Bel Fuse Inc. (BELFB)

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Bel Fuse Inc. (BELFB)

Q4 2007 Earnings Call

February 14, 2008 11:00 am ET


Dan Bernstein - President and CEO

Colin Dunn - VP - Finance and Treasurer


Todd Cooper - Stephens

Sean Hannan - Needham & Company

Bill Falesia - Falesia Associates



Ladies and gentlemen, thank you for standing by. Welcome to Bel Fuse Fourth Quarter and 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, the conference is being recorded today, Thursday, February 14, 2008. I would now like to turn the conference over to Dan Bernstein, President. Please go ahead, sir.

Dan Bernstein

Thank you, John. And we like to welcome you to our conference call to review Bel's fourth quarter and 2007 results. Before we start, I would like to hand it over to Colin Dunn, our Vice President of Finance. Colin?

Colin Dunn

Good morning everybody and thanks Dan. I will start with the Safe Harbor statement. Except for historical information contained in today's news release and this conference call, the matters discussed including statements regarding certain challenge faced by the company and the evaluation of 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 sectors that rely on our products, the effect of business and economic conditions, capacity to supply constraints over difficulties, product development, commercializing or technological difficulties, the regulatory and trade environments, uncertainties associated with legal proceedings, the market's acceptance of the company's new products and the 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 statements will in fact proved to be correct. We undertake no obligation to update or revise any forward-looking statements.

Having said that, I will now move on. First talk about sales. For the fourth quarter of 2007 our sales were $69.3 million, which was $8.8 million higher than the $60.6 million in the fourth quarter of 2006. This $69.3 million was $3 million higher than the $66.4 million for the receding quarter ended September 2007.

Sales year-over-year were higher than modules product group that includes DC to DC converters and testing modules. The fourth quarter of 2007 was Bel's second highest ever sales quarter. Profits in cost of sales -- Bel under the quarter on a GAAP basis with net after tax earnings of $10,255,000. This compares to the net earnings of $4,697,000 for the fourth quarter of 2006.

Labor costs continue to increase in China due to new labor regulations. We have a product mix more skewed towards high-dollar value items where we continue to experience good growth. Our gross profit margins that have been at lower levels in this group have shown some improvement.

Including that Q4 operating expenses were approximately $500,000 for the closure of an older manufacturing facility in China and $500,000 additional for bonus due to a change in bonus accrual procedures. This fourth quarter of 2007 we had pretax income of 4,312,000 for the sale of property in Macau. On an after tax basis this amounted to approximately $0.28 per share.

G&A, despite an increase of $8.8 million in quarterly sales, the SG&A remained at similar values in the same quarter in 2006. This included high increments of (inaudible) to increase sales level. Although this quarter we had lower ongoing legal expenses related to several ongoing legal cases, our professional fees were lower due to reductions in accounting fees related to auditing and Sarbanes-Oxley work. And a change in the method accrual for year end audit expenses.

A charge of (inaudible) was also recognized which related to our write down of the $25 million investment in a cash bank which is being liquidated. Our income tax provision of $1,213,000 million was a result of a reduction due to release of an accrual through the expiration of certain statutes or limitations. It was offset by changes in estimates for prior year taxes upon finalization of certain tax returns.

The company is currently undergoing state tax orders for both New Jersey and California. However it does not expect any significant changes in estimates related to these orders.

Turning to balance sheet, cash and equivalents, at the end of the December 2007 our cash and equivalents and securities were approximately $114 million, which was $22 million above that December 2006 balance of $92 million. Included in that $114 million number was approximately $23 million in a fund operated by Columbia Bank, which is being liquidated and the assets being helped to maturity, plus $4.5 million escrow growth related to the sale and property in Jersey City in 2007.

Receivables, net of allowances was $52.2 million at December 31, 2007, compared to $44 million at December 31, 2006. Although this is an $8 million increase, our day sales outstanding remains constant at 68. Our accounts payable for the same period is $16 million. Inventories for this December period; our inventory's up $39 million, which is $7.2 million below December 31, 2006. During the quarter we saw some stock reduction in both raw material and finished goods.

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