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BEL FUSE INC /NJ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The Company's quarterly and annual operating results are impacted by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock prices. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the "SEC") contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements") with respect to the business of the Company. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012, which could cause actual results to differ materially from these Forward-Looking Statements. The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date such statements are made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those which are detailed from time to time in the Company's SEC filings. Overview Our Company The Company designs, manufactures and markets a broad array of magnetics, modules, circuit protection devices and interconnect products. Bel's products are primarily used in the networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries. Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets. Bel's business is operated through three geographic segments: North America, Asia and Europe. During the six months ended June 30, 2013, 52% of the Company's revenues were derived from Asia, 35% from North America and 13% from its Europe operating segment. Sales of the Company's magnetic products represented approximately 45% of its total net sales during the six months ended June 30, 2013. The remaining revenues related to sales of the Company's interconnect products (34%), module products (18%) and circuit protection products (3%). The Company's expenses are driven principally by the cost of labor where the factories that Bel uses are located, the cost of the materials that it uses and its ability to effectively and efficiently manage overhead costs. As labor and material costs vary by product line, any significant shift in product mix can have an associated impact on the Company's costs of sales. Costs are recorded as incurred for all products manufactured. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. The Company's products are manufactured at various facilities in: the People's Republic of China ("PRC"); Glen Rock, Pennsylvania; Inwood, New York; McAllen, Texas; Haina, Dominican Republic; Reynosa and Cananea, Mexico; Louny, Czech Republic; and Worksop and Great Dunmow, England. In the PRC, where the Company generally enters into processing arrangements with several independent third-party contractors and also has its own manufacturing facilities, the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday as well as economic conditions in the PRC. In addition, the Company has little visibility into the ordering habits of its customers and can be subjected to large and unpredictable variations in demand for its products. Accordingly, the Company must continually recruit and train new workers to replace those lost to attrition each year and to address peaks in demand that may occur from time to time. These recruiting and training efforts and related inefficiencies, and overtime required in order to meet demand, can add volatility to the costs incurred by the Company for labor in the PRC. 19-------------------------------------------------------------------------------- Return to Index Trends Affecting our Business The Company believes the key factors affecting Bel's six months ended June 30, 2013 and/or future results include the following: · Recent Acquisitions - On March 29, 2013, the Company completed its purchase of the Transpower magnetics business and other tangible and intangible assets of TE Connectivity ("TRP"). The TRP business contributed $22.0 million of sales during the three and six months ended June 30, 2013. The Company also completed three small acquisitions in 2012. Fibreco and Powerbox, both acquired in 2012, contributed a combined $3.0 million and $5.9 million of sales during the three and six months ended June 30, 2013, respectively. · Restructuring Program - The Company had substantially completed its plan to effect operational efficiencies by the end of 2012. The Company continued its efforts in the first half of 2013 to bring the new manufacturing facility in McAllen, Texas up to full operating capacity. The Company faced certain challenges with the transition, resulting in $2.8 million of unanticipated costs during the first half of 2013, of which $1.1 million was incurred during the second quarter. These costs included additional overtime, scrap, a higher volume of purchased materials, expedited freight charges and other costs. During the second quarter of 2013, the Company also initiated additional restructuring actions which resulted in $1.3 million of severance and other charges in the second quarter. The Company does not anticipate any significant costs related to restructuring programs for the foreseeable future. · Revenues - Excluding the revenue contributions from recent acquisitions as described above, the Company's revenues for the first half of 2013 decreased by $9.6 million as compared to the first half of 2012. The decrease in sales was primarily due to reduced orders of module products from one customer in North America. The order volume related to this customer has now stabilized, but we expect to report large year-over-year decreases (2013 vs. 2012) in our module products group through the end of 2013 as a result of the lower volume in 2013. Revenue reductions resulting from manufacturing inefficiencies associated with the restructuring of Cinch operations described above were partially offset by increases in the sales volume of Bel's magnetic and DC-DC products. Bel is in the process of implementing price increases for certain products as our current pricing structure does not reflect the rising labor costs in the PRC as discussed below. Management expects the majority of these changes to be in effect by the fourth quarter of 2013. · Product Mix - Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the Company's gross margin percentage. During the first half of 2013, the Company experienced a favorable shift in the mix of products sold as compared to the same period of 2012, which partially mitigated the effects of reduced sales and operational inefficiencies at our Texas facility. · Pricing and Availability of Materials - Component pricing and availability have been stable for most of the Company's product lines, although lead times on electrical components are still extended. With regard to commodities, the Company has experienced some price decreases related to precious metals during the latter part of 2012 and that trend has continued into the first half of 2013. Costs for certain commodities, including gold and copper, were lower in the first half of 2013 as compared to the first half of 2012. Any fluctuations in component prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on Bel's profit margins. · Labor Costs - Labor costs as a percentage of sales during the first half of 2013 were essentially flat as compared to the first half of 2012. Following the 2012 Lunar New Year holiday, additional recruiting, training and overtime charges were incurred in the PRC; this trend did not recur in 2013. However, rising labor costs in the PRC and the strengthening of the Chinese Renminbi continue to impact our overall profit margins. With the addition of TRP, approximately half of Bel's total sales are now generated from labor-intensive magnetic products, which are primarily manufactured in the PRC. In February 2013, the PRC government issued a 19% increase to the minimum wage in regions where the factories that Bel uses are located. This increase was effective May 1, 2013. · Impact of Pending Lawsuits - As further described in Note 11 to the accompanying condensed consolidated financial statements, there has been additional legal activity in 2013 related to the SynQor and Molex lawsuits. Ongoing legal costs related to these lawsuits will impact the profit margins of future quarters. · Acquisition-Related Costs - The acquisition of TRP in 2013 and the valuations of the 2012 Acquired Companies gave rise to acquisition-related costs of $0.5 million during the first six months of 2013. Bel's continuing strategy to actively consider potential acquisitions could result in additional legal and other professional costs in future periods. · Effective Tax Rate - The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments. The change in the effective tax rate during the six months ended June 30, 2013 is primarily attributable to the recognition under the new tax law, ATRA, of $0.4 million in R&E credits, related to the year ended December 31, 2012, which the Company recognized during the first quarter of 2013. In addition, the Company incurred a loss in the North America segment for the six months ended June 30, 2013, compared to a pretax profit for the same period in 2012, which was partially offset by an increase in the Asia segment pretax profit. Additionally, the Company reversed a portion of the liability for uncertain tax positions related to the results of the Internal Revenue Service audit which resulted in a reduction to the tax provision for the six months ended June 30, 2012. It is the Company's intention to repatriate substantially all net income from its wholly owned PRC subsidiary, DG Transpower, a Chinese Limited Company, to its indirect Hong Kong parent company Transpower Technologies (Hong Kong) Ltd. Applicable income and dividend withholding taxes have been reflected. However, U.S. deferred taxes need not be provided under current U.S. tax law. 20-------------------------------------------------------------------------------- Return to Index With the completion of the three acquisitions in 2012, and the acquisition of TRP during the first quarter of 2013, management is optimistic that the resulting opportunities will fuel growth in our core product groups in future periods. Management believes that the difficulties experienced during the first half of 2013 related to the transition of Cinch's manufacturing operations were largely resolved by the end of the second quarter and we look forward to seeing the benefits of these active measures during the second half of 2013. Statements regarding future results constitute Forward-Looking Statements and could be materially adversely affected by the risk factors identified by the Company in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Summary by Reportable Operating Segment Net sales to external customers by reportable operating segment for the three and six months ended June 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 North America $ 28,628 30 % $ 32,059 44 % $ 55,444 35 % $ 65,496 47 % Asia 55,157 59 % 34,412 47 % 81,573 52 % 58,889 43 % Europe 10,196 11 % 6,751 9 % 19,992 13 % 14,398 10 % $ 93,981 100 % $ 73,222 100 % $ 157,009 100 % $ 138,783 100 % Net sales and income from operations by reportable operating segment for the three and six months ended June 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Total segment sales: North America $ 32,301 $ 35,455 $ 61,523 $ 71,980 Asia 64,036 43,795 96,760 78,642 Europe 10,591 7,227 20,716 15,217 Total segment sales 106,928 86,477 178,999 165,839 Reconciling item: Intersegment sales (12,947 ) (13,255 ) (21,990 ) (27,056 ) Net sales $ 93,981 $ 73,222 $ 157,009 $ 138,783 Income (loss) from operations: North America $ (2,012 ) $ 1,953 $ (3,495 ) $ 4,263 Asia 4,642 523 3,977 (1,039 ) Europe (82 ) (143 ) 659 538 $ 2,548 $ 2,333 $ 1,141 $ 3,762 The recent acquisition of TRP contributed $22.0 million in sales to the Company's Asia operating segment during the three and six months ended June 30, 2013. Sales in the Company's Europe operating segment were favorably impacted by the acquisitions of Fibreco and Powerbox which occurred in the second half of 2012. These two acquisitions contributed sales of $3.0 million and $5.9 million during the three and six months ended June 30, 2013, respectively, and income from operations of $0.2 million and $1.1 million during the three and six months ended June 30, 2013. The decrease in sales in North America primarily related to reduced demand in 2013 for Bel's module products which are manufactured in China. Thus, the decrease in North American sales caused a corresponding decrease in intersegment sales of module products from Asia to North America. North America sales during the first half of 2013 were also impacted by the transition of operations from Cinch's manufacturing facility in Vinita, Oklahoma to its new manufacturing facility in McAllen, Texas. Manufacturing inefficiencies resulted in reduced production levels and lower overall sales of Cinch products. In addition, various other costs associated with the Cinch reorganization further reduced our income from operations in North America during the first half of 2013. 21 -------------------------------------------------------------------------------- Return to Index Overview of Financial Results Sales for the first half of 2013 increased by 13.1% to $157.0 million from $138.8 million for the first half of 2012. Sales were favorably impacted by the contributions made by the recent acquisitions of TRP, Powerbox and Fibreco. Costs incurred related to the transition of Cinch operations to the new manufacturing facility in Texas heavily impacted our profit margin in the first half of 2013. Margins in our traditional connector, magnetic and circuit protection businesses continued to be affected by higher labor costs, and pricing to customers during the first half of 2013 did not yet reflect these higher costs. Selling, general and administrative expense was $4.1 million higher in the first half of 2013 as compared to the same period of 2012, primarily due to the inclusion of expenses from the acquisition of TRP and the 2012 Acquired Companies as well as higher acquisition-related costs, legal and professional fees in 2013. The Company also incurred $1.4 million of restructuring charges in the first half of 2013 related to additional workforce reductions. These factors led to net earnings of $1.9 million for the first half of 2013 as compared to net earnings of $2.3 million for the first half of 2012. Additional details related to these factors affecting the six-month results are described in the Results of Operations section below. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company 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, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, goodwill, intangible assets, investments, SERP expense, income taxes and contingencies and litigation. The Company bases its 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. Recent Accounting Pronouncements The discussion of new financial accounting standards applicable to the Company is incorporated herein by reference to Note 1. "Basis of Presentation and Accounting Policies" included in Part I, Item 1. "Financial Statements (unaudited)." Results of Operations The following table sets forth, for the periods presented, the percentage relationship to net sales of certain items included in the Company's condensed consolidated statements of operations. Percentage of Net Sales Percentage of Net Sales Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 83.0 83.4 84.0 83.7 Selling, general and administrative ("SG&A") expenses 12.9 13.1 14.3 13.3 Restructuring charges 1.3 0.3 0.9 0.3 Impairment of investment - (0.7) - (0.3) Interest income and other, net 0.1 0.1 0.1 0.1 Earnings before provision (benefit) for income taxes 2.8 2.7 0.8 2.5 Provision (benefit) for income taxes 0.2 0.7 (0.4) 0.8 Net earnings 2.6 2.0 1.2 1.7 22-------------------------------------------------------------------------------- Return to Index The following table sets forth the year over year percentage increase (decrease) of certain items included in the Company's condensed consolidated statements of operations. Increase from Increase (Decrease) from Prior Period Prior Period Three Months Ended Six Months Ended June 30, 2013 June 30, 2013 Compared with Compared with Three Months Ended Six Months Ended June 30, 2012 June 30, 2012 Net sales 28.4 % 13.1 % Cost of sales 27.8 13.5 SG&A expenses 26.8 22.3 Net earnings 68.4 (18.5) Sales Net sales increased 28.4% from $73.2 million during the three months ended June 30, 2012 to $94.0 million during the three months ended June 30, 2013. Net sales increased 13.1% from $138.8 million during the six months ended June 30, 2012 to $157.0 million during the six months ended June 30, 2013. The Company's net sales by major product line for the three and six months ended June 30, 2013 and 2012 were as follows (dollars in thousands): Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Magnetic products $ 48,758 52 % $ 24,558 34 % $ 70,015 45 % $ 43,757 32 % Interconnect products 27,093 29 % 27,368 37 % 53,205 34 % 54,609 39 % Module products 14,794 16 % 18,608 25 % 28,164 18 % 35,324 25 % Circuit protection products 3,336 3 % 2,688 4 % 5,625 3 % 5,093 4 % $ 93,981 100 % $ 73,222 100 % $ 157,009 100 % $ 138,783 100 % The Company's magnetic product line, which includes Bel's MagJack and the newly-acquired TRP integrated connector module (ICM) products, had a strong first half of 2013. TRP accounted for $22.0 million of the increase from 2012 in both the three- and the six-month periods noted above. Bel's MagJack and other ICMs increased by $1.2 million and $3.0 million during the three- and six-month periods ended June 30, 2013, respectively, as compared to the same periods of 2012. The workforce return rate after the Lunar New Year holiday in the PRC was higher than that of the prior year, resulting in more efficient operations in Asia. Revenue in Bel's interconnect product line in the first half of 2013 was down slightly from the comparable period of 2012. Fibreco contributed $2.2 million and $4.2 million to the Company's interconnect sales during the three and six month ended June 30, 2013; however, these sales were more than offset by reduced shipments of Cinch products during those same periods. Sales in the Company's module product line continued to decline in the first half of 2013 due to reduced order volume of one customer, partially offset by higher sales of DC-DC and AC-DC module products. Cost of Sales The Company's cost of sales as a percentage of consolidated net sales for the three and six months ended June 30, 2013 and 2012 was comprised of the following: Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Material costs 45.6% 45.6% 45.9% 45.6% Labor costs 15.3% 15.4% 14.2% 14.6% Research and development expenses 4.0% 4.2% 4.3% 4.5% Other expenses 18.1% 18.2% 19.6% 19.0% Total cost of sales 83.0% 83.4% 84.0% 83.7% 23-------------------------------------------------------------------------------- Return to Index While overall material costs as a percentage of sales remained relatively flat in 2013 as compared to 2012, this was the net result of two offsetting factors. The Company experienced operational inefficiencies and other start-up costs (which are now essentially complete) at the new manufacturing facility in Texas, which resulted in high material costs at the Texas facility related to third-party purchases, at premium prices, of machined parts. There were also high volumes of scrap, rejected materials and expedited freight costs at the Cinch factory during the first half of 2013. These additional material costs were partially offset by the reduction in sales of module products, which have a higher material content than Bel's other product lines. Labor costs as a percentage of sales were lower in the first half of 2013 as compared to the same period of 2012, as the Company incurred excessive recruiting, training and overtime costs following the 2012 Lunar New Year holiday in Asia, which did not recur in 2013. The increase in other expenses as a percentage of sales for the six months ended June 30, 2013 as compared to the same period of 2012 primarily related to the inclusion of support labor and fringe costs of the 2012 Acquired Companies during the first six months of 2013, and duplication of indirect labor costs during the transition of Cinch operations from Vinita, Oklahoma to McAllen, Texas, primarily during the first quarter of 2013. These increases in other expenses in 2013 were partially offset by a reduction in support labor and fringe costs at other Bel locations due to restructuring actions that took place in 2012. Included in cost of sales are research and development (R&D) expenses of $3.8 million and $3.1 million for the three-month periods ended June 30, 2013 and 2012, respectively and $6.7 million and $6.3 million for the six-month periods ended June 30, 2013 and 2012, respectively. The majority of the increase relates to the inclusion of TRP R&D expenses as well as those of the 2012 Acquired Companies, which have been included in Bel's results since their respective acquisition dates. Selling, General and Administrative Expenses ("SG&A") The dollar amount of SG&A expenses was $2.6 million higher during the three months ended June 30, 2013 as compared to the same period of 2012. The increase primarily related to the inclusion of SG&A expenses of TRP and the 2012 Acquired Companies, which totaled $1.6 million during the second quarter of 2013, a $0.4 million increase in legal and professional fees, additional freight charges of $0.3 million and a $0.3 million increase in incentive compensation. For the six months ended June 30, 2013, the dollar amount of SG&A expense was $4.1 million higher as compared to the same period of 2012. Of this increase, $2.3 million related to the inclusion of SG&A expenses of TRP and the 2012 Acquired Companies. Other factors contributing to the increase included a $0.6 million increase in legal and professional fees, $0.5 million of higher acquisition-related costs, an increase in freight charges of $0.5 million and an increase in incentive compensation of $0.4 million, partially offset by a $0.2 million decrease in salaries and fringe cost as a result of the 2012 restructuring efforts. Restructuring Charges The Company recorded restructuring charges of $0.2 million and $0.4 million during the three and six months ended June 30, 2012, respectively, related to the 2012 restructuring program. During 2013, the Company implemented additional reductions in workforce, resulting in restructuring charges of $1.3 million and $1.4 million during the three and six months ended June 30, 2013, respectively. Provision (Benefit) for Income Taxes The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments. The provision for income taxes for the three months ended June 30, 2013 was $0.2 million compared to $0.5 million for the three months ended June 30, 2012. The Company's earnings before income taxes for the three months ended June 30, 2013 are approximately $0.6 million higher than the same period in 2012. The Company's effective tax rate, the income tax provision as a percentage of earnings before provision for income taxes, was 7.2% and 25.4% for the three-month periods ended June 30, 2013 and 2012, respectively. The change in the effective tax rate during the three months ended June 30, 2013 compared to the second quarter of 2012 is primarily attributed to the increase in the Asia segment profitability. This was offset in part by a loss in the North America segment for the three months ended June, 30, 2013 compared to a pretax profit for the same period in 2012. The (benefit) provision for income taxes for the six months ended June 30, 2013 was ($0.6) million compared to $1.1 million for the six months ended June 30, 2012. The Company's earnings before income taxes for the six months ended June 30, 2013 are approximately $2.2 million lower than the same period in 2012. The Company's effective tax rate was (51.4%) and 32.6% for the six-month periods ended June 30, 2013 and 2012, respectively. The change in the effective tax rate during the six months ended June 30, 2013 compared to the same period of 2012 is primarily attributed to the recognition under the new tax law, ATRA, of $0.4 million in R&E credit, related to the year ended December 31, 2012, which the Company recognized during the first quarter of 2013. In addition, the Company incurred a loss in the North America segment for the six months ended June 30, 2013 compared to a pretax profit for the same period in 2012, which was partially offset by the increase in the Asia segment pretax profit. 24-------------------------------------------------------------------------------- Return to Index Liquidity and Capital Resources Historically, the Company has financed its capital expenditures primarily through cash flows from operating activities and has financed acquisitions through cash flows from operating activities, borrowings, and the issuance of Bel Fuse Inc. common stock. Management believes that the cash flow from operations after payments of dividends combined with its existing capital base and the Company's available line of credit will be sufficient to fund its operations for at least the next twelve months. Such statement constitutes a Forward-Looking Statement. Factors which could cause the Company to require additional capital include, among other things, a softening in the demand for the Company's existing products, an inability to respond to customer demand for new products, potential acquisitions (as discussed below) requiring substantial capital, future expansion of the Company's operations and net losses that would result in net cash being used in operating, investing and/or financing activities which result in net decreases in cash and cash equivalents. Net losses may impact availability under our credit facility and preclude the Company from raising debt or equity financing in the capital markets on affordable terms or otherwise. The Company has an unsecured credit agreement in the amount of $30 million, which expires on June 30, 2014. There have not been any borrowings under the credit agreement during 2013 or 2012 and, as a result, there was no balance outstanding as of June 30, 2013 or December 31, 2012. The credit agreement bears interest at LIBOR plus 0.75% to 1.25% based on certain financial statement ratios maintained by the Company. As a result of the Company's recent acquisitions, which resulted in a lower cash balance and increased intangible assets, the Company has not been in compliance with its tangible net worth debt covenant since the third quarter of 2012. The lender has provided a waiver for this event of default. On March 29, 2013, the Company completed its acquisition of TRP for $22.4 million in cash and additional consideration including the assumption of $0.1 million in liabilities and the grant of a license to TE related to three of the Company's patents. During the second quarter of 2013, the Company paid an additional $6.8 million in consideration to TE related to a working capital adjustment and $0.8 million remains accrued at June 30, 2013. Transpower Technology (HK) Limited is the sole shareholder of Dongguan Transpower Electronic Products Co., Ltd., located in the People's Republic of China. The Company's purchase of the Transpower magnetics business consisted of the ICM family of products, including RJ45, 10/100 Gigabit, 10G, PoE/PoE+, MRJ21 and RJ.5, a line of modules for smart-grid applications and discrete magnetics. Cash Flows During the six months ended June 30, 2013, the Company's cash and cash equivalents decreased by $32.7 million. This resulted primarily from a $20.9 million net cash payment for the acquisition of TRP, $3.1 million paid for the purchase of property, plant and equipment, $1.5 million for payments of dividends, $3.4 million for the repurchase of 178,643 shares of the Company's Class B common stock, and $3.9 million used in operating activities. As compared to the six months ended June 30, 2012, cash provided by operating activities decreased by $4.1 million. During the six months ended June 30, 2013, accounts receivable increased by $7.9 million primarily due to the addition of third party receivables at TRP, which replaced intercompany receivables collected from TRP's pre-acquisition affiliates. TRP's third party receivables are higher than their formerly-intercompany receivables due to higher gross margin and longer payment terms on third party sales. The longer payment terms in TRP customer contracts acquired from the seller led to an increase in overall days sales outstanding (DSO), Management intends to bring TRP payment terms in line with those of Bel's existing customer base during contract renewals. Inventories increased by $4.9 million during the six months ended June 30, 2013 primarily due to the implementation of a new stocking program, whereby certain of Bel's customers now have quicker access to commonly-ordered parts. The level of raw materials has also increased since December 31, 2012, as the Company has been building up stocks of long-lead-time materials in order to lower lead times to customers. Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 34.8% and 41.5% of the Company's total assets at June 30, 2013 and December 31, 2012, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 3.1 to 1 and 4.1 to 1 at June 30, 2013 and December 31, 2012, respectively. |