Bel Fuse Inc. (BELFB)

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Bel Fuse Inc. (BELFB)

Q3 2008 Earnings Call Transcript

October 29, 2008, 11:00 am ET


Dan Bernstein – President and CEO

Colin Dunn – VP, Finance


Johnny Brown – Stephens Inc

Sean Hannan – Needham



Welcome to the Bel Fuse Third Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions)

As a reminder, this conference is being recorded Wednesday, October 29, 2008. I would now like to turn the conference over to Mr. Dan Bernstein. Please go ahead, sir.

Dan Bernstein

Thank you, James. And I would like to welcome everybody to our conference call to review of Bel’s Third Quarter 2008 results. Before we start, I would like to hand it over to Collin Dunn, our Vice President of Finance, Collin?

Colin Dunn

Good morning everybody. Thanks for attending. I would like to start off by reading the Safe Harbor Statement.

Except for historical information contained in today's conference call, the matters discussed including statements regarding the impact of price increases, cost reductions, and acquisition possibilities are forward-looking statements that involve risks and uncertainties.

Among the factors that could cause actual results to differ materially from such statements are; the market concerns facing our customers, the continuing viability of the sectors that rely on our products, the effect of business and economic conditions, capacity and supply constraints or difficulties, product development, commercializing or technological difficulties, the regulatory and trade environment, risk associated with foreign currencies, uncertainties associated with legal proceedings, the market's acceptance of the Company's 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.

With that said, I will now move on and discuss our performance. First, I’ll start with sales. For the third quarter of 2008, our sales were $66,964,000, which was 1% higher than the $66,379,000 in the third quarter of 2007. The $66,964,000 was 7% lower than the $72,454,000 of the preceding quarter ended June 2008.

Sales for the third quarter was higher in the Modules product group that includes DC to DC converters and custom modules. In the Magnetics product group, it includes integrated connected Modules and in the Interconnect product group, while the Circuit Protection was down slightly.

Profits and cost of sales going out of the quarter on a GAAP basis with net after-tax earnings of $1,946,000 after non-cash pre-tax charge of $1.4 million primarily for the other-than-temporary impairment of Bel's holdings in Toko Inc. and an initial $329,000 restructuring charge at Westborough, Massachusetts. ,

In addition, the Company’s income tax provision for this year's third quarter was reduced by the reversal of an accrual for uncertain tax positions resulting from the expiration of certain statutes of limitations and the finalization of a tax audit, partially offset by changes in estimates for prior years' taxes upon finalization of 2007 tax returns.

The earnings were below the net earnings of $5,914,000 for the third quarter of 2007, which included $1.2 million from the sale of a property in Macau and Hong Kong but similar to the $1.8 million in the previous, that’s the second quarter of 2008.

Our gross margin for the third quarter was approximately 15.4%, and is of course is below the 21.2% gross margin same period in 2007. And this third quarter margin was also below the 18.1% gross profit margin for the second quarter of 2008.

Below margin when compared to third quarter of 2007, which primarily due to increases internal labor cost. When we say internal labor cost, we are talking about base wages, we are talking about foreign exchange because of the strengthening of the (inaudible) and also one-time costs. In addition materials that had not been passed through to customers’. Some customers’ have increased prices during the second and third quarters and these increases are not taking effect.

Turning to SG&A. The percentage relationship with selling, general and administration expects a net sales increase from 13.1% during the three months ended September 2007 to 13.3% during the three months ended September 30, 2008. The increase in the dollar amount of selling, general and administration expenses to the three months ended September 2008 compared to the three months ended September 2007 was approximately $300,000 and was the result of the following factors.

The Company’s legal and professional fees increased by $400,000 from the third quarter of 2007, primarily due to the increased activity associated with the closure of Bel’s Westborough, Massachusetts manufacturing facility and a related law suit against former stockholders’ and key employees of Galaxy and also additional audit fees.

As a result of the strengthening of the US dollars versus certain European currencies during the three months ended September 30, 2008, the Company’s currency exchange losses increased by $200,000 as certain of the Company’s purchases are denominated in US dollars and some sales are carried out in local European currencies.

And the third item was $300,000 reserve of payments for Baghdad’s line of payment for several customers’ of (inaudible).

Interest income; interest income earned on cash and cash equivalents decreased by approximately $600,000 during three months ended September 30, 2008 as compared to the comparable third in 2007. The decrease is due primarily to significantly lower interest rates on invested balances during third.

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