syndicate, this modification was deemed an extinguishment of the balances outstanding related to the Term Loan and DDTL that originated under the 2014 CSA. As a result, $1.0 million of existing deferred financing costs were accelerated and recorded as interest expense during the fourth quarter of 2017.
Under the terms of the 2017 CSA, the Company was entitled, subject to the satisfaction of certain conditions, to request additional commitments under the revolving credit facility or term loans in the aggregate principal amount of up to $75 million to the extent that existing or new lenders agreed to provide such additional commitments and/or term loans.
The borrowings under the 2017 CSA bore interest at a rate equal to, at the Company's option, either (1) LIBOR, plus a margin ranging from 1.375% per annum to 2.75% per annum depending on the Company's leverage ratio, or (2)(a) an "Alternate Base Rate," which was the highest of (i) the federal funds rate plus 0.50%, (ii) KeyBank's prime rate and (iii) the LIBOR rate with a maturity of one month plus 1.00%, plus (b) a margin ranging from 0.375% per annum to 1.75% per annum, depending on the Company's leverage ratio.
The 2017 CSA contained customary representations and warranties, covenants and events of default and financial covenants that measured (i) the ratio of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company's consolidated EBITDA, as defined, ("Leverage Ratio") and (ii) the ratio of the amount of the Company's consolidated EBITDA to the Company's consolidated fixed charges ("Fixed Charge Coverage Ratio"). If an event of default occurred, the lenders under the CSA would have been entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor.
2020 Amendment
On February 18, 2020, the Company further amended its credit agreement whereby the Company voluntarily prepaid a portion of its term loan under the credit agreement in the amount of $8.2 million. The Amendment also served to modify the interest rate and fees applicable to the loans under the credit agreement and change certain covenants related to matters including acquisitions, share repurchases and financial ratios (as so amended, including by all prior amendments, the "Prior Credit Agreement").
2021 Refinancing
On September 2, 2021, the Company entered into an Amended and Restated Credit and Security Agreement (the “New Credit Agreement”), by and among the Company, as the borrower, KeyBank National Association (“KeyBank”), as administrative agent, swing line lender and issuing lender, and the other lenders identified therein. The New Credit Agreement amends, restates and supersedes Bel’s Prior Credit Agreement. The New Credit Agreement provides Bel with a $175 million 5-year senior secured revolving credit facility (the “New Revolver”), with a sublimit of up to $10 million available for letters of credit and a sublimit of up to $5 million available for swing line loans. The New Revolver replaces and refinances the $75 million revolving credit facility and the $125 million term loan facility that had existed under the Prior Credit Agreement.
Concurrent with its entry into the New Credit Agreement, the Company borrowed $115 million under the New Revolver facility, of which approximately $101.9 million and $12.0 million, respectively, was applied to discharge and satisfy in full the remaining obligations outstanding under the former term loan and the previous revolving credit facility that had existed under the Prior Credit Agreement.
Under the terms of the New Credit Agreement, the Company is entitled, subject to the satisfaction of certain conditions, to request additional commitments under the New Revolver or the addition of a term loan facility in the aggregate principal amount of up to $100 million for all such increases (revolver and term) to the extent that existing or new lenders agree to provide such additional commitments and/or term loans. In addition to requesting loans denominated in U.S. dollars, the New Credit Agreement provides that up to a U.S. Dollar equivalent principal amount of $15 million of the New Revolver may be borrowed by Bel in alternate foreign currencies including Euros, Pounds Sterling, Japanese Yen and such other currency as requested by Bel and consented to by KeyBank and each lender.
In connection with the effectiveness of the New Credit Agreement, the Company and certain of the Company’s material U.S. subsidiaries (together with the Company, the “Loan Parties”) provided to the administrative agent, for the benefit of the lenders, confirmation of the continuing use and effectiveness of each guaranty of payment and each security document executed and delivered by the Loan Parties in connection with the Prior Credit Agreement. As a result, consistent with the Prior Credit Agreement, the obligations of the Company under the New Credit Agreement are guaranteed by the Loan Parties’ material U.S. subsidiaries, and secured by a first priority security interest in substantially all of the existing and future personal property of the Loan Parties, certain material real property of the Loan Parties and certain of the Loan Parties’ material U.S. subsidiaries, including 65% of the voting capital stock of certain of the Loan Parties’ direct foreign subsidiaries.
The borrowings under the New Credit Agreement bear interest, generally payable quarterly, at a rate equal to, at the Company's option, either (1) LIBOR, plus a margin ranging from 1.125% per annum to 2.125% per annum depending on the Company’s leverage ratio, or (2)(a) an alternate “Base Rate,” which is the highest of (i) KeyBank’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the LIBOR rate with a maturity of one month plus 1%, plus (b) a margin ranging from 0.125% per annum to 1.125% per annum, depending on the Company’s leverage ratio. Additionally, the New Credit agreement contains standard provisions and procedures for transition to a benchmark other than the Eurodollar Rate to determine the applicable interest rate (including reference to the secured overnight financing rate (SOFR) published by the Federal Reserve Bank of New York), with provisions applying that alternate benchmark where applicable following the replacement of LIBOR. Pursuant to the terms of the New Credit Agreement, the Company has agreed to pay to KeyBank, as administrative agent for the ratable account of the revolving lenders in consideration for their commitments in respect of the New Revolver, a commitment fee due quarterly in arrears and calculated based on the average unused amount of the facility (exclusive of swing line exposure), at a rate ranging from 0.2% per annum to 0.3% per annum, depending on the Company’s leverage ratio.
Revolving loans borrowed under the New Credit Agreement mature on September 1, 2026, and the commitments with respect to the New Revolver will automatically terminate on such date.
The New Credit Agreement contains customary representations and warranties, covenants and events of default. In addition, the New Credit Agreement contains financial covenants that measure (i) the ratio of the Company’s total funded indebtedness, on a consolidated basis, less the aggregate amount of all unencumbered cash and cash equivalents, to the amount of the Company’s consolidated EBITDA (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s consolidated fixed charges (“Fixed Charge Coverage Ratio”). If an event of default occurs, the lenders under the New Credit Agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor.
The Company recorded $0.7 million of deferred financing costs associated with the New Credit Agreement, which are included in other current assets and other assets on the accompanying consolidated balance sheet at December 31, 2021 and will be amortized to interest expense over the five year term of the New Credit Agreement.
At December 31, 2021, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Leverage Ratio.
Interest Rate Swaps
In December 2021, the Company purchased two interest rate swaps (the "2021 Swaps"), each with an aggregate notional amount of $30 million, or $60 million in the aggregate, the effect of which is to fix the LIBOR portion of the interest rate on a portion of our outstanding debt on our New Revolver. The 2021 Swaps were effective December 31, 2021 and continue through August 31, 2026, the original termination date of the New Credit Agreement. The 2021 Swaps require the Company to pay interest on the notional amount at the rate of 1.3055% and 1.3180%, respectively, in exchange for the one-month LIBOR rate. See Note 12, "Derivative Instruments and Hedging Activities" for further information on these interest rate derivative instruments entered into in connection with the New Credit Agreement.
Scheduled principal payments of the total debt outstanding at December 31, 2021 are as follows (in thousands):
| 2022 | | $ | - | |
| 2023 | | | - | |
| 2024 | | | - | |
| 2025 | | | - | |
| 2026 | | | 112,500 | |
| Total long-term debt | | | 112,500 | |
| Less: Current maturities of long-term debt | | | - | |
| Noncurrent portion of long-term debt | | $ | 112,500 | |
62
Accrued expenses consist of the following:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Sales commissions | | $ | 2,049 | | | $ | 2,574 | |
| Subcontracting labor | | | 1,622 | | | | 758 | |
| Salaries, bonuses and related benefits | | | 21,342 | | | | 17,165 | |
| Warranty accrual | | | 1,056 | | | | 1,010 | |
| Other | | | 8,384 | | | | 6,969 | |
| | | $ | 34,453 | | | $ | 28,476 | |
The change in warranty accrual during 2021 primarily related to repair costs incurred and adjustments to pre-existing warranties. There were no new material warranty charges incurred during 2021.
| 12. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes.
Foreign Currency Forward Contracts
Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, most notably the Chinese Renminbi and the Mexican Peso. These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionally we will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk.
We held outstanding foreign currency forward contracts with notional amounts of $17.1 million and $0.4 million as of December 31, 2021 and 2020, respectively.
Interest Rate Swap Agreements
To partially mitigate risks associated with the variable interest rates on the revolver borrowings under the New Credit Agreement, in November 2021, we executed a pay-fixed, receive-variable interest rate swap agreement with each of two multinational financial institutions under which we (i) pay interest at a fixed rate of 1.3055% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million and (ii) pay interest at a fixed rate of 1.3180% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million (the “2021 Swaps”). The effective date of the 2021 Swaps was December 31, 2021, and settlements with the counterparties began on January 31, 2022 and occur on a monthly basis. The 2021 Swaps swill terminate on August 31, 2026.
The 2021 Swaps are designated as cash flow hedges for accounting purposes and as such, changes in their fair value are recognized in accumulated other comprehensive income (loss) in the consolidated balance sheet and are reclassified into the statement of operations within interest expense in the period in which the hedged transaction affects earnings.
Fair Values of Derivative Financial Instruments
The fair values of our derivative financial instruments and their classifications in our consolidated balance sheets as of December 31, 2021 were as follows:
| | | | December 31, | |
| | Balance Sheet Classification | | 2021 | | | 2020 | |
| Derivative assets: | | | | | | | | | |
| Foreign currency forward contracts: | | | | | | | | | |
| Designated as cash flow hedges | Other current assets | | $ | 57 | | | $ | - | |
| Not designated as hedging instruments | Other current assets | | | - | | | | 12 | |
| Total derivative assets | | $ | 57 | | | $ | 12 | |
| | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | |
| Foreign currency forward contracts: | | | | | | | | | |
| Not designated as hedging instruments | Other current liabilities | | $ | 19 | | | $ | - | |
| Interest rate swap agreements: | | | | | | | | | |
| Designated as a cash flow hedge | Other long-term liabilities | | | 116 | | | | - | |
| Total derivative liabilities | | $ | 135 | | | $ | - | |
Derivative Financial Instruments in Cash Flow Hedging Relationships
The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss (“AOCL”) and on the consolidated statement of operations for the years ended December 31, 2021 and 2020 were as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Net gains (losses) recognized in AOCL: | | | | | | | | |
| Foreign currency forward contracts | | $ | 57 | | | $ | - | |
| Interest rate swap agreements | | | (116 | ) | | | - | |
| | | $ | (59 | ) | | $ | - | |
The gain related to the foreign currency forward contracts is included as a component of currency translation adjustment on the accompanying statement of other comprehensive income at December 31, 2021. The loss related to the interest rate swap agreements is included as a component of unrealized holding (losses) gains on marketable securities on the accompanying statement of other comprehensive income at December 31, 2021. There were no net gains (losses) reclassified from AOCL to the consolidated statements of operations during 2021 or 2020.
Derivative Financial Instruments Not Designated as Hedging Instruments
(Losses) gains recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of operations for the years ended December 31, 2021 and 2020 were as follows:
| | | | Year Ended December 31, | |
| | Classification in Consolidated Statements of Operations | | 2021 | | | 2020 | |
| Foreign currency forward contracts | Other (expense) income, net | | $ | 62 | | | $ | 134 | |
| Interest rate swap agreements | Other (expense) income, net | | | - | | | | - | |
| | | | $ | 62 | | | $ | 134 | |
The Company operates in one industry with three reportable operating segments, which represent the Company's three product groups and a corporate segment. The segments consist of Connectivity Solutions, Power Solutions and Protection, Magnetic Solutions and a Corporate segment. The primary criteria by which financial performance is evaluated and resources are allocated are net sales and gross profit. The following is a summary of key financial data:
| | | Year Ended December 31, 2021 | |
| | | Connectivity | | | Power Solutions | | | Magnetic | | | Corporate | | | | | |
| | | Solutions | | | and Protection | | | Solutions | | | Segment | | | Total | |
| Net sales | | $ | 165,027 | | | $ | 218,035 | | | $ | 160,432 | | | $ | - | | | $ | 543,494 | |
| Gross Profit | | | 43,501 | | | | 58,823 | | | | 34,106 | | | | (2,047 | ) | | | 134,383 | |
| Gross Profit % | | | 26.4 | % | | | 27.0 | % | | | 21.3 | % | | | nm | | | | 24.7 | % |
| Total Assets | | | 147,813 | | | | 206,719 | | | | 104,845 | | | | 52,469 | | | | 511,846 | |
| Capital Expenditures | | | 1,768 | | | | 4,718 | | | | 2,911 | | | | - | | | | 9,397 | |
| Depreciation and Amortization Expense | | | 6,683 | | | | 8,022 | | | | 2,126 | | | | 30 | | | | 16,861 | |
| | | Year Ended December 31, 2020 | |
| | | Connectivity | | | Power Solutions | | | Magnetic | | | Corporate | | | | | |
| | | Solutions | | | and Protection | | | Solutions | | | Segment | | | Total | |
| Net sales | | $ | 150,731 | | | $ | 181,488 | | | $ | 133,552 | | | $ | - | | | $ | 465,771 | |
| Gross Profit | | | 42,200 | | | | 45,587 | | | | 33,072 | | | | (1,129 | ) | | | 119,730 | |
| Gross Profit % | | | 28.0 | % | | | 25.1 | % | | | 24.8 | % | | | nm | | | | 25.7 | % |
| Total Assets | | | 137,333 | | | | 180,939 | | | | 92,538 | | | | 43,056 | | | | 453,866 | |
| Capital Expenditures | | | 1,955 | | | | 2,458 | | | | 1,063 | | | | - | | | | 5,476 | |
| Depreciation and Amortization Expense | | | 5,700 | | | | 8,611 | | | | 2,112 | | | | - | | | | 16,423 | |
65
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.
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Net Sales by Geographic Location: | | | | | | | | |
| | | | | | | | | |
| United States | | $ | 317,436 | | | $ | 265,676 | |
| Macao | | | 137,065 | | | | 129,303 | |
| United Kingdom | | | 20,000 | | | | 22,017 | |
| Slovakia | | | 19,407 | | | | 17,609 | |
| Germany | | | 17,856 | | | | 13,582 | |
| India | | | 12,430 | | | | - | |
| Switzerland | | | 8,315 | | | | 8,612 | |
| All other foreign countries | | | 10,985 | | | | 8,972 | |
| Consolidated net sales | | $ | 543,494 | | | $ | 465,771 | |
| | | | | | | | | |
| Net Sales by Major Product Line: | | | | | | | | |
| | | | | | | | | |
| Connectivity solutions | | $ | 165,027 | | | $ | 150,731 | |
| Magnetic solutions | | | 160,432 | | | | 133,552 | |
| Power solutions and protection | | | 218,035 | | | | 181,488 | |
| Consolidated net sales | | $ | 543,494 | | | $ | 465,771 | |
The following is a summary of long-lived assets by geographic area as of December 31, 2021 and 2020:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Long-lived Assets by Geographic Location: | | | | | | | | |
| | | | | | | | | |
| United States | | $ | 30,438 | | | $ | 26,748 | |
| People's Republic of China (PRC) | | | 29,904 | | | | 28,711 | |
| Slovakia | | | 6,675 | | | | 5,514 | |
| United Kingdom | | | 1,264 | | | | 1,715 | |
| All other foreign countries | | | 1,190 | | | | 1,235 | |
| Consolidated long-lived assets | | $ | 69,471 | | | $ | 63,923 | |
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 35.6% of its identifiable assets are located in Asia.
Net Sales to Major Customers
The Company had net sales to one customer in excess of ten percent of consolidated net sales in 2021 and 2020. The net sales associated with this customer were $57.8 million (10.6% of sales) in 2021 and $55.2 million (11.9% of sales) in 2020. Net sales related to this significant customer were primarily reflected in the Magnetic Solutions operating segment.
66
| 14. | 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 in an amount equal to 100% of the first 1% of compensation contributed by participants, and 50% of the next 5% of compensation contributed by participants. The Company's matching contribution is made in the form of Bel Fuse Inc. Class A common stock. Prior to January 1, 2012, the Company's matching and profit sharing contributions were made in the form of shares of Bel Fuse Inc. Class A and Class B common stock. The expense for the years ended December 31, 2021 and 2020 amounted to $1.2 million and $1.1 million, respectively. As of December 31, 2021, the plan owned 303,712 and 99,277 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, 2021 and 2020 amounted to approximately $2.7 million and $0.3 million, respectively. As of December 31, 2021, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.
The Company maintains a SERP, which is designed to provide a limited group of key management and other key 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. See Note 6, "Other Assets," for further information on these assets.
The benefits available under the SERP 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, 2021 and 2020 amounted to $1.7 million and $1.6 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, 2021 and 2020:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | | | |
| Service Cost | | $ | 677 | | | $ | 600 | |
| Interest Cost | | | 540 | | | | 636 | |
| Net amortization | | | 509 | | | | 343 | |
| Net periodic benefit cost | | $ | 1,726 | | | $ | 1,579 | |
The service cost component of net benefit cost is presented within cost of sales or selling, general and administrative expense on the accompanying consolidated statements of operations, in accordance with where compensation cost for the related associate is reported. All other components of net benefit cost, including interest cost and net amortization noted above, are presented within other expense, net in the accompanying consolidated statements of operations.
67
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, 2021 and 2020 are as follows:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Fair value of plan assets, January 1 | | $ | - | | | $ | - | |
| Company contributions | | | 504 | | | | 446 | |
| Benefits paid | | | (504 | ) | | | (446 | ) |
| Fair value of plan assets, December 31 | | $ | - | | | $ | - | |
| Benefit obligation, January 1 | | $ | 24,308 | | | $ | 21,541 | |
| Service cost | | | 677 | | | | 600 | |
| Interest cost | | | 540 | | | | 636 | |
| Benefits paid | | | (504 | ) | | | (446 | ) |
| Actuarial (gains) losses | | | (1,441 | ) | | | 1,977 | |
| Benefit obligation, December 31 | | $ | 23,580 | | | $ | 24,308 | |
| Underfunded status, December 31 | | $ | (23,580 | ) | | $ | (24,308 | ) |
The Company has recorded the 2021 and 2020 underfunded status as a long-term liability on the consolidated balance sheets. The accumulated benefit obligation for the SERP was $21.8 million as of December 31, 2021 and $22.4 million as of December 31, 2020. The aforementioned company-owned life insurance policies and marketable securities held in a rabbi trust had a combined value of $16.4 million and $15.4 million at December 31, 2021 and 2020, respectively. See Note 6, "Other Assets," for additional information on these investments.
The estimated net loss and prior service cost for the SERP that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.3 million. The Company expects to make contributions of $0.6 million to the SERP in 2022. 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 2022, as the plan has no assets.
The following benefit payments, which reflect expected future service, are expected to be paid:
| Years Ending | | | | | |
| December 31, | | | | | |
| | | | | | |
| 2022 | | | $ | 935 | |
| 2023 | | | | 940 | |
| 2024 | | | | 979 | |
| 2025 | | | | 1,021 | |
| 2026 | | | | 1,016 | |
| 2027 - 2031 | | | | 6,057 | |
The following gross amounts are recognized net of tax in accumulated other comprehensive loss:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Prior service cost | | $ | 460 | | | $ | 586 | |
| Net loss | | | 1,391 | | | | 1,773 | |
| | | $ | 1,851 | | | $ | 2,359 | |
Actuarial Assumptions
The weighted average assumptions used in determining the periodic net cost and benefit obligation information related to the SERP are as follows:
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Net periodic benefit cost: | | | | | | | | |
| Discount rate | | | 2.25 | % | | | 3.00 | % |
| Rate of compensation increase | | | 2.50 | % | | | 2.50 | % |
| Benefit obligation: | | | | | | | | |
| Discount rate | | | 2.75 | % | | | 2.25 | % |
| Rate of compensation increase | | | 2.50 | % | | | 2.50 | % |
69
| 15. | 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 2020 Equity Compensation Plan provides for the issuance of 1.0 million shares of the Company's Class B common stock. At December 31, 2021, 795,000 shares remained available for future issuance under the 2020 Equity Compensation Plan. The 2011 Equity Compensation Plan provided for the issuance of 1.4 million shares of the Company's Class B common stock. At December 31, 2021, no 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 $2.3 million and $2.3 million for 2021 and 2020, 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 2021 and 2020. At December 31, 2021 and 2020, 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, directors 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 typically earned in 25% increments on the second, third, fourth and fifth anniversaries of the award 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 applicable vesting period from the respective award dates, as adjusted for forfeitures of unvested awards. During 2021 and 2020, the Company issued 209,000 shares and 113,000 shares of the Company's Class B common stock, respectively, under a restricted stock plan to various officers, directors and employees.
A summary of the restricted stock activity under the Program for the year ended December 31, 2021 is presented below:
| | | | | | | | | | | Weighted Average | |
| Restricted Stock | | | | | | Weighted Average | | | Remaining | |
| Awards | | Shares | | | Award Price | | | Contractual Term (In Years) | |
| | | | | | | | | | | | | |
| Outstanding at January 1, 2021 | | | 405,450 | | | $ | 19.77 | | | | 3.0 | |
| Granted | | | 209,000 | | | | 15.07 | | | | | |
| Vested | | | (112,100 | ) | | | 23.85 | | | | | |
| Forfeited | | | (40,500 | ) | | | 16.98 | | | | | |
| Outstanding at December 31, 2021 | | | 461,850 | | | $ | 16.94 | | | | 3.2 | |
As of December 31, 2021, there was $5.3 million of total pretax unrecognized compensation cost 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 4.9 years. This expense is recorded in cost of sales and SG&A expense based upon the employment classification of the award recipients.
The Company's policy is to issue new shares to satisfy restricted stock awards. Currently the Company believes that the majority of its restricted stock awards will vest.
As of December 31, 2021, according to regulatory filings, there was one shareholder 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, 2021, to the Company's knowledge, this shareholder had not purchased any Class B shares to comply with these requirements. In order to vote its shares at Bel's next shareholders' meeting, this shareholder must either purchase the required number of Class B common shares or sell or otherwise transfer Class A common shares until its Class A holdings are under 10%. As of December 31, 2021, to the Company's knowledge, this shareholder owned 19.1% 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 its 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 shareholder will not be permitted to vote its shares of common stock.
Throughout 2021 and 2020, the Company declared cash dividends on a quarterly basis at a rate of $0.06 per Class A (voting) share of common stock and $0.07 per Class B (non-voting) share of common stock. The Company declared and paid cash dividends totaling $3.4 million and $3.4 million in 2021 and 2020, respectively. There are no contractual restrictions on the Company's ability to pay dividends, provided that the Company is not in default under its credit agreements immediately before such payment and after giving effect to such payment.
70
The Company has operating leases for its facilities used for manufacturing, research and development, sales and administration. There are also operating and finance leases related to manufacturing equipment, office equipment and vehicles. These leases have remaining lease terms ranging from 1 year to 8 years. Certain of the leases contain options to extend the term of the lease and certain of the leases contain options to terminate the lease within a specified period of time. These options to extend or terminate a lease are included in the lease term only when it is reasonably likely that the Company will elect that option. The Company is not a party to any material sublease arrangements.
The components of lease expense, which are included in cost of sales, research and development costs, and selling, general and administrative expense, based on the underlying use of the ROU asset, were as follows:
| |
|
Year Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Amortization of ROU assets - finance leases |
|
$ |
270 |
|
|
$ |
205 |
|
| Interest on lease liabilities - finance leases |
|
|
77 |
|
|
|
65 |
|
| Operating lease cost (cost resulting from lease payments) |
|
|
8,229 |
|
|
|
8,113 |
|
| Short-term lease cost |
|
|
183 |
|
|
|
189 |
|
| Variable lease cost (cost excluded from lease payments) |
|
|
297 |
|
|
|
270 |
|
| Sublease income |
|
|
- |
|
|
|
- |
|
| Total lease cost |
|
$ |
9,056 |
|
|
$ |
8,842 |
|
Supplemental cash flow information related to leases is as follows:
| |
|
Year Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
| Operating cash flows from operating leases |
|
$ |
8,250 |
|
|
$ |
8,022 |
|
| Operating cash flows from finance leases |
|
|
77 |
|
|
|
65 |
|
| Finance cash flows from finance leases |
|
|
253 |
|
|
|
185 |
|
| Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
| Operating leases |
|
|
12,595 |
|
|
|
3,384 |
|
| Finance leases |
|
|
1,862 |
|
|
|
451 |
|
Supplemental balance sheet information related to leases was as follows:
| |
|
2021 |
|
|
2020 |
|
| Operating Leases: |
|
|
|
|
|
|
|
|
| Operating lease right-of-use assets |
|
$ |
21,252 |
|
|
$ |
14,217 |
|
| Operating lease liability, current |
|
|
6,880 |
|
|
|
6,591 |
|
| Operating lease liability, long-term |
|
|
14,668 |
|
|
|
8,064 |
|
| Total operating lease liabilities |
|
$ |
21,548 |
|
|
$ |
14,655 |
|
| |
|
|
|
|
|
|
|
|
| Finance Leases: |
|
|
|
|
|
|
|
|
| Property, plant and equipment, gross |
|
$ |
2,719 |
|
|
$ |
966 |
|
| Accumulated depreciation |
|
|
(690 |
) |
|
|
(391 |
) |
| Property, plant and equipment, net |
|
$ |
2,029 |
|
|
$ |
575 |
|
| Other current liabilities |
|
$ |
363 |
|
|
$ |
198 |
|
| Other long-term liabilities |
|
|
1,650 |
|
|
|
790 |
|
| Total finance lease liabilities |
|
$ |
2,013 |
|
|
$ |
988 |
|
| |
|
2021 |
|
|
2020 |
|
| Weighted-Average Remaining Lease Term: |
|
|
|
|
|
|
|
|
| Operating leases (in years) |
|
|
4.3 |
|
|
|
2.7 |
|
| Finance leases (in years) |
|
|
5.9 |
|
|
|
4.6 |
|
| |
|
|
|
|
|
|
|
|
| Weighted-Average Discount Rate: |
|
|
|
|
|
|
|
|
| Operating leases |
|
|
6.0 |
% |
|
|
6.0 |
% |
| Finance leases |
|
|
6.1 |
% |
|
|
6.3 |
% |
Our discount rate is based on our incremental borrowing rate, as adjusted based on the geographic regions in which our lease assets are located.
Maturities of lease liabilities were as follows as of December 31, 2021:
| Year Ending |
|
Operating |
|
|
Finance |
|
| December 31, |
|
Leases |
|
|
Leases |
|
| 2022 |
|
$ |
7,891 |
|
|
$ |
555 |
|
| 2023 |
|
|
5,366 |
|
|
|
555 |
|
| 2024 |
|
|
3,920 |
|
|
|
542 |
|
| 2025 |
|
|
3,240 |
|
|
|
391 |
|
| 2026 |
|
|
2,950 |
|
|
|
391 |
|
| Thereafter |
|
|
1,538 |
|
|
|
577 |
|
| Total undiscounted cash flows |
|
|
24,905 |
|
|
|
3,011 |
|
| Less imputed interest |
|
|
(3,357 |
) |
|
|
(998 |
) |
| Present value of lease liabilities |
|
$ |
21,548 |
|
|
$ |
2,013 |
|
| 18. |
COMMITMENTS AND CONTINGENCIES |
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 $119.6 million and $42.5 million at December 31, 2021 and December 31, 2020, respectively. The Company also had outstanding purchase orders related to capital expenditures in the amount of $5.1 million and $2.1 million at December 31, 2021 and December 31, 2020, respectively.
Legal Proceedings
The Company is party to a number of legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Company's consolidated results of operations or consolidated financial position.
On June 23, 2021, a patent infringement lawsuit styled Bel Power Solutions, Inc. v. Monolithic Power Systems, Inc., Case Number 6:21cv00655, was filed in the United States District Court for the Western District of Texas (Waco Division) by Bel Power Solutions, Inc. against Monolithic Power Systems, Inc. for infringement of various patents directed towards systems, methods and articles of manufacture that provide a substantial improvement in power control for circuits, including novel and unique point-of-load regulators. A parallel Complaint asserting the same patents against Monolithic Power Systems, Inc. was also filed in the United States District Court for the District of Delaware in order to safeguard against potential venue challenges. The Company has made a demand for a jury trial in both Complaints.
In connection with the Company's 2014 acquisition of the Power-One Power Solutions business ("Power Solutions") of ABB Ltd., there is an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd, or “BPS China”) for the years 2004 to 2006. In September 2012, the Tax Court of Arezzo ruled in favor of BPS China and cancelled the claim. In February 2013, the Arezzo Revenue Agency filed an appeal of the Tax Court’s ruling. The hearing of the appeal was held on October 2, 2014. On October 13, 2014, BPS China was informed of the Regional Tax Commission of Florence ruling which was in favor of the Arezzo Revenue Agency and against BPS China. An appeal was filed on July 18, 2015 before the Regional Tax Commission of Florence and rejected. On December 5, 2016, the Arezzo Revenue Agency filed an appeal with the Supreme Court and BPS China filed a counter-appeal on January 4, 2017. The Supreme Court has yet to render its judgment. The estimated liability related to this matter is approximately $12.0 million and has been included as a liability for uncertain tax positions on the accompanying consolidated balance sheets. As Bel is fully indemnified in this matter per the terms of the stock purchase agreement with ABB, a corresponding other asset for indemnification is also included in other assets on the accompanying consolidated balance sheets at December 31, 2021 and 2020.
73
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 consolidated results of operations.
| 19. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulated other comprehensive loss as of December 31, 2021 and 2020 are summarized below:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | | | |
| Foreign currency translation adjustment, net of taxes of ($417) at December 31, 2021 and ($750) at December 31, 2020 | | $ | (14,911 | ) | | $ | (13,142 | ) |
| Unrealized holding (losses) gains on available-for-sale securities, net of taxes of ($7) at December 31, 2021 and $0 at December 31, 2020 | | | (87 | ) | | | 19 | |
| Unfunded SERP liability, net of taxes of ($502) at December 31, 2021 and ($1,377) at December 31, 2020 | | | (3,865 | ) | | | (4,940 | ) |
| | | | | | | | | |
| Accumulated other comprehensive loss | | $ | (18,863 | ) | | $ | (18,063 | ) |
Changes in accumulated other comprehensive (loss) income by component during the years ended December 31, 2021 and 2020 are as follows. All amounts are net of tax.
| | | | | | | Unrealized Holding | | | | | | | | | | |
| | | Foreign Currency | | | Gains (Losses) on | | | | | | | | | | |
| | | Translation | | | Available-for- | | | Unfunded | | | | | | |
| | | Adjustment | | | Sale Securities | | | SERP Liability | | | | Total | |
| | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2020 | | $ | (20,032 | ) | | $ | 12 | | | $ | (4,045 | ) | | | $ | (24,065 | ) |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | | 6,890 | | | | 7 | | | | (933 | ) | | | | 5,964 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | | - | | | | - | | | | 38 | | (a) | | | 38 | |
| Net current period other comprehensive income (loss) | | | 6,890 | | | | 7 | | | | (895 | ) | | | | 6,002 | |
| | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | (13,142 | ) | | | 19 | | | | (4,940 | ) | | | | (18,063 | ) |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | | (1,769 | ) | | | (106 | ) | | | 1,431 | | | | | (444 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | | - | | | | - | | | | (356 | ) | (a) | | | (356 | ) |
| Net current period other comprehensive income (loss) | | | (1,769 | ) | | | (106 | ) | | | 1,075 | | | | | (800 | ) |
| | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | $ | (14,911 | ) | | $ | (87 | ) | | $ | (3,865 | ) | | | $ | (18,863 | ) |
| | (a) | This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP plan. This expense is reflected in other expense, net on the accompanying consolidated statement of operations. |