BELFB

Bel Fuse Inc. (BELFB)

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Bel Fuse Inc. (BELFB)

Q4 2013 Results Earnings Conference Call

February 13, 2014 11:00 AM ET

Executives

Dan Bernstein - President and CEO

Colin Dunn - Vice President, Finance

Analysts

Sean Hannan - Needham & Company

Mike Hughes - SGF Capital

Presentation

Operator

Good day. And welcome to the Bel Fuse Fourth Quarter [2014] Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today conference Mr. Dan Bernstein. Please go ahead, sir.

Dan Bernstein

Thank you, Charlotte. I would like to welcome you to our conference call to review Bel's Unaudited Preliminary Fourth Quarter 2013 Results. Before we start, I'd like to hand over to Colin Dunn, our Vice President of Finance. Colin?

Colin Dunn

Thanks Dan. Good morning, everybody. Before we begin, I would like to read the following Safe Harbor statements. Except for historical information discussed in this call the matters discussed in this call including the statements regarding reduce lead times, Bel’s ability to offset the increase in labor -- direct labor cost in China, the impact of Bel’s new R&D center will have on Bel’s product cycle and on Bel’s response time to customers and Bel’s acquisition plans are forward-looking statement that involve risks and uncertainties.

Actual results could differ materially from Bel’s projections. Among the factors that could cause actual results to differ materially from such statement are the market concerns facing our customers, the continue availability of sectors that rely on products, the effects of business and economic conditions, difficulties associate with integrating recently acquired companies, capacity and supply constraints or difficulties, product development, commercialization of technological difficulties, the regulatory and trade environment, risk associated with foreign currencies, uncertainties associated with legal proceedings, the market acceptance of the company new products and competitive responses to those new products and the risk factors detailed from time to time in the company’s SEC reports.

In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will in fact prove to be correct. We undertake no obligation to update or revise any forward-looking statements. That’s the end of the Safe Harbor statement.

Results of the transformer and magnetic business of TE now known as TRP Connector acquired in late March 2013 and the Array Connector Corporation acquired in August 2013 have been included in our consolidated results since their respective acquisition dates. In my discussion I will attempt to noteworthy inclusion of these acquired companies account for significant variance from prior periods.

First, we will start with sales. Fourth quarter 2013 sales were $91 million, which is the new fourth quarter record for Bell, including $18.8 million of sales of TRP Connector products. Sales were up 26.8%, compared to $71.8 million in the fourth quarter of 2012 and down 10% from $101.2 million that we reported for the third quarter of this year.

Fourth quarter 2013 sales in all four major product groups were as follows, Magnetics, $47.2 million, which is up 75% over the fourth quarter of 2012, primarily due to the addition of sales from TRP Connector products.

Interconnect, $28.5 million, an increase of 8.6% over last year’s fourth quarter. Fourth quarter 2013 interconnect sales included $1.3 million of sales of Array Connector products.

Circuit protection $2.4 million, a decrease of 6.4% from the prior fourth quarter and modules $12.9 million which is 19.2% lower than sales in the fourth quarter of 2012. As we've discussed over the past several quarters, the modules product group continues to be affected by a decrease in the level of sales activity of our major customer.

Turning to cost of sales and net results, in Q4 2013 cost of sales as percentage of sales was 80.3% down from the 84.2% in Q4 of 2012. Several factors contributed to this, the company implemented price increases during the latter half of 2013, which have helped to offset some of the rising labor costs in China. There was favorable shift in the mix of products sold away from higher material cost modules products towards Bel’s other low material cost products.

During the fourth quarter of 2012 the company incurred redundant operating costs since we started the transition since manufacturing from Vinita, Oklahoma to a new factory in McAllen, Texas. This new McAllen plant is now running a pre-transition efficiency levels and lower sales volume overall were doing increase throughput which continue to improve overhead absorption at our factories.

SG&A, selling, general and administrative expenses during the three months period ended December 31, 2013 decreased by $400,000 in comparison with the same period of 2012. SG&A as a percentage of sales for the fourth quarter of 2013 was 11.9%, down from the 15.6% of sales during the fourth quarter last year.

The inclusion of SG&A expenses related to TRP and Array both acquired in 2013 amounted to $1.5 million for the fourth quarter of 2013. This additional cost were more than offset by a reduction in acquisition costs, legal and professional fees and other wage and print related items as compared to the fourth quarter of 2012.

Taxes, Bel recorded income tax benefit of $400,000 for the three months ended December 31, 2013 compared to an income tax benefit of $700,000 with the three months ended December 31, 2012. Included in income tax benefit in Q4, 2013, our credits from our previously announced Solar Project at our Inwood, New York signal manufacturing facility and research and development tax credits related to USA manufacturing.

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