Bel Fuse Inc (BELFA) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Bel Fuse Inc. 4th Quarter Year End 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 Thursday, February 17, 2005. I would now like to turn the conference call over to Mr. Dan Bernstein, CEO of Bel Fuse Inc. Please go ahead sir.

Dan Bernstein, President, CEO and Director, Bel Fuse Inc.: Thank you and welcome to our conference call to review Bel’s preliminary 4th Quarter and 12-month 2004 results. Before we start, I would like to hand it over to Colin Dunn, our Vice President of Finance.

Thanks Dan. Let me read the Safe Harbor before we get started. Because the historical information contained in this conference call and in today’s news release, the matters discussed are forward-looking statements that involve risks and uncertainties. Among the facts is we took those actual results to differ materially from such statements are the market concerns facing our customer, the continuing viability of sectors on our products, the affect of business and economic conditions, the difficulties inherent in integrating remote businesses and that may have several business practices that differ from the companies business practices, the prior constraints and difficulties, product development, commercializing or technological difficulties and changes that occur in the companies financial statements between the companies announcements and preliminary results and the companies release of auditor results. The regulatory and trade environment, uncertainties associated with legal proceedings, the market success of the company’s new products and comparative responses to these products, and the risk factors detail from time-to-time in the companies SEC Reports. In eye of the risks and uncertainties, there can be no insurance that any forward-looking statements will in fact prove to be correct. We undertake no obligations to update or revise any forward-looking statements.

Moving on to 4th Quarter results. Bel ended the quarter, on a GAAP basis with net after tax earnings of $6.028 million or $.52 per fully diluted share. This is above the net earnings of $5.597 million for the 4th Quarter of 2003 and slightly below the 6.894 million in the 3rd Quarter of 2004, where we had similar sales levels. In all 4 quarters of 2004, we had the benefit of earnings from the Insilco Technologies acquisition for the full year but we only had nine months in 2003.

Sales for the quarter, sales were $49.28 million, about 15% above the $42.865 million in the 4th Quarter of 2003. This was basically flat with a $48.986 million of the preceding quarter end of September 2004. Sales gains were made in MagJack integrated connectors for the consumer of electronics application plus gains in the Power products group. I just wish to remind everybody again, in consistence with Bel’s integration of the 2003 acquisition in the balance of Insilco, after June 2002, we did not effectively break-out revenues for the Insilco Group. The cost of sales, our gross margin for the quarter is 29.4%, which is almost identical to the gross margin for the same period for 2003 and just slightly below the 30% gross margin for the 3rd quarter of 2004. The account is stabilized as we’ve been now been able to match (ph) with (ph). G&A, this increase of $2.3 million for the same quarter in 2003 reflects the affect of a $600,000 account’s receivable reserve reversal in 2003. Accrual for SOX order, Sarbanes-Oxley order for the 2004 plus additional Sarbanes-Oxley preparation fees. Increased good will amortization and increased sales commissions and selling expenses see an increase in 13% in sales in this 4th Quarter over a year ago. Percentage relationship of SGNA expenses to net sales was 16.7% during the quarter.

Turning to balance sheet matters. Cash in equivalent to the end of December, our cash equivalents and securities were $94 million, which was an increase of $7 million for the quarter. In addition to cash from profits for the quarter, we decreased net inventories split roughly between raw materials, almost 50-50 between raw materials and finished goods by a total of $4.9 million. We borrowed $10 million of term debt in the USA during March 2003 in conjunction with the Insilco acquisition and will continue to pay this down at $500,000 per quarter in addition to quarter cash dividend and consumes just over another $500,000 per quarter.

Receivables and payables – Receivables net of allowances were $33.2 million at December 1 compared with $33.5 million of September 30, 2004. Our Accounts Payable for the same period as $8.8 million, and for this quarter, our payables decreased by some $3.5 million to a more normal running level. Inventories for the December period, that’s December 31, 2004, inventories were $29.1 million in total, and that is $4.9 million below the September 30, 2004 balance.

A couple of balance sheet comments – Capital spending for the quarter was $2.8 million. In this quarter, we substantially included our new manufacturing facility, acquired some new testing equipment, and installed a comprehensive fire detection system in our major PRC manufacturing facility. Moving forward we expect some increase in capital spending in particular make a target to add service further additional manufacturing capacity in China and install additional dedicator high-speed SMT lines, primarily for power and value-added products. Our book value at December 31, 2004 was approximately $15.71 per share. I am finished with the financial comments, and now I’m going to hand it back to Dan.

Bel has been moving forward with the section 4, full requirements of Sarbanes-Oxley Act. In 2004, we incur approximately $1.5 million in charges related to compliance to the Sarbanes-Oxley audit. In addition, we have an on-going but yet undetermined although lower annual maintenance in additional audit fees to maintain compliance. The market remains uncertain and we still have very limited visibility as to future customer requirements. Backlog is relatively stable, although we do see certain customers expediting new generation products. Regarding Artesyn Technologies, we still hold our investment in Artesyn and continue to evaluate our next steps. At this time now, we would like to open up our lines for questions please.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question or comment comes from the line of Todd Cooper (ph) Mr. Cooper.

Dan, your comment regarding your customers are expediting new products, what does that mean?

Well basically we consider ourselves to be the market leader regarding the MagJack product line and with this product line, we’re working on cutting edge technology with some of our major customers and are having some difficulty trying to get second sourcing on-line so that expediting for us for a lot more delivery than we had anticipated.

Does that show up in your backlog?

Yes.

Okay and did you say what percentage of your revenue for the quarter came from your power supply division?

It’s still very small.

Okay and I know you’re expanding your power supply facility in the production facility in China, where do you stand on that?

Colin’s, as a matter of fact, Colin’s right in Hong Kong today as we speak, or should say tonight. Colin, do you want to take that one?

Yes we’ve just opened a new facility actually here in the first few weeks of January. We’ve got three lines installed and we’re about to add another couple of lines. I think there was a line going in over the lunar new year holiday which was just finished. We’re up back running again as of 2 days ago here in China. We also are proceeding with another new factory which we also expect to be completed late in 2005 which will give us further additional capacity for our value-added products which includes analog front-end telecommunication devices and DC to DC converter products.

We’re estimating with the capacity, the new production in the factory we’re putting in place that we can [inaudible] $75 million in sales and power. So once again, I look forward if I have to see that number but we do have the facility and the equipment in place to move forward.

Okay, and Colin, how is the audit going in particular with respect to your Sarbanes-Oxley compliance.

We’re on track I think we’ve one of the issues of the basic issue that we’ve run into is you know being a little short of audit resources from our auditors and they’re getting really, trying to get their regular work done and the Sarbanes work done. It has been a little tough. The other thing is just a few last minute issues. Everything at the moment is progressing quite well.

Should we expect the SG&A expense line to go down slightly throughout the portion of this…?

It is going to go down a lot, but this sort of money is well above what we would like to be spending. Some of it was for our regular auditors, and they have to do an audit. To get implementation in place, we had also been using Grant-Thorton, and the bulk of the Grant-Thorton work is complete, and that was the bulk of what we spent in the last 12 months. We have approved everything that will get us through the end of our audit period for the year 2004. Going forward, we would hope that the audit fee for the next year would be somewhat less. We, obviously, have some ongoing maintenance, but we are not going to need the services of [Grant-Thorton] to the extent we have had in the past. We still have a little work to do in some of our smaller facilities, which are not material, but there is some work to be done there. But now, we have gotten the software in place, and I think we are going to move forward at a significantly lower cost rate.

So the balance is probably not where you were a year ago at $6 million, but between $6 and $7 million for modeling purposes throughout 2005?

I think we are going to knock between probably about $800,000 out of the G&A.

Okay, and with regards to guidance and pricing and that whole arena, what should we look to expect for gross margin going forward?

Well, it is not going to change the gross margin because the G&A should just go down. The gross margin, I think, is going to remain fairly stable.

I recognize that with the SG&A, but with regard to pricing -- would that tend to erode gross margin if nothing else changes?

We have been somewhat fortunate over the last year or so. Our purchasing folks, I think, have done a fairly good job on being able to -- because of additional volumes, we have been buying to avoid paying additional prices for products so we have been able to match fairly well across the materials with pricing reductions we have been giving the customers. It is gong to depend somewhat on if we are going to continue to see prices for raw materials in the marketplace. I think we might be past some of that issue, I think it may be starting to stabilize from what we see at the moment, but that is the unknown. If our volumes remain fairly much where we are and we do not get much more pressure for raw material prices and we get back to normal quarterly, mostly quarterly price reductions on our selling prices, then,I think, our margin should remain very similar to what they are today.

Regarding inventories in the channel, that has not seemed to be much of a problem for you guys over the last couple of quarters, unlike a lot of your competitors and some of the semiconductor companies…

We did have a runoff at the end of the third quarter, and that has somewhat worked its way down in the fourth quarter. So, I think we are back more to where we would like to be, but it was an issue for us at the end of the third quarter where we had some customers hanging back. And, we built to their orders, and I think some of the customers got a little ahead of themselves. At the moment, we feel we are somewhat in balance.

One more thing, Dan, if I may, with regard to guidance for revenue. I know your visibility is limited but any idea for the current quarter?

Visibility is very clouded. We are not forecasting anything significantly different from -- while we expect to see units continuing to increase, I think it is going to be somewhat offset by price reductions on a top line basis, so I do not think we are going to see anything other than modest organic sales growth.

Thank you very much, guys.

[OPERATOR INSTRUCTIONS]

Our next question comes from the line of [Chuck Fensick]. Please proceed.

In your release you note that you remain a passive investor and Artesyn. However, this is not the message that you sent to investors by offering $10.00 per share. We agree with your belief that the shares were undervalued and thus, obviously, you have taken a position, however, we question the long-term goal here. It would appear that you increased the focus on artisan for its relative evaluation, and now you have changed that view to a passive view. So, what is your goal here? You have made [$6 million] or so on the shares, which is not that meaningful to you, but this is certainly sending a mixed message at this point. Where do you fit in on that?

I repeat once again. We put a price parameter on that company, and our price parameter is based on our share price at that time, and we felt that it was a fair offer. If you look at that point, we were offering them 55% to 57% of the joint company of the Bel-Artesyn combination. You look at working capital and you look at cash on hand and you look at every valuation possible, and we had a higher premium than they did at that time of the offer. The only thing they had above us was the sales price, so we felt that the offer we gave was an aggressive offer. At this point and time, with our stock prices and their stock prices, we are going to sit back and see what happens. We are very satisfied that we made $6 million, and if the stock runs to $14.00 or $15.00, I think we would be tickled pink and probably get out at that time. However, if our stock runs to $40.00 and their stock stayed stable, then at that time, we might be more aggressive. At this point, we realize that at our current stock price, that our deal does not make much sense to the Artesyn shareholders at this time.

We tend to take a very long perspective at our acquisitions that we have had. Companies like Insilco or Lucent Technologies when we bought a group from them. We spent 2½ to 3 years waiting and biding our time before we made a move that made sense for our company. We are not going to buy a company to make Artesyn shareholders happy. We are going to buy a company to make Bel shareholders happy.

Okay, that makes sense. So what does that mean, though, in terms of in the near term? Are you looking at aggressively…pursue it by perhaps trying to replace some of the board members at the annual meeting or …?

We did submit a proposal to them, basically, trying to take away some of their anti-takeover measures because we were not owning the shares long enough, it would not be put on the proxy. So possibly, next year, if we are shareholders, we can put it on the proxy. But at this time, our goal is not to upset Artesyn. Our goal is to show them value, and we are concerned from a fiduciary responsibility that they have not given us the chance to say, “Hey guys. We feel the stock is worth $12.00 or $13.00 or $14.00, and this is the way we see things coming in. Let us look at the books, sign a confidentiality agreement, and let us see how we can work together and make sense.” And they refused to do that, so we will sit back once again, if they can hit the stock to $14.00 or $15.00, I will be very happy, and I will be very satisfied. And if they do not and if the stock drops below, we are going to be a little pain in the butt.

Okay. Has there been any additional contact between you and Artesyn management?

Artesyn management will not speak to us directly. Any conversation we have now has gone through our investment banker to them, and repeatedly, we have had scenarios where we made different concepts to them of how we can look at the acquisition. Also, when we know that Artesyn management is in the New York area doing financial polls, we have always had an open invitation for them to come visit us, or we will go into New York City to visit them and open up any dialog at anytime they want.

Okay, that is all I have. Thank you.

[OPERATOR INSTRUCTIONS]

Gentlemen, there seems to be no questions from the audio portion. Now, I would like to turn the conference call over back to you. Please continue with your presentation.

Once again, we would to thank everyone for joining us today. We appreciate the time you have given to us.

[OPERATOR INSTRUCTIONS]