Bel Fuse (BELFA) - 2020 Q4 - Annual Report

Part I Business Bel Fuse Inc. designs, manufactures, and markets products that power, protect, and connect electronic circuits for various industries - 2020 Net Sales by Product Group | Product Group | Percentage of 2020 Net Sales | | :--- | :--- | | Power Solutions & Protection | 39% | | Cinch Connectivity Solutions | 32% | | Magnetic Solutions | 29% | - Acquisitions are a key element of the company's growth strategy, aiming to expand the product portfolio, technology base, and customer reach[16][17] - The company's sales channels include direct strategic account managers for major global accounts, regional sales managers working with independent sales representatives, and authorized distributors[27][28] - As of December 31, 2020, Bel employed approximately 6,400 associates across 14 countries, with 23% located in North America[46] Products The company's product offerings are categorized into three main groups: Power Solutions and Protection, Cinch Connectivity Solutions, and Magnetic Solutions - Power Solutions and Protection: Products include internal/external AC/DC power supplies, DC/DC converters, DC/AC inverters, and board-level fuses, sold under brands like Bel Power Solutions, Melcher™, and CUI[19][20][21] - Connectivity Solutions: Offers high-speed and harsh environment copper and optical fiber connectors and assemblies for aerospace, military, and industrial applications under brands such as Stratos®, Cinch®, Johnson, and Stewart Connector[23][24] - Magnetic Solutions: Includes Integrated Connector Modules (ICMs), power transformers, and discrete components for networking and power supply applications, sold under brands like Bel, TRP Connector®, MagJack®, and Signal[25][26] Market Factors The company operates in highly competitive markets, with 2020 total product orders decreasing 3% to $448.8 million, while backlog was $179.6 million as of February 28, 2021 - 2020 Product Order Trends vs. 2019 | Product Group | 2020 Orders (USD Million) | Change vs. 2019 | | :--- | :--- | :--- | | Total | $448.8 | -3% | | Power Solutions & Protection | $183.0 | +30% | | Connectivity Solutions | $126.9 | -29% | | Magnetic Solutions | $138.9 | -3% | - The backlog of orders was estimated at $179.6 million as of February 28, 2021, compared to $186.3 million a year prior[33] Risk Factors The company faces strategic, operational, and financial risks, including intense competition, supply chain disruptions, and debt servicing challenges - Strategic Risks: The company operates in a highly competitive global industry, and its growth through acquisitions may not produce anticipated results[57][59][61] - Operational Risks: The COVID-19 pandemic has impacted manufacturing and supply chains, with a single customer, Hon Hai/Foxconn, accounting for 11.9% of 2020 consolidated net sales[62][65][68] - Financial Risks: Margins are susceptible to declines in selling prices and increases in material and labor costs, impacting the company's ability to service its debt[72][78] - General Risks: Global operations expose Bel to foreign currency fluctuations, trade policies, tariffs, political conditions, and evolving cyber threats[95][97][101] Properties Bel Fuse operates 20 manufacturing facilities across 7 countries, with 14% owned and 86% leased, and a significant portion of assets in Asia - Principal Manufacturing Facilities Overview (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Total Manufacturing Facilities | 20 | | Countries with Facilities | 7 | | Total Occupied Space | ~2.2 million sq. ft. | | Owned Space | ~14% | | Leased Space | ~86% | - The largest manufacturing facilities by square footage are located in Dongguan, Zhongshan, and Pingguo in the People's Republic of China, all of which are leased[107] - Approximately 32.6% of the company's identifiable assets are located in Asia, where a significant portion of its manufacturing operations reside[108] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Bel's Class A and B common stocks trade on NASDAQ, with quarterly dividends of $0.06 and $0.07 per share declared in 2020 and 2019 - Annual Dividend Payouts | Year | Total Dividends Paid (USD Million) | Per Class A Share (Quarterly) | Per Class B Share (Quarterly) | | :--- | :--- | :--- | :--- | | 2020 | $3.4 | $0.06 | $0.07 | | 2019 | $3.4 | $0.06 | $0.07 | - As of February 28, 2021, there were 41 registered shareholders of Class A stock and 329 of Class B stock, with an estimated 652 beneficial shareholders of Class A and 2,872 of Class B[111] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, net sales decreased to $465.8 million, gross margin improved to 25.7%, and net earnings were $12.8 million, with strong cash flow from operations - Financial Performance Summary (2020 vs. 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Sales | $465.8M | $492.4M | | Gross Profit | $119.7M | $110.0M | | Gross Margin | 25.7% | 22.3% | | Net Earnings (Loss) | $12.8M | ($8.7M) | | Cash from Operations | $46.1M | $24.5M | - The COVID-19 pandemic led to an estimated $14-$17 million in shipment delays from Q1 to Q2 2020, offset by $4.9 million in relief funding from the Chinese government[122] - Restructuring actions in 2020 resulted in $0.6 million in charges and are expected to generate $6.0 million in annualized cost savings, with $4.4 million to be realized in 2021[132] Summary by Operating Segment In 2020, Connectivity Solutions sales fell 12.5%, Magnetic Solutions sales declined 14.7%, while Power Solutions and Protection sales grew 11.0% due to the CUI acquisition - Net Sales and Gross Margin by Segment (2020 vs. 2019) | Segment | Net Sales 2020 (M) | Net Sales 2019 (M) | Gross Margin 2020 | Gross Margin 2019 | | :--- | :--- | :--- | :--- | :--- | | Connectivity Solutions | $150.7 | $172.3 | 28.0% | 25.8% | | Magnetic Solutions | $133.6 | $156.5 | 24.8% | 21.9% | | Power Solutions & Protection | $181.5 | $163.5 | 25.1% | 20.1% | | Total | $465.8 | $492.4 | 25.7% | 22.3% | - The CUI business, acquired in December 2019, contributed incremental sales of $41.0 million in 2020 at a gross margin of 34.1% within the Power Solutions and Protection segment[141] Liquidity and Capital Resources Cash and cash equivalents increased to $84.9 million at year-end 2020, driven by $46.1 million in cash from operations, with compliance to debt covenants - Cash and Liquidity Position | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $84.9M | $72.3M | | Cash Provided by Operations (FY) | $46.1M | $24.5M | | Debt Repayments (FY) | $28.2M | $3.0M | | Available Credit Facility | $56.6M | N/A | - Working capital management improved, with Days Sales Outstanding (DSO) decreasing from 60 days at year-end 2019 to 57 days at year-end 2020[172] Critical Accounting Policies and Other Matters Key accounting policies involve inventory valuation, goodwill impairment testing, and revenue recognition, with Hon Hai/Foxconn as a significant customer - The company's annual goodwill impairment test as of October 1, 2020, identified no impairment, with reporting units exceeding carrying values by 51.1%, 21.0%, and 38.6% respectively[194][312][313] - Reserves for excess or obsolete inventory were $9.9 million as of December 31, 2020, compared to $9.1 million in 2019[179] - One direct customer, Hon Hai/Foxconn Technology Group, accounted for 11.9% of consolidated revenue in 2020, primarily within the Magnetic Solutions segment[199] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020 and 2019, along with the independent auditor's report and detailed notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on Bel Fuse Inc.'s financial statements and internal controls, highlighting goodwill and intangible asset impairment testing as critical audit matters - The auditor issued an unqualified opinion, confirming the financial statements are fairly presented in conformity with U.S. GAAP and that internal controls over financial reporting were effective[206] - Critical Audit Matters highlighted were the valuation of Goodwill and Indefinite-Lived Intangible Assets, which required a high degree of auditor judgment due to significant management estimates[214][217][221] Consolidated Financial Statements The 2020 consolidated financial statements show total assets of $453.9 million, net sales of $465.8 million, and net income of $12.8 million, a turnaround from a 2019 net loss - Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $280,216 | $283,181 | | Total Assets | $453,866 | $468,917 | | Total Current Liabilities | $87,536 | $90,218 | | Long-term Debt | $110,294 | $138,215 | | Total Liabilities | $268,067 | $300,866 | | Total Stockholders' Equity | $185,799 | $168,051 | - Consolidated Statement of Operations Highlights (in thousands) | Account | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net Sales | $465,771 | $492,412 | | Gross Profit | $119,730 | $109,973 | | Income (Loss) from Operations | $18,667 | ($1,595) | | Net Earnings (Loss) | $12,795 | ($8,743) | | EPS (Class B, basic & diluted) | $1.05 | ($0.71) | Notes to Consolidated Financial Statements Notes detail the CUI acquisition, revenue disaggregation, goodwill, total debt of $116.8 million, and subsequent acquisitions and property sales - On December 3, 2019, the company acquired the CUI power business for $29.2 million, which contributed $43.1 million in revenue in 2020[281][282] - As of December 31, 2020, total debt outstanding was $116.8 million, with an effective interest rate of 2.19%, and the company was in compliance with all debt covenants[347][348][357] - Subsequent to year-end, on January 8, 2021, the company acquired rms Connectors, Inc. for $8.5 million in cash to complement its military and aerospace product portfolio[406] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[411] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, a conclusion audited and supported by an unqualified opinion from Deloitte & Touche LLP[413][414] Part III Items 10, 11, 12, 13, and 14 Information for these items is incorporated by reference from the company's definitive proxy statement for its 2021 annual meeting of shareholders - The information for Items 10 through 14 is incorporated by reference from the company's 2021 definitive proxy statement[417][419][424] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements and required certifications - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements and required certifications[426][427][428] Form 10-K Summary No summary is provided for the Form 10-K in this section - No Form 10-K summary is provided[429]