What changed in BEL FUSE INC /NJ's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of BEL FUSE INC /NJ's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+224 added−234 removedSource: 10-K (2024-03-11) vs 10-K (2023-03-10)
Top changes in BEL FUSE INC /NJ's 2023 10-K
224 paragraphs added · 234 removed · 174 edited across 6 sections
- Item 7. Management's Discussion & Analysis+126 / −129 · 90 edited
- Item 1A. Risk Factors+44 / −54 · 41 edited
- Item 1. Business+35 / −37 · 31 edited
- Item 5. Market for Registrant's Common Equity+14 / −8 · 7 edited
- Item 2. Properties+4 / −5 · 4 edited
Item 1. Business
Business — how the company describes what it does
31 edited+4 added−6 removed76 unchanged
Item 1. Business
Business — how the company describes what it does
31 edited+4 added−6 removed76 unchanged
2022 filing
2023 filing
Biggest changeFactors that could cause the Company to fail to ship all such orders by year-end include unanticipated supply difficulties, changes in customer demand and new customer designs. Throughout 2022, Bel has faced macroeconomic and global supply chain challenges, and these conditions are expected to continue through at least the first half of 2023.
Biggest changeThe current level of backlog is still viewed by management as being elevated compared to historical levels (i.e. pre-COVID, the Company's backlog level was $160 million as of December 31, 2019). Factors that could cause the Company to fail to ship all such orders by year-end include unanticipated supply difficulties, changes in customer demand and new customer designs.
Bel's product groups include Magnetic Solutions (integrated connector modules, power transformers, power inductors and discrete components), Power Solutions and Protection (front-end, board-mount and industrial and transportation power products, module products and circuit protection), and Connectivity Solutions (expanded beam fiber optic, copper-based, RF and RJ connectors and cable assemblies).
Bel's product groups include Power Solutions and Protection (front-end, board-mount, industrial and transportation power products, module products and circuit protection), Connectivity Solutions (expanded beam fiber optic, copper-based, RF and RJ connectors and cable assemblies), and Magnetic Solutions (integrated connector modules, power transformers, power inductors and discrete components).
On March 31, 2021, the Company completed the acquisition of EOS Power ("EOS") through a stock purchase agreement for $7.8 million, net of cash acquired, including a working capital adjustment. EOS, located in Mumbai, India, had sales of $17.6 million and $15.4 million (pro forma) for the years ended December 31, 2022 and 2021, respectively.
On March 31, 2021, the Company completed the acquisition of EOS Power ("EOS") through a stock purchase agreement for $7.8 million, net of cash acquired, including a working capital adjustment. EOS, located in Mumbai, India, had sales of $15.4 million and $17.6 million (pro forma) for the years ended December 31, 2023 and 2022 , respectively.
From coaching their local sports team to raising funds for local charities of choice, Bel supports and encourages our associates’ participation in these types of activities. 2022 Charitable Contribution Program: In 2022, Bel launched a Company-wide Charitable Contribution Program to ensure consistency and drive our corporate values across the organization.
From coaching their local sports team to raising funds for local charities of choice, Bel supports and encourages our associates’ participation in these types of activities. 2023 Charitable Contribution Program: In 2022, Bel launched a Company-wide Charitable Contribution Program to ensure consistency and drive our corporate values across the organization.
Where possible, we have contractual agreements with suppliers to assure a continuing supply of critical components. With respect to those items which are purchased from single sources, we believe that comparable items would be available in the event that there was a termination of our existing business relationships with any such supplier.
Where possible, we have contractual agreements with suppliers to assure a continuing supply of critical components. With respect to those items which are purchased from single sources, we believe that comparable items would be available in the event that there were a termination of our existing business relationships with any such supplier.
The CUI power business is headquartered in Tualatin, Oregon and contributed sales of $64.5 million for 2022, $55.8 million for 2021 and $43.1 million for 2020. The acquisition of the CUI power business enhanced Bel's existing offering of power products, allowing us to better address more of our customers' power needs.
The CUI power business is headquartered in Tualatin, Oregon and contributed sales of $50.8 million for 2023, $64.5 million for 2022, $55.8 million for 2021 and $43.1 million for 2020. The acquisition of the CUI power business enhanced Bel's existing offering of power products, allowing us to better address more of our customers' power needs.
These guidelines, which are designed to enhance the Company’s corporate governance, will serve as a framework withing which the Board will conduct its business, subject to applicable laws, regulations, listing requirements, and the Company’s organizational documents and Board committee charters. Bel is committed to a better tomorrow.
These guidelines, which are designed to enhance the Company’s corporate governance, will serve as a framework within which the Board will conduct its business, subject to applicable laws, regulations, listing requirements, and the Company’s organizational documents and Board committee charters. Bel is committed to a better tomorrow.
We create a positive work environment where associates can make a difference. As a company that has been in business for over 70 years, Bel understands the importance of trust, integrity and accountability at all levels of the organization. Our policies, practices and priorities are continually reviewed to align with the best interests of our associates, shareholders and other stakeholders.
We create a positive work environment where associates can make a difference. As a company that has been in business for 75 years, Bel understands the importance of trust, integrity and accountability of all levels of the organization. Our policies, practices and priorities are continually reviewed to align with the best interests of our associates, shareholders and other stakeholders.
The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation. Seasonality In the People's Republic of China ("PRC"), the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday.
The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation. Seasonality In the PRC, the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday.
Our U.S. design patents have a life of 14 years and our U.S. utility patents have a life of 17 years from the date of issue or 20 years from filing of patent applications. Our existing patents expire on various dates throug h July 2041.
Our U.S. design patents have a life of 14 years and our U.S. utility patents have a life of 17 years from the date of issue or 20 years from filing of patent applications. Our existing patents expire on various dates through July 2041.
This new dedicated role will allow the Company to embark on a series of initiatives aimed at improving Bel’s commitment to its ESG program. ESG Committee The first internal (operations-level) ESG Committee was formed in early December of 2022.
This new dedicated role has allowed the Company to embark on a series of initiatives aimed at improving Bel’s commitment to its ESG program. ESG Committee The first internal (operations-level) ESG Committee was formed in early December of 2022.
Bookings for our Magnetic Solutions products decreased by 51% from 2021 to $126.8 million in 2022, largely due to reduced demand from our networking customers. Backlog of Orders We typically manufacture products against firm orders and projected usage by customers. Cancellation and return arrangements are either negotiated by us on a transactional basis or contractually determined.
Bookings for our Magnetic Solutions products decreased by 58% from 2022 to $52.7 million in 202 3, largely due to reduced demand from our networking customers. Backlog of Orders We typically manufacture products against firm orders and projected usage by customers. Cancellation and return arrangements are either negotiated by us on a transactional basis or contractually determined.
Hereinafter, all references to "Note" will refer to the notes to our consolidated financial statements included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
For information regarding Bel's operating segments, see Note 14, "Segments" , of the notes to our consolidated financial statements. Hereinafter, all references to "Note" will refer to the notes to our consolidated financial statements included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
While there are key customers and end markets within each of the three product groups, only one direct customer accounted for more than 10% of our consolidated net sales in 2022 (this customer represented 12.8% of our consolidated net sales in 2022). Our diverse product mix and customer base minimizes our dependence on any one customer or end market.
While there are key customers and end markets within each of the three product groups, there were no direct customers who accounted for more than 10% of our consolidated net sales in 2023. Our diverse product mix and customer base minimizes our dependence on any one customer or end market.
We utilize registered trademarks in the U.S., Europe and Asia to identify various products that we manufacture. The trademarks survive as long as they are in use and the registrations of these trademarks are renewed. Government Contracts We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S. Government contracts.
The trademarks survive as long as they are in use and the registrations of these trademarks are renewed. Government Contracts We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S. Government contracts.
On December 31, 2022, Bel employed approximatel y 7,000 associates, almost all of which are full-time, across 15 countries, with 29 per cent located within North America. Outside of the United States, our largest employee populations were located within the PRC, Mexico, Slovakia, the Dominican Republic, India and the United Kingdom.
On December 31, 2023, Bel employed approximatel y 5,260 associates, almost all of which are full-time, across 6 countries, with 33.0% located within North America. Outside of the United States, our largest employee populations were located within the PRC, Mexico, Slovakia, the Dominican Republic, India and the United Kingdom.
Governance As a company that has been in business for over 70 years, Bel understands the importance of trust, integrity and accountability at all levels of the organization. Recent additions to our Board and executive management team have brought greater diversity and new perspectives to Bel.
In addition, there was a matching program for the organizations selected and associates who donated. Governance As a company that has been in business for 75 years, Bel understands the importance of trust, integrity and accountability at all levels of the organization. Recent additions to our Board and executive management team have brought greater diversity and new perspectives to Bel.
Bel 4 Table of Contents Sales and Marketing We sell our products to customers throughout North America, Europe and Asia. Sales are made through one of three channels: direct strategic account managers, regional sales managers working with independent sales representative organizations or authorized distributors. Bel's strategic account managers are assigned to handle major accounts requiring global coordination.
Bel 4 Table of Contents Sales and Marketing We sell our products to customers throughout North America, Europe and Asia. Sales are made through one of three channels: strategic account managers or in some cases, regional sales managers, working directly with our customers; regional sales managers working with independent sales representative organizations; or authorized distributors.
It is management's opinion that the successful continuation and operation of our business does not depend upon the ownership of patents or the granting of pending patent applications, but upon the innovative skills, technical competence and marketing and managerial abilities of our personnel.
It is management's opinion that the successful continuation and operation of our business does not depend upon the ownership of patents or the granting of pending patent applications, but upon the innovative skills, technical competence and marketing and managerial abilities of our personnel. We utilize registered trademarks in the U.S., Europe and Asia to identify various products that we manufacture.
We estimate the value of the backlog of orders as of February 28, 2023 to be approximately $526.9 million as compared with a backlog of $498.0 million as of February 28, 2022. Management estimates that approximately 70%-75% of t he Company's backlog as of February 28, 2023 will be shipped by December 31, 2023.
We estimate the value of the backlog of orders as of February 29, 2024 to be approximately $362.5 million as compared with a backlog of $526.9 million as of February 28, 2023. Management estimates that approximately 80%-85% of the Company's backlog as of February 29, 2024 will be shipped by December 31, 2024.
Bel offers a broad array of product offerings, which are grouped as follows: Power Solutions & Protection (44% of net sales in 2022), Connectivity Solutions (29% of net sales in 2022) and Magnetic Solutions (27% of net sales in 2022).
Bel offers a broad array of product offerings, which are grouped as follows: Power Solutions & Protection (49% o f net sales in 2023), Connectivity Solutions (33% of net sales in 2023) and Magnetic Solutions (18% of net sales in 2023).
See "Cautionary Notice Regarding Forward-Looking Information." Trends in Market Demand Product orders, or bookings, received during 2022 amounted to $751.9 million, a 10% decrease from 2021. By product group, orders received for our Power Solutions and Protection products amounted to $404.2 million in 2022, a 7% increase from 2021 .
See "Cautionary Notice Regarding Forward-Looking Information." Trends in Market Demand Product orders, or bookings, received during 2023 amounted to $447.6 million, a 41% decrease from 2022. By product group, orders received for our Power Solutions and Protection products amounted to $184.0 million in 2023, a 55% decrease from 2022.
Independent sales representatives and authorized distributors are overseen by the Company's sales management personnel located throughout the world. As of December 31, 2022, we had a sales and support staff o f approximately 200 people that supported a network of sales representative organizations and non-exclusive distributors.
Bel's strategic account managers are assigned to handle major accounts requiring global coordination. Independent sales representatives and authorized distributors are overseen by the Company's sales management personnel located throughout the world. As of December 31, 2023, we had a sales and support staff o f approximately 200 people t hat supported a network of sales representative organizations and non-exclusive distributors.
The Company may, from time to time, purchase equity positions in companies that are potential merger candidates. In February 2023, Bel closed on an €8.0 million (approximately $8.8 million) noncontrolling investment in innolectric AG ("innolectric"), a Germany-based business in the field of on-board charging for eMobility applications. The innolectric investment will be part of Bel's Power Solutions and Protection group.
The Company may, from time to time, purchase equity positions in companies that are potential merger candidates. On February 1, 2023, Bel closed on an €8.0 million (a pproximately $8.8 million as of the February 2023 closing) no ncontrolling (one-third) investment in innolectric AG ("innolectric"), a Germany-based business in the field of on-board charging for eMobility applications.
We consistently look for alternatives and approaches to consider in Bel’s business and strategies at multiple levels, from improving the efficiency ratings of our products and factories to better managing our consumption habits of electricity and water. Bel is currently in the process of reviewing and assessing its practices to ensure consistency and alignment across its major manufacturing sites globally.
We consistently look for alternatives and approaches to consider in Bel’s business and strategies at multiple levels, from improving the efficiency ratings of our products and factories to better managing our consumption habits of electricity and water.
With more than 70 years in operation, Bel has reliably demonstrated the ability to participate in a variety of product areas across a global platform. The Company has a strong track record of technical innovation working with the engineering teams of market leaders.
With 75 years in operation, Bel has reliably demonstrated the ability to participate in a variety of product areas across a global platform. The Company has a strong track record of technical innovation working with the engineering teams of market leaders. Bel has proven itself a valuable supplier to world-class companies by developing new products with cost effective solutions.
Today we have 22 manufacturing facilities of various sizes and five of them are ISO 14001 certified and represent 61% of our manufacturing footprint. These five sites have been measuring their consumption levels of natural gas, electricity and water and have targets in place for reducing consumption and waste and improving recycling efforts.
These five sites have been measuring their consumption levels of natural gas, electricity and water and have targets in place for reducing consumption and waste and improving recycling efforts.
The social program is in alignment with our Core Value of Community Engagement and directly reflects the ambitions of our ESG initiative to support the global communities within which we operate. The fundraising took place across 15 countries resulting in donations to 68 local charities. In addition, there was a matching program for the organizations selected and associates who donated.
The social program is also in alignment with our Core Value of Community Engagement and directly reflects the ambitions of our ESG initiative to support the global communities within which we operate. In 2023, the program resulted in contributions to 52 local charities across 14 countries.
Orders received for our Connectivity Solutions products were $221.0 million in 2022, 10% higher than in 2021 as a result of increased demand from our distribution partners coupled with a rebound in demand from our direct and aftermarket com mercial aerospace and military customers.
Orders received for our C onnectivity Solutions products were $210.9 million in 2023, 5% lower than in 2022, as a result of decreased demand from our distribution partners largely offset by a rebound in demand from our direct and aftermarket commercial aerospace and military customers.
See "The Effects of COVID-19 on Bel’s Business" in Item 7 of this Annual Report on Form 10-K for a discussion of how COVID-19 is currently impacting our business.
See "Overview - Key Factors Affecting our Business - Potential Future Impacts of COVID" in Item 7 of this Annual Report on Form 10-K for a discussion of current and potential future impacts of COVID upon our business.
Bel has proven itself a valuable supplier to world-class companies by developing new products with cost effective solutions. The Company was incorporated in 1949 and is organized under New Jersey law. Bel's principal executive offices are located at 206 Van Vorst Street, Jersey City, New Jersey 07302, and Bel's telephone number is (201) 432-0463.
The Company was incorporated in 1949 and is organized under New Jersey law. Bel's principal executive offices are located at 300 Executive Drive, Suite 300, West Orange, New Jersey 07052, and Bel's telephone number is (201) 432-0463. The Company operates facilities in North America, Europe and Asia and trades on the NASDAQ Global Select Market (ticker symbols BELFA and BELFB).
Removed
The Company operates facilities in North America, Europe and Asia and trades on the NASDAQ Global Select Market (ticker symbols BELFA and BELFB). For information regarding Bel's operating segments, see Note 13, "Segments", of the notes to our consolidated financial statements.
Added
This passive investment creates a strategic alliance that is focused on Electric Vehicles (“EV”) on-board power electronics, and in particular next generation fast-charging technology. With no product overlap, this relationship expands the Bel eMobility Power portfolio, further enhancing Bel's competitive position in this emerging field. The innolectric investment is p art of Bel's Power Solutions and Protection group.
Removed
This increase was largely due to incremental orders of $38.5 million related to raw material expedite fees.
Added
This decrease w as partially due to a $17.7 million reduction in orders related to expedite fees.
Removed
While we believe that the issued patents are defendable and that the pending patent applications relate to patentable inventions, there can be no assurance that a patent will be obtained from the applications or that our existing patents can be successfully defended.
Added
In 2023, we maintained our focus on the safety and well-being of our associates around the world in light of COVID and the variants of COVID that have followed. Our management team closely monitors the situation at each of our facilities; protective measures, where possible and as applicable under governing regulations, remain in place throughout our facilities.
Removed
In 2022, our focu s continued to be on the immediate demands within the context of COVID-19 challenges. Where possible, our associates continue to work remotely and in the office on a hybrid schedule.
Added
Bel has started the process of measuring the impact of its operations on the environment and intends to utilize these measurements to establish reduction goals and related initiatives throughout the global organization. Today we have 19 manufacturing facilities of various sizes and five of them are ISO 14001 certified and represent 73% of our manufacturing footprint.
Removed
There are additional safeguards in our plants consistent with the guidelines provided by the Centers for Disease Control and Prevention (CDC) and other health organizations around the world. In addition, the Company continues to implement a variety of programs globally to protect the physical and mental health and safety of our associates through awareness training and wellness programs.
Removed
During the fourth quarter of 2022, Bel launched a Company-wide effort to assess our current position in terms of environmental impact, greenhouse gas emissions and associate health and safety. We expect these results will provide a roadmap for driving and standardizing future initiatives.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
41 edited+3 added−13 removed80 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
41 edited+3 added−13 removed80 unchanged
2022 filing
2023 filing
Biggest changeIn March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, variants of which continue to spread and have ramifications throughout and upon the U.S. and the world. Over the past three years, our business was impacted by temporary facility closures, shelter-in-place orders and challenges related to travel restrictions imposed by the local governmental authorities.
Biggest changeOver the past three years, our business was impacted by temporary facility closures, shelter-in-place orders and challenges related to travel restrictions imposed by the local governmental authorities as a result of COVID. Our suppliers, customers and our customers’ contract manufacturers have experienced similar challenges from time to time throughout the pandemic.
Any inability to adequately address privacy concerns, even if unfounded, or to comply with the more complex privacy or data protection laws, regulations and privacy standards, could lead to significant financial penalties, which may result in a material and adverse effect on our consolidated results of operations. 17 Table of Contents RISKS RELATED TO OUR COMMON STOCK As a result of protective provisions in the Company's certificate of incorporation, the voting power of holders of Class A common shares whose voting rights are not suspended (including officers, directors and principal shareholders) may be increased at future meetings of the Company's shareholders.
Any inability to adequately address privacy concerns, even if unfounded, or to comply with the more complex privacy or data protection laws, regulations and privacy standards, could lead to significant financial penalties, which may result in a material and adverse effect on our consolidated results of operations. 17 Table of Contents RISKS RELATED TO OUR COMMON STOCK As a result of protective provisions in the Company's Restated Certificate of Incorporation, as amended, the voting power of holders of Class A common shares whose voting rights are not suspended (including officers, directors and principal shareholders) may be increased at future meetings of the Company's shareholders.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of our networks or systems, could result in the loss of customers and business opportunities, legal liability, regulatory fines, penalties or intervention, other litigation, regulatory and legal risks and the costs associated therewith, reputational damage, reimbursement or other compensatory costs, remediation costs, increased cybersecurity protection costs, additional compliance costs, increased insurance premiums, and lost revenues, damage to the Company's competitiveness, stock price, and long-term shareholder value, any of which could materially adversely affect our business, financial condition and results of operations.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cybersecurity attacks or security breaches of our networks, systems or applications, could result in the loss of customers and business opportunities, legal liability, regulatory fines, penalties or intervention, other litigation, regulatory and legal risks and the costs associated therewith, reputational damage, reimbursement or other compensatory costs, remediation costs, increased cybersecurity protection costs, additional compliance costs, increased insurance premiums, and lost revenues, damage to the Company's competitiveness, stock price, and long-term shareholder value, any of which could materially adversely affect our business, financial condition and results of operations.
Please see the Risk Factor appearing below under the caption, “The global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition and consolidated results of operations.” The loss of certain substantial customers could materially and adversely affect us.
Please see the Risk Factor appearing below under the caption, "The global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition and consolidated results of operations.” The loss of certain substantial customers could materially and adversely affect us.
The extent to which COVID-19 will impact our business and our consolidated financial results will depend on future developments which are highly uncertain and cannot be predicted at the time of the filing of this Annual Report on Form 10-K.
The extent to which COVID will impact our business and our consolidated financial results will depend on future developments which are highly uncertain and cannot be predicted at the time of the filing of this Annual Report on Form 10-K.
Risks inherent in our PRC operations include the following: ● changes in import, export, transportation regulations and tariffs, and risks associated with boycotts and embargoes; ● changes in, or impositions of, legislative or regulatory requirements or restrictions, including tax and trade laws in the U.S. and in the PRC, and government action to restrict our ability to sell to customers where sales of products may require export licenses; ● transportation delays and other supply chain issues; ● changes in tax regulations in the U.S. and/or the PRC, including restrictions and/or taxes applicable to the transfer or repatriation of funds; ● international political relationships, including the relationship between the U.S. and the PRC; ● epidemics and illnesses (including COVID-19, and any new variants that may emerge) within the PRC that affect the areas in which we operate and manufacture our products; ● economic, social and political instability; ● longer accounts receivable collection cycles and difficulties in collecting accounts receivables; ● less effective protection of intellectual property and contractual arrangements, and risks associated with enforcing contracts and legal rights and remedies generally; ● uncertainties associated with the PRC legal system, which is based on civil law, can involve protected proceedings involving substantial judicial discretion, and is based in part on PRC government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive effect; ● risks arising out of any changes in governmental and economic policy and the potential for adverse developments arising out of any political or economic instability related to Hong Kong or Taiwan; ● the potential for political unrest, expropriation, nationalization, revolution, war or acts of terrorism; and ● risks associated with the concentration of a substantial portion of our manufacturing capacity and supplier base in the PRC.
Risks inherent in our PRC operations include the following: ● changes in import, export, transportation regulations and tariffs, and risks associated with boycotts and embargoes; ● changes in, or impositions of, legislative or regulatory requirements or restrictions, including tax and trade laws in the U.S. and in the PRC, and government action to restrict our ability to sell to customers where sales of products may require export licenses; ● transportation delays and other supply chain issues; ● changes in tax regulations in the U.S. and/or the PRC, including restrictions and/or taxes applicable to the transfer or repatriation of funds; ● international political relationships, including the relationship between the U.S. and the PRC; ● epidemics and illnesses (including COVID, any new variants that may emerge, and any future health crises) within the PRC that affect the areas in which we operate and manufacture our products; ● economic, social and political instability; ● longer accounts receivable collection cycles and difficulties in collecting accounts receivable; ● less effective protection of intellectual property and contractual arrangements, and risks associated with enforcing contracts and legal rights and remedies generally; ● uncertainties associated with the PRC legal system, which is based on civil law, can involve protected proceedings involving substantial judicial discretion, and is based in part on PRC government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive effect; ● risks arising out of any changes in governmental and economic policy and the potential for adverse developments arising out of any political or economic instability related to Hong Kong or Taiwan; ● the potential for political unrest, expropriation, nationalization, revolution, war or acts of terrorism; and ● risks associated with the concentration of a substantial portion of our manufacturing capacity and supplier base in the PRC.
Any drop in demand for our products or increase in supply of competitive products could also cause a dramatic drop in our average sales prices. ● Increases in Material Costs : While we continually strive to negotiate better pricing for components and raw materials, there are many factors that could lead to higher material costs, or premiums incurred for expedited orders, including an increase in industry demand for or supplier shortages of certain components, or inflationary pressures.
Any drop in demand for our products or increase in supply of competitive products could also cause a significant drop in our average sales prices. ● Increases in Material Costs : While we continually strive to negotiate better pricing for components and raw materials, there are many factors that could lead to higher material costs, or premiums incurred for expedited orders, including an increase in industry demand for or supplier shortages of certain components, or inflationary pressures.
The Company's certificate of incorporation provides that if a shareholder, other than shareholders subject to specific exceptions, acquires (after the date of the Company's 1998 recapitalization) 10% or more of the outstanding Class A common stock and does not own an equal or greater percentage of all then outstanding shares of both Class A and Class B common stock (all of which common stock must have been acquired after the date of the 1998 recapitalization), such shareholder must, within 90 days of the trigger date, purchase Class B common shares, in an amount and at a price determined in accordance with a formula described in the Company's certificate of incorporation, or forfeit its right to vote its Class A common shares.
The Company's Restated Certificate of Incorporation, as amended, provides that if a shareholder, other than shareholders subject to specific exceptions, acquires (after the date of the Company's 1998 recapitalization) 10% or more of the outstanding Class A common stock and does not own an equal or greater percentage of all then outstanding shares of both Class A and Class B common stock (all of which common stock must have been acquired after the date of the 1998 recapitalization), such shareholder must, within 90 days of the trigger date, purchase Class B common shares, in an amount and at a price determined in accordance with a formula described in the Company's Restated Certificate of Incorporation, as amended, or forfeit its right to vote its Class A common shares.
In addition to the risks associated with our PRC operations described above, the global nature of our operations generally subjects us to additional risks. We conduct operations in 15 countries, and outside of the United States (and the PRC), our largest manufacturing operations and associate populations are located within Mexico, Slovakia, the Dominican Republic, India and the United Kingdom.
In addition to the risks associated with our PRC operations described above, the global nature of our operations generally subjects us to additional risks. We conduct operations in 14 countries, and outside of the United States (and the PRC), our largest manufacturing operations and associate populations are located within Mexico, Slovakia, the Dominican Republic, India and the United Kingdom.
Fluctuations in these prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on our profit margins. ● Increases in Labor Costs : Wage rates, particularly in the PRC, Mexico and Slovakia where the majority of our manufacturing associates are located, have been gradually increasing in recent years as government-mandated increases in the minimum wage rate in these jurisdictions cause an increase in our overall pay scale.
Fluctuations in these prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on our profit margins. ● Increases in Labor Costs : Wage rates, particularly in the PRC, Mexico and Slovakia w here the majority of our manufacturing associates are located, have been gradually increasing in recent years as government-mandated increases in the minimum wage rate in these jurisdictions cause an increase in our overall pay scale.
As noted above, factory workers in the PRC are represented by government-sponsored unions, and are participants in a cyclical labor market that may become subject to shortages including as a result of PRC government policies. See “We may experience labor unrest” and “We may experience labor shortages” above.
As noted above, factory workers in the PRC are represented by government-sponsored unions, and are participants in a cyclical labor market that may become subject to shortages including as a result of PRC government policies. See “ We may experience labor unrest” and “We may experience labor shortages” above.
For additional information regarding risks associated with our operations in the PRC, see the discussion set forth above under the caption, “We have substantial manufacturing operations located in the PRC, which exposes us to significant risks that could materially and adversely affect our business, operations, consolidated financial condition and consolidated results of operations.” 19 Table of Contents Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations.
For additional information regarding risks associated with our operations in the PRC, see the discussion set forth above under the caption, "We have substantial manufacturing operations located in the PRC, which exposes us to significant risks that could materially and adversely affect our business, operations, consolidated financial condition and consolidated results of operations." 19 Table of Contents Cybersecurity risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations.
Cyber threats, including but not limited to malware, phishing, credential harvesting, ransomware and other attacks, are rapidly evolving and are becoming increasingly sophisticated, making it difficult to detect and prevent such threats from impacting the Company.
Cybersecurity threats, including but not limited to malware, phishing, credential harvesting, ransomware and other attacks, are rapidly evolving and are becoming increasingly sophisticated, making it difficult to detect and prevent such threats from impacting the Company.
Unless and until this situation is satisfied in a manner permitted by the Company's Restated Certificate of Incorporation, the subject shareholder will not be permitted to vote its shares of common stock.
Unless and until this situation is satisfied in a manner permitted by the Company's Restated Certificate of Incorporation, as amended, the subject shareholder will not be permitted to vote its shares of common stock.
If we are unable to anticipate and effectively manage these and other risks, it could have a material and adverse effect on our business, our consolidated results of operations and consolidated financial condition. The recent political tensions and armed conflict involving Russia and Ukraine continues to evolve and we are closely monitoring this dynamic situation.
If we are unable to anticipate and effectively manage these and other risks, it could have a material and adverse effect on our business, our consolidated results of operations and consolidated financial condition. The recent political tensions and armed confli ct involving Russia and Ukraine continues to evolve and we are closely monitoring this dynamic situation.
Risks inherent in our international operations include: ● COVID-19-related closures and other pandemic-related uncertainties in the countries in which we operate; ● Import and export regulations that could erode profit margins or restrict exports; ● Foreign exchange controls and tax rates; ● Foreign currency exchange rate fluctuations, including devaluations; ● Changes in regional and local economic conditions, including local inflationary pressures; ● Difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; ● Variations in protection of intellectual property and other legal rights; ● More expansive legal rights of foreign unions or works councils; ● Changes in labor conditions and difficulties in staffing and managing international operations; ● Inability or regulatory limitations on our ability to move goods across borders; ● Changes in laws and regulations, including the laws and policies of the United States affecting trade, tariffs and foreign investment; ● Restrictive governmental actions such as those on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, trade wars, embargoes and prohibitions or restrictions on acquisitions or joint ventures; ● Social plans that prohibit or increase the cost of certain restructuring actions; ● The uncertainty surrounding the effect of the United Kingdom's withdrawal from the European Union; ● The potential for nationalization of enterprises or facilities; and ● Unsettled political conditions and possible terrorist attacks against U.S. or other interests.
Risks inherent in our international operations include: ● COVID-related closures and other pandemic-related uncertainties in the countries in which we operate; ● Import and export regulations that could erode profit margins or restrict exports; ● Foreign exchange controls and tax rates; ● Foreign currency exchange rate fluctuations, including devaluations; ● Changes in regional and local economic conditions, including local inflationary pressures; ● Difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; ● Variations in protection of intellectual property and other legal rights; ● More expansive legal rights of foreign unions or works councils; ● Changes in labor conditions and difficulties in staffing and managing international operations; ● Inability or regulatory limitations on our ability to move goods across borders; ● Changes in laws and regulations, including the laws and policies of the United States affecting trade, tariffs and foreign investment; ● Restrictive governmental actions such as those on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, trade wars, embargoes and prohibitions or restrictions on acquisitions or joint ventures; ● Social plans that prohibit or increase the cost of certain restructuring actions; ● The potential for nationalization of enterprises or facilities; and ● Unsettled political conditions and possible terrorist attacks against U.S. or other interests.
In 2022, we announced restructuring plans related to four facility consolidations as further described in "Other Key Factors Affecting our Business" in Item 7 of this Annual Report.
In 2022, we announced restructuring plans related to four facility consolidations as further described in "Overview - Key Factors Affecting our Business - Restructuring" in Item 7 of this Annual Report.
In addition, our ability to realize the expected benefits from these programs is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
In addition, our abi lity to realize the expected benefits from these programs is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
As of February 28, 2023, to the Company's knowledge, there was one shareholder of the Company's common stock with ownership in excess of 10% of Class A outstanding shares with no ownership of the Company's Class B common stock and with no basis for exception from the operation of the above-mentioned provisions.
As of February 29, 2024, to the Company's knowledge, there was one shareholder of the Company's common stock with ownership in excess of 10% of Class A outstanding shares with no ownership of the Company's Class B common stock and with no basis for exception from the operation of the above-mentioned provisions.
See “The Effects of COVID-19 on Bel’s Business” and "Other Key Factors Affecting our Business" in Item 7 of this Annual Report on Form 10-K for a discussion of how pricing and availability of materials is currently impacting our business. 12 Table of Contents We have sub stantial manufacturing operations located in the PRC , which exposes us to significant risks that could materially and adversely affect our business, operations, consolidated financial condition and consolidated results of operations.
See “Overview - Key Factors Affecting our Business" in Item 7 of this Annual Report on Form 10-K for a discussion of how pricing and availability of materials is currently impacting our business. 12 Table of Contents We have sub stantial manufacturing operations located in the PRC , which exposes us to significant risks that could materially and adversely affect our business, operations, consolidated financial condition and consolidated results of operations.
We operate in 15 countries, and our products are distributed in those countries as well as in other parts of the world. A large portion of our manufacturing operations are located outside of the United States and a large portion of our sales are generated outside of the United States.
We manufacture in 7 countries, and our products are distributed in those countries as well as in other parts of the world. A large portion of our manufacturing operations are located outside of the United States and a large portion of our sales are generated outside of the United States.
Evolving foreign events, including the effect of the United Kingdom's withdrawal from the European Union, may adversely affect our revenues and could subject us to new regulatory costs and challenges (such as the transfer of personal data between the EU and the United Kingdom), in addition to other adverse effects that we are unable to effectively anticipate.
Evolving foreign events may adversely affect our revenues and could subject us to new regulatory costs and challenges (such as the transfer of personal data between the EU and the United Kingdom), in addition to other adverse effects that we are unable to effectively anticipate.
In addition, other events, such as the United Kingdom's exit from the European Union and the ongoing discussion and negotiations concerning varying levels of tariffs on product imported from the PRC also create a level of uncertainty.
In addition, other events, such as the ongoing discussion and negotiations concerning varying levels of tariffs on product imported from the PRC, also create a level of uncertainty.
The majority of Bel's Magnetic Solutions manufacturing capacity and supplier base is located in the PRC, as is a portion of Bel's Power Solutions and Protection group. As of December 31, 2022, 56% of our associates, 68% of our owned or leased manufacturing facilities (by square footage) and 35% of our Company’s tangible assets were all located in the PRC.
The majority of Bel's Magnetic Solutions manufacturing capacity and supplier base is located in the PRC, as is a portion of Bel's Power Solutions and Protection group. As of December 31, 2023, 50% of our associates, 74% of our owned or leased manufacturing facilities (by square footage) and 24% of our Company’s tangible assets were all located in the PRC.
As the status of the ongoing COVID-19 pandemic continues to evolve, additional Bel facilities could become negatively impacted. COVID-19 remains a potential supply continuity risk due to the unknown nature of future outbreaks including as a result of the emergence of further COVID-19 virus variants.
As the status of the COVID pandemic and its effects continue to evolve, additional Bel facilities could become negatively impacted. COVID remains a potential supply continuity risk due to the unknown nature of future outbreaks including as a result of the emergence of further COVID virus variants.
To the extent our suppliers in the PRC are negatively impacted by new or amended regulations, any such negative implications could adversely impact our supply chain, including in the form of increased costs, disruptions, shortages or unavailability of product or component parts, and/or other deleterious consequences, which could materially adversely affect our business and operating results.
To the extent our suppliers in the PRC are negatively impacted by new or amended regulations, any such negative implications could adversely impact our supply chain, including in the form of increased costs, disruptions, shortages or unavailability of product or component parts, and/or other deleterious consequences, which could materially adversely affect our business and operating results. 13 Table of Contents Our significant manufacturing operations in the PRC may expose us to other risks.
As of February 28, 2023, to the Company's knowledge, this shareholder owned 17.9% of the Company's Class A common stock and had not taken steps to either purchase the required number of Class B common shares or sell or otherwise transfer Class A common shares until its Class A holdings fall below 10%.
As of February 29, 2024, to the Company's knowledge, this shareholder owned 16.7% of the Company's Class A common stock and had not taken steps to either purchase the required number of Class B common shares or sell or otherwise transfer Class A common shares until its Class A holdings fall below 10%.
Our Company has seen an increased volume of cyber threats and ransomware attempts throughout the COVID-19 pandemic and expects to continue to experience cyber threats from time to time, which pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
Our Company has seen an increased volume of cybersecurity threats and ransomware attempts in 2023 and expects to continue to experience cybersecurity threats from time to time, which pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
Additional factors that could cause the Company to fail to ship orders comprising our backlog include unanticipated supply difficulties, changes in customer demand and new customer designs. Throughout 2022, Bel has faced macroeconomic and global supply chain challenges, and these conditions are expected to continue through at least the first half of 2023.
Additional factors that could cause the Company to fail to ship orders comprising our backlog include unanticipated supply difficulties, changes in customer demand and new customer designs. Throughout 2023, Bel has faced macroeconomic and excessive levels of inventory within the supply channel and these conditions expected to continue through at least the first half of 2024.
Management has estimated that these initiatives will result in restructuring costs of approximately $12 million ($7.3 million of which was incurred through December 31, 2022), incremental capital expenditures of approximately $5 million and once complete, annualized cost savings of approximately $5 m illion.
Management has estimated that these initiatives will result in restructuring costs of approximately $13.4 million ($6.3 mill ion of which was incurred through December 31, 2023 ), incremental capital expenditures of approximately $5 million and once complete, annualized cost savings of approximately $6.9 m illion.
While Bel sells a diversified portfolio of products to this ultimate end-user, we believe that the loss of either of this ultimate end user and/or this intermediate contract manufacturer could have a material adverse effect on our consolidated financial position and consolidated results of operations. We have experienced significant concentrations of customers in prior years.
While Bel sells a diversified portfolio of products to this ultimate end-user, we believe that the loss of this end user could have a material adverse effect on our consolidated financial position and consolidated results of operations. We have experienced significant concentrations of customers in prior years. See Note 14, "Segments" f or additional disclosures related to our significant customers.
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, consolidated financial condition and consolidated results of operations. In January 2020, the outbreak of COVID-19 was first identified.
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, consolidated financial condition and consolidated results of operations.
The market price of our common stock may rise and fall in response to a variety of other factors, including: • announcements of technological or competitive developments; • general market or economic conditions; • the continuing and uncertain future impact of the ongoing COVID-19 pandemic on our operations and supply chain; • market or economic conditions specific to particular geographical areas in which we operate; • acquisitions or strategic alliances by us or our competitors; • our ability to achieve our anticipated cost savings from announced restructuring programs; • the gain or loss of a significant customer or order; or • changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry In addition, equity securities of many companies have experienced significant price and volume fluctuations even in periods when the capital markets generally are not distressed.
The market price of our common stock may rise and fall in response to a variety of other factors, including: • announcements of technological or competitive developments; • general market or economic conditions; • the continuing and uncertain future impact of the COVID pandemic on our operations and supply chain; • market or economic conditions specific to particular geographical areas in which we operate; • acquisitions or strategic alliances by us or our competitors; • our ability to achieve our anticipated cost savings from announced restructuring programs; • the gain or loss of a significant customer or order; • changes in the amount or frequency of our payments of dividends or repurchases of our common stock; or • changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry.
See Note 13, "Segments" for additional disclosures related to our significant customers. Furthermore, factors that negatively impact the businesses of our major customers could materially and adversely affect us even if the customer represents less than 10% of our 2022 consolidated net sales. 14 Table of Contents We may not achieve all of the expected benefits from our restructuring programs.
Furthermore, factors that negatively impact the businesses of our major customers could materially and adversely affect us even if the customer represents less th an 10% of our 2023 consolidated net sales. 14 Table of Contents We may not achieve all of the expected benefits from our restructuring programs.
Due to the foregoing factors, we cannot be certain that the amount of our backlog equals or exceeds the level of orders that will ultimately be delivered, and backlog may not be a reliable indicator of the timing of future sales. Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog.
Due to the foregoing factors, we cannot be certain that the amount of our backlog equals or exceeds the level of orders that will ultimately be del ivered, and backlog may not be a reliable indicator of the timing of future sales.
As of February 28, 2023, Daniel Bernstein, the Company's Chief Executive Officer, beneficially ow ned 381,720 C lass A common shares (o r 21.7% ) of the outstanding Class A common shares whose voting rights were not suspended, and all directors and current executive officers as a group (which includes Daniel Bernstein) beneficially owne d 397,505 Class A common shares (or 22.4% ) o f the outstanding Class A common shares whose voting rights were not suspended.
As of February 29, 2024, Daniel Bernstein, the Company's Chief Executive Officer, beneficially ow ned 382,03 2 Class A common shares (or 21.4%) of the outstanding Class A common shares whose voting rights were not suspended, and all directors and current executive officers as a group (which includes Daniel Bernstein) beneficially owned 396,175 Class A common shares (or 22.2%) o f the outstanding Class A common shares whose voting rights were not suspended.
FINANCIAL RISKS There are several factors which can cause our margins to suffer. Our margins could be substantially impacted by the following factors. ● Declines in Selling Prices : The average selling prices for our products tend to decrease over their life cycles, and customers put pressure on suppliers to lower prices even when production costs are increasing.
Our margins could be substantially impacted by the following factors. ● Declines in Selling Prices : The average selling prices for our products tend to decrease over their life cycles, and customers put pressure on suppliers to lower prices even when production costs are increasing. Further, increased competition from low-cost suppliers around the world has put additional pressures on pricing.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
See "The Effects of COVID-19 on Bel’s Business" in Item 7 of this Annual Report on Form 10-K for a discussion of how COVID-19 is currently impacting our business. We may experience labor unrest.
See "Overview - Key Factors Affecting our Business - Potential Future Impacts of COVID" in Item 7 of this Annual Report on Form 10-K for a discussion of current and potential future impacts of COVID upon our business. We may experience labor unrest.
During the year ended December 31, 2022, approximately 17.6 % of the Company's total net sales were sold to one ultimate end-user through various intermediary contract manufacturers. The largest Bel direct-customer was an intermediary contract manufacturer that manufactured and assembled products to various end customers, which represented 12.8% of our 2022 consolidated net sales.
During the year ended December 31, 2023, while there were no direct customers whose sales exceed ed 10% o f our 2023 consolidated net sales, approximately 11.6% of the Company's total net sales were sold to one ultimate end-user through various intermediary contract manufacturers.
In addition, inflationary pressures could result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses.
Many of these materials and components are produced by a limited number of suppliers and their availability to us may be constrained by supplier capacity. Any material disruption could materially adversely affect our financial results. In addition, inflationary pressures could result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses.
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Our suppliers, customers and our customers’ contract manufacturers have experienced similar challenges from time to time throughout the pandemic.
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Additionally, in connection with a new restructuring initiative implemented in the fourth quarter of 2023 involving the transition of certain manufacturing from our Glen Rock, Pennsylvania facility to other existing Bel sites as further described in "Overview – Key Factors Affecting our Business – Restructuring" in Item 7 of this Annual Report, management estimated that the initiative will result in restructuring costs of approximately $0.5 million ($0.4 million of which was incurred through December 31, 2023) and once complete, annualized cost savings of approximately $1.0 million.
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The ongoing impact and continuing and future effects from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, with disruptions to the business of our customers and suppliers, which have impacted, and could continue to impact, our business and consolidated results of operations and financial condition.
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See "Cautionary Notice Regarding Forward-Looking Information." FINANCIAL RISKS There are several factors which can cause our margins to suffer.
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During March 2022, the PRC government issued a notice with immediate effect whereby certain regions were temporarily shut down to perform widespread testing in response to a COVID outbreak in those regions and in accordance with Beijing’s "zero-tolerance" policy at the time.
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In addition, equity securities of many companies have experienced significant price and volume fluctuations even in periods when the capital markets generally are not distressed.
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Our Bel Power Solutions manufacturing facility in Shenzhen, China and our Magnetics TRP manufacturing facility in Changping, China were closed for approximately one week during the month of March 2022 while residents underwent testing.
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Upon the discontinuation of COVID protocols in the PRC in late 2022, we experienced approximately 3-4 weeks between December 2022 and January 2023 where the attendance rate of workers at our factories in the PRC were very low due to COVID outbreaks in the regions in which we operate.
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Many of these materials and components are produced by a limited number of suppliers and their availability to us may be constrained by supplier capacity. Beginning in the third quarter of 2021, pandemic-related issues have created additional port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of critical parts.
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A further increase in demand for electronic components within the industry had led to incremental direct and indirect supply chain challenges related to raw material availability and logistics which persisted throughout 2022. We expect this environment to continue through at least the first half of 2023. Any material disruption could materially adversely affect our financial results.
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In late 2022, there were widespread COVID outbreaks, due to relaxing of government mandates, at our factories and those related to our supply chain in the PRC.
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While these events did not have a material impact on our business and are not presently ongoing as of the date of this filing, any prolonged shutdown of our or our suppliers' factories (or other interference or limitation of production capacity resulting from other PRC infrastructure issues or government regulations, policies, mandates or otherwise), could cause significant disruption to our supply chain and/or Bel's ability to manufacture its products, and have a materially adverse effect on our business and operating results. 13 Table of Contents Our significant manufacturing operations in the PRC also expose us to other risks.
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See "Cautionary Notice Regarding Forward-Looking Information." There are risks related to the implementation of our new global enterprise resource planning system. We have been engaged in a multi-year process of conforming the majority of our operations onto one global enterprise resource planning system ("ERP").
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The ERP is designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records, and provide information important to the operation of the business to our management team.
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While this project is substantially complete, the conversion of recent acquisitions onto the new ERP system, or any significant deficiency in the design and implementation of the ERP could negatively impact data processing and electronic communications among business locations, which may have a material adverse effect on our business, consolidated financial condition or consolidated results of operations.
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Further, increased competition from low-cost suppliers around the world has put additional pressures on pricing.
Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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2022 filing
2023 filing
Biggest changeItem 2. Properties The Company is headquartered in Jersey City, New Jersey, where it currently owns 14,000 square feet of office space. In addition to its facility in Jersey City, New Jersey, the Company occupies 307,000 square feet at 19 non-manufacturing facilities, which are used primarily for management, financial accounting, engineering, sales and administrative support.
Biggest changeItem 2. Properties The Company is headquartered in West Orange, New Jersey. The Compan y occupies 294,000 square feet at 18 non-manufacturing facilities , which are used primarily for management, financial accounting, engineering, sales and administrative support. Of this space, the Company leases 187,000 square feet in 13 facilities and owns properties of 107,000 square feet.
Management cannot presently predict what future impact, if any, this will have on the Company or how the political climate in the PRC will affect its contractual arrangements in the PRC. A significant portion of the Company's manufacturing operations and approximately 35.2% of its identifiable assets are located in Asia.
Management cannot presently predict what future impact, if any, this will have on the Company or how the political climate in the PRC will affect its contractual arrangements in the PRC. A significant portion of the Company's manufacturing operations and approximately 21.6% of its id entifiable assets are located in Asia.
The following is a list of the locations of the Company's principal manufacturing facilities at December 31, 2022: Location Approximate Square Feet Product Group Produced at Facility Owned/ Leased Percentage Used for Manufacturing Dongguan, People's Republic of China 661,000 Magnetic Solutions Leased 36 % Pingguo, People's Republic of China 251,000 Magnetic Solutions Leased 71 % Shenzhen, People's Republic of China 227,000 Power Solutions & Protection Leased 100 % Zhongshan, People's Republic of China 302,000 All three product groups Leased 85 % Zhongshan, People's Republic of China 118,000 All three product groups Owned 100 % Zhongshan, People's Republic of China 78,000 All three product groups Owned 100 % Guangxi, People's Republic of China 229,000 Magnetic Solutions Leased 56 % Mumbai, India 56,000 Power Solutions & Protection Leased 46 % Louny, Czech Republic 11,000 Connectivity Solutions Owned 75 % Dubnica nad Vahom, Slovakia 35,000 Power Solutions & Protection Owned 100 % Dubnica nad Vahom, Slovakia 70,000 Power Solutions & Protection Leased 100 % Worksop, United Kingdom 51,000 Connectivity Solutions Leased 28 % Chelmsford, United Kingdom 17,000 Connectivity Solutions Leased 80 % Sudbury, United Kingdom 12,000 Connectivity Solutions Leased 90 % Dominican Republic 33,000 Magnetic Solutions Leased 85 % Cananea, Mexico 30,000 Connectivity Solutions Leased 60 % Reynosa, Mexico 80,000 Connectivity Solutions Leased 56 % Glen Rock, Pennsylvania 74,000 Connectivity Solutions Owned 60 % Waseca, Minnesota 127,000 Connectivity Solutions Leased 83 % McAllen, Texas 40,000 Connectivity Solutions Leased 56 % Melbourne, Florida 18,000 Connectivity Solutions Leased 64 % Tempe, Arizona 8,000 Connectivity Solutions Leased 100 % 2,528,000 Of the space described above, 356 ,000 square feet is used for engineering, warehousing, sales and administrative support functions at various locations and 485,000 square feet is designated for dormitories, canteen and other employee related facilities in the PRC.
The following is a list of the locations of the Company's principal manufacturing facilities at December 31, 2023: Location Approximate Square Feet Product Group Produced at Facility Owned/ Leased Percentage Used for Manufacturing Dongguan, People's Republic of China 661,000 Magnetic Solutions Leased 36 % Pingguo, People's Republic of China 180,000 Magnetic Solutions Leased 39 % Shenzhen, People's Republic of China 227,000 Power Solutions & Protection Leased 100 % Zhongshan, People's Republic of China 77,000 All three product groups Leased 100 % Zhongshan, People's Republic of China 118,000 All three product groups Owned 100 % Zhongshan, People's Republic of China 78,000 All three product groups Owned 100 % Guangxi, People's Republic of China 243,000 Magnetic Solutions Leased 54 % Mumbai, India 56,000 Power Solutions & Protection Leased 46 % Dubnica nad Vahom, Slovakia 35,000 Power Solutions & Protection Owned 50 % Dubnica nad Vahom, Slovakia 70,000 Power Solutions & Protection Leased 100 % Worksop, United Kingdom 51,000 Connectivity Solutions Leased 28 % Chelmsford, United Kingdom 17,000 Connectivity Solutions Leased 80 % Dominican Republic 33,000 Magnetic Solutions Leased 85 % Cananea, Mexico 30,000 Connectivity Solutions Leased 60 % Reynosa, Mexico 80,000 Connectivity Solutions Leased 56 % Glen Rock, Pennsylvania 74,000 Connectivity Solutions Owned 60 % Waseca, Minnesota 127,000 Connectivity Solutions Leased 83 % McAllen, Texas 40,000 Connectivity Solutions Leased 56 % Melbourne, Florida 13,000 Connectivity Solutions Leased 64 % 2,210,000 Of the space described above, 420,000 square feet is used for engineering, warehousing, sales and administrative support functions at various locations and 419,000 square feet is designated for dormitories, canteen and other employee related facilities in the PRC.
Of this space, the Company leases 200,000 square feet in 14 facilities and owns properties of 107,000 square feet. The Company also operate d 22 manufacturing facilities in 8 coun tries as of December 31, 2022. Approximately 15 % of the 2.8 million square feet the Company occupies is owned while the remainder is leased.
The Company also operate d 19 manufacturing facilities in 7 c oun tries as of December 31, 2023. Approximately 13% of the 2.4 million square feet the Co mpany occupies is owned while the remainder is leased. See Note 19, "Commitments and Contingencies" , for additional information pertaining to leases.
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See Note 18, "Commitments and Contingencies", for additional information pertaining to leases.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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2022 filing
2023 filing
Biggest changeItem 3. Legal Proceedings The information called for by this Item is incorporated herein by reference to the caption "Legal Proceedings" in Note 18, "Commitments and Contingencies." Item 4. Mine Safety Disclosures Not applicable. 21 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings The information called for by this Item is incorporated herein by reference to the caption "Legal Proceedings" in Note 19, "Co mmitments and Contingencies." Item 4. Mine Safety Disclosures Not applicable. 21 Table of Contents PART II
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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2022 filing
2023 filing
Biggest change(c) Dividends During the years ended December 31, 2022 and 2021, the Company declared dividends on a quarterly basis at a rate of $0.06 per Class A share of common stock and $0.07 per Class B share of common stock totaling $3.4 million in each of 2022 and 2021.
Biggest changeDividends During the years ended December 31, 2023 and 2022, the Company declared dividends on a quarterly basis at a rate of $0.06 per Class A share of common stock and $0.07 per Class B share of common stock totaling $3.5 mi llion in 2023 and $3.4 million in 2022.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Information The Company's voting Class A Common Stock, par value $0.10 per share, and non-voting Class B Common Stock, par value $0.10 per share ("Class A" and "Class B," respectively), are traded on the NASDAQ Global Select Market under the symbols BELFA and BELFB, respectively.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company's voting Class A Common Stock, par value $0.10 per share, and non-voting Class B Common Stock, par value $0.10 per share ("Class A" and "Class B," respectively), are traded on the NASDAQ Global Select Market under the symbols BELFA and BELFB, respectively.
For additional discussion, see Item 1A – "Risk Factors – As a result of protective provisions in the Company's certificate of incorporation, the voting power of holders of Class A common shares whose voting rights are not suspended (including officers, directors and principal shareholders) may be increased at future meetings of the Company's shareholders".
For additional discussion, see Item 1A – "Risk Factors – As a result of protective provisions in the Company's restated certificate of incorporation, as amended, the voting power of holders of Class A common shares whose voting rights are not suspended (including officers, directors and principal shareholders) may be increased at future meetings of the Company's shareholders" .
On February 22, 2023, Bel's Board of Directors declared a dividend in the amount of $0.06 per Class A common share and $0.07 per Class B common share which is scheduled to be paid on May 1, 2023 to all shareholders of record at April 14, 2023.
On February 21, 2024, Bel's Board of Directors declared a dividend in the amount of $0.06 per Class A common share and $0.07 per Class B common share which is scheduled to be paid on May 1, 2024 to all shareholders of record at April 15, 2024.
On February 1, 2023, the Company paid a dividend to all shareholders of record at January 13, 2023 of Class A and Class B Common Stock in the total amount of $0.1 million ($0.06 per share) and $0.7 million ($0.07 per share), respectively.
On February 1, 2024, the Company paid a dividend to all shareholders of record at January 15, 2024 of Class A and Class B Common Stock in the total amount of $0.1 million ($0.06 per share) and $0.7 million ($0.07 p er share), respectively.
At February 28, 2023, to the Company's knowledge, there was one shareholder of the Company's Class A common stock whose voting rights were suspended. This shareholder owne d 17.9% of the Company's outstanding shares of Class A common stock.
At February 29, 2024, to the Company's knowledge, there was one shareholder of the Company's Class A common stock whose voting rights were suspended. This shareholder owned 16.7% of the Company's outstanding shares of Class A common stock.
(b) Holders As of February 28, 2023, there w ere 37 registered shareholders of the Company's Class A Common Stock and 352 registe red shareholders of the Company's Class B Common Stock.
Holders As of February 29, 2024, there w e re 34 registered shareholders of the Company's Class A Common Stock and 317 registered shareholders of the Company's Class B Common Stock.
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(d) Common Stock Performance Comparisons Not applicable. 22 Table of Contents Item 6. [Reserved]
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Issuer Purchases of Equity Securities The following table summarizes the activity related to repurchases of our equity securities during the fourth quarter ended December 31, 2023: Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) October 1, 2023 – October 31, 2023 - $ - - (2) November 1, 2023 – November 30, 2023 - - - (2) December 1, 2023 – December 31, 2023 2,000 (Class B) (1) 52.60 (1) - (2) Total 2,000 (Class B) (1) $ 52.60 (1) - (2) (1) Represents 2,000 shares of Class B Common Stock that were repurchased by the Company from a former employee in connection with the sale of its Czech Republic subsidiary Bel Steward s.r.o.
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The repurchase was executed in December 2023 in a privately negotiated transaction at the market price of the Class B Common Stock on the date the parties reached agreement with respect to the terms of the transaction.
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(2) As the relevant authorization and initiation of the Company’s new Repurchase Program (as defined below) are events subsequent to the Q4-2023 reporting period, the table above reporting repurchase data for the fourth quarter ended December 31, 2023 does not reflect any data or transactions relevant to the Company’s $25.0 million share repurchase program (the “Repurchase Program”) as authorized by the Company’s Board of Directors and publicly announced on February 21, 2024.
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The Repurchase Program authorizes the repurchase of up to $25.0 million of shares of outstanding Class A Common Stock and Class B Common Stock.
Added
The aggregate $25.0 million available for repurchases under the Repurchase Program has been suballocated for purchases of Class A shares and Class B shares in portions of $4.0 million and $21.0 million, respectively, prorated to take into account the number of outstanding shares of each respective class.
Added
Shares of Common Stock may be repurchased pursuant to the Repurchase Program in open market, privately negotiated or block transactions or otherwise from time to time, depending upon market conditions and other factors, and in accordance with applicable law and regulations. The Repurchase Program has no expiration date.
Added
The Repurchase Program does not obligate the Company to repurchase any dollar amount or number of shares, and the Repurchase Program may be suspended or terminated at any time. 22 Table of Contents Item 6. [Reserved]
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
90 edited+36 added−39 removed43 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
90 edited+36 added−39 removed43 unchanged
2022 filing
2023 filing
Biggest changeThis decrease was primarily due to cash paid for acquisitions of $16.8 million, the purchase of property, plant and equipment of $9.4 million, net payments to our credit facility of $4.3 million, and dividend payments of $3.4 million, partially offset by cash provided by operations of $4.6 million and proceeds from the sale of properties of $7.3 million.
Biggest changeThis increase was primarily due to the following: • net cash provided by operating activities of $108.3 million; • proceeds from the sale of property, plant and equipment of $6.0 million; • proceeds from held to maturity securities of $19.9 million; and • proceeds from the sale of our business in the Czech Republic of $5.1 million; partially offset by • purchases of held to maturity and marketable securities of $60.0 million; • payments for our equity method investment in innolectric of $10.3 million; • purchases of property, plant and equipment of $12.1 million; • dividend payments of $ 3.5 million; and • net repayments under our revolving credit line of $35.0 million.
In addition, the New Credit Agreement contains financial covenants that measure (i) the ratio of the Company’s total funded indebtedness, on a consolidated basis, less the aggregate amount of all unencumbered cash and cash equivalents, to the amount of the Company’s consolidated EBITDA (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s consolidated fixed charges (“Fixed Charge Coverage Ratio”).
In addition, the credit agreement contains financial covenants that measure (i) the ratio of the Company’s total funded indebtedness, on a consolidated basis, less the aggregate amount of all unencumbered cash and cash equivalents, to the amount of the Company’s consolidated EBITDA (“Leverage Ratio”) and (ii) the ratio of the amount of the Company’s consolidated EBITDA to the Company’s consolidated fixed charges (“Fixed Charge Coverage Ratio”).
Our products are manufactured at various facilities in the U.S., Mexico, India, the Dominican Republic, the United Kingdom, Czech Republic, Slovakia and the PRC. We have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products.
Our products are manufactured at various facilities in the U.S., Mexico, India, the Dominican Republic, the United Kingdom, Slovakia and the PRC. We have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products.
If we change our reporting unit structure or other events and circumstances change (such as a sustained decrease in the price of our common stock, a decline in current market multiples, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, heightened competition, strategic decisions made in response to economic or competitive conditions or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of), we may be required to record impairment charges in future periods.
If we were to change our reporting unit structure again or if other events and circumstances change (such as a sustained decrease in the price of our common stock, a decline in current market multiples, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, heightened competition, strategic decisions made in response to economic or competitive conditions or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of), we may be required to record impairment charges in future periods.
Any impairment charges that we may take in the future could be material to our consolidated results of operations and consolidated financial condition. The Company conducted its annual goodwill impairment test as of October 1, 2022, and no impairment was identified at that time.
Any impairment charges that we may take in the future could be material to our consolidated results of operations and consolidated financial condition. The Company conducted its annual goodwill impairment test as of October 1, 2023, and no impairment was identified at that time.
Due to the practicality of determining the deferred taxes on outside basis differences in our investments in our foreign subsidiaries, management has not provided for deferred taxes on outside basis differences at December 31, 2022 and deemed that these basis differences will be indefinitely reinvested.
Due to the practicality of determining the deferred taxes on outside basis differences in our investments in our foreign subsidiaries, management has not provided for deferred taxes on outside basis differences at December 31, 2023 and deemed that these basis differences will be indefinitely reinvested.
The Company periodically uses foreign currency forward contracts to manage its short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates as further described in Note 12, "Derivative Instruments and Hedging Activities".
The Company periodically uses foreign currency forward contracts to manage its short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates as further described in Note 13 , "Derivative Instruments and Hedging Activities" .
With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle the Company’s sales to third-party customers in Asia. Sales by this company primarily consist of products manufactured in the PRC. The Macao corporate profit taxes imposes a tax rate of 12% on income from activities solely conducted in Macao.
With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle the Company’s sales to third-party customers in Asia. Sales by this company primarily consist of products manufactured in the PRC. The Macao corporate profit taxes imposes a tax rate of 12% on income from activitie s solely conducted in Macao.
The Company's European entities, whose functional currencies are Euros, British pounds and Czech korunas, enter into transactions which include sales that are denominated principally in Euros, British pounds and various other European currencies, and purchases that are denominated principally in U.S. dollars and British pounds.
The Company's European entities, whose functional currencies are Euros and British pounds, enter into transactions which include sales that are denominated principally in Euros, British pounds and various other European currencies, and purchases that are denominated principally in U.S. dollars and British pounds.
See "Cautionary Notice Regarding Forward-Looking Information." • Effective Tax Rate – The Company's effective tax rate will fluctuate based on the geographic region in which the pretax profits are earned. Of the jurisdictions in which the Company operates, the U.S. and Europe's tax rates are generally equivalent; and Asia has the lowest tax rates of the Company's three geographic regions.
See “Cautionary Notice Regarding Forward-Looking Information.” • Effective Tax Rate – The Company's effective tax rate will fluctuate based on the geographic region in which the pretax profits are earned. Of the jurisdictions in which the Company operates, the U.S. and Europe's tax rates are generally equivalent; and Asia has the lowest tax rates of the Company's three geographic regions.
Purchase Obligations - The Company submits purchase orders for raw materials to various vendors throughout the year for current production requirements, as well as forecasted requirements. Certain of these purchase orders relate to special purpose material and, as such, the Company may incur penalties if an order is cancelled.
Purchase Obligations - The Company submits purchase orders for raw materials to various vend ors throughout the year for current production requirements, as well as forecasted requirements. Certain of these purchase orders relate to special purpose material and, as such, the Company may incur penalties if an order is cancelled.
The Company monitors changes in foreign currencies and in 2022 implemented additional foreign currency forward contracts, and may continue to implement pricing actions to help mitigate the impact that changes in foreign currencies may have on its consolidated operating results. The preceding sentence represents a Forward-Looking Statement.
The Company monitors changes in foreign currencies and has historically implemented additional foreign currency forward contracts, and may continue to implement pricing actions to help mitigate the impact that changes in foreign currencies may have on its consolidated operating results. The preceding sentence represents a Forward-Looking Statement.
Tax Payments - At December 31, 2022, we had liabilities for unrecognized tax benefits and related interest and penalties of $24.8 million, all of which is included in other liabilities on our consolidated balance sheet. At December 31, 2022, we cannot reasonably estimate the future period or periods of cash settlement of these liabilities.
Tax Payments - At December 31, 2023, we had liabilities for unrecognized tax benefits and related interest and penalties of $19.8 million, all of which is included in other liabilities on our consolidated balance sheet. At December 31, 2023, we cannot reasonably estimate the future period or periods of cash settlement of these liabilities.
This increase was primarily due to the following: • net cash provided by operating activities of $40.3 million; and • proceeds from the sale of property, plant and equipment of $1.8 million; partially offset by • purchases of property, plant and equipment of $8.8 million; • dividend payments of $3.4 million; and • repayments under our revolving credit line of $17.5 million.
This increase was primarily due to cash provided by operating activities of $40.3 million, and proceeds from the sale of property, plant and equipment of $ 1.8 million; partially offset by the purchase of property, plant and equipment of $8.8 million, dividend payments of $ 3.4 million, and repayments under our revolving credit line of $17.5 million.
Management has also concluded that the fair value of its goodwill exceeded the associated carrying value at December 31, 2022 and that no impairment exists as of that date. See Note 4, "Goodwill and Other Intangible Assets," for details of our goodwill balance and the goodwill review performed in 2022.
Management has also concluded that the fair value of its goodwill exceeded the associated carrying value at December 31, 2023 and that no impairment exists as of that date. See Note 5, "Goodwill and Other Intangible Assets," for details of our goodwill balance and the goodwill review performed in 2023 .
The Company conducted its annual impairment tests as of October 1, 2022 and 2021, and no impairment was identified at either testing date. Management has also concluded that the fair value of its trademarks exceeds the associated carrying values at December 31, 2022 and that no impairment existed as of that date.
The Company conducted its annual impairment tests as of October 1, 2023 and 2022, a nd no impairment was identified at either testing date. Management has also concluded that the fair value of its trademarks exceeds the associated carrying values at December 31, 2023 and that no impairment existed as of that date.
Such transactions, as well as those related to our multi-currency intercompany payable and receivable transactions, resulted in a net realized and unrealized currency exchange gain of $0.3 million in 2022 and a loss of less than $0.1 million in 2021 which were included in other expense, net on the consolidated statements of operations.
Such transactions, as well as those related to our multi-currency intercompany payable and receivable transactions, resulted in a net realized and unrealized currency exchange loss of $1.4 million in 2023 and a gain of $0.3 million in 2022 which were included in other expense, net on the consolidated statements of operations.
The changes in net periodic benefit cost year over year are attributable to demographic changes within the plan, as well as any changes to the discount rate or the assumption around the future annual increases in compensation. The discount rate utilized for the net periodic benefit cost was 2.75% at December 31, 2022 and 2.25% at December 31, 2021.
The changes in net periodic benefit cost year-over-year are attributable to demographic changes within the plan, as well as any changes to the discount rate or the assumption around the future annual increases in compensation. The discount rate utilized for the net periodic benefit cost was 5.0% at December 31, 2023 and 2.75% at December 31, 2022.
An increase in the discount rate assumption of 50 basis points would have impacted the fair values of our reporting units, and would have reduced the excess of fair value over carrying value to a revised range of 60% to 166%.
An increase in the discount rate assumption of 50 basis points would have impacted the fair values of our reporting units, and would have reduced the excess of fair value over carrying value to a revised range of 69% to 163%.
We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, both in the next twelve months and in the longer term. 28 Table of Contents Cash Flow Summary During the year ended December 31, 2022, the Company's cash and cash equivalents increased by $8.5 million.
We believe that our current liquidity position and future cash flows from operations will enable us to fund our operations, both in the next twelve months and in the longer term. 28 Table of Contents Cash Flow Summary During the year ended December 31, 2023, the Company's cash and cash equivalents increased by $19.1 million.
At December 31, 2022, the Company's indefinite-lived intangible assets related solely to trademarks. Pension Benefit Obligations Net periodic benefit cost for the Company's SERP totaled $1.5 million in 2022 and $1.7 million in 2021. Benefit plan information for financial reporting purposes is calculated using actuarial assumptions including a discount rate for plan benefit obligations.
At December 31, 2023, the Company's indefinite-lived intangible assets related solely to trademarks. Pension Benefit Obligations Net periodic benefit cost for the Company's SERP totaled $1.3 million in 2 023 and $1.5 million in 2022. Benefit plan information for financial reporting purposes is calculated using actuarial assumptions including a discount rate for plan benefit obligations.
Included in other assets at December 31, 2022 is the cash surrender value of company-owned life insurance and marketable securities held in a rabbi trust with an aggregate value of $14.0 million, which has been designated by the Company to be utilized to fund the Company's SERP obligations.
Included in other assets at December 31, 2023 is the cash surrender value of company-owned life insurance and marketable securities held in a rabbi trust with an aggregate value of $15.4 million, which has been designated by the Company to be utilized to fund the Company's SERP obligations.
Also effective January 1, 2023, minimum wage increases which went into effect at our factory in Slovakia are expected to result in approximately $0.6 million of higher labor costs at that facility in 2023 as compared to 2022. • Inflationary Pressures – Inflationary pressures could result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses.
Also effective January 1, 2024, minimum wage increases which went into effect at our factory in Slovakia are expected to result in approximately $0.3 m illion of higher labor costs at that facility in 2024 as compared to 2023. • Inflationary Pressures – Inflationary pressures could result in higher input costs, including those related to our raw materials, labor, freight, utilities, healthcare and other expenses.
If an event of default occurs, the lenders under the New Credit Agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At December 31, 2022, the Company had $95.0 million outstanding under its New Credit Agreement.
If an event of default occurs, the lenders under the credit agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all actions permitted to be taken by a secured creditor. At December 31, 2023, the Company had $60 million outstanding under its credit agreement.
The unused credit available under the credit facility at December 31, 2022 was $ 80.0 million, of which we had the ability to borrow the full amount without violating our Leverage Ratio covenant based on the Company's existing consolidated EBITDA.
The unused credit available under the credit facility at December 31, 2023 was $115 million, of which we had the ability to borrow the full amount without violating our Leverage Ratio covenant based on the Company's existing consolidated EBITDA.
If m arket factors change and the discount rate utilized in the fair value calculation changes, it would result in a higher or lower fair value of our reporting units. The discount rates utilized in our October 1, 2022 impairment test ranged from 12.5% to 17.0%.
If m arket factors change and the discount rate utilized in the fair value calculation changes, it would result in a higher or lower fair value of our reporting units. The discount rates utilized in our October 1, 2023 impairment test ranged from 14.0% to 18 .5%.
Gross margin improved in 2022 as compared to 2021 as pricing actions, higher sales volume, favorable exchange rates with the Chinese renminbi versus the U.S. dollar, and a favorable shift in product mix offset the impact of increased material costs.
Gross margin improved in 2023 as compared to 2022 as pricing actions, higher sales volume, favorable exchange rates with the Chinese renminbi versus the U.S. dollar, a lower volume of low-margin expedite fees and a favorable shift in product mix offset the impact of increased material costs.
Consistent with the dividend rates declared in prior years, Bel's Board of Directors declared dividends on October 26, 2022 and again on February 22, 2023 on each of our two classes of common stock. These two quarterly payments will be made in the first half of 2023 in the total anticipated amount of $1.7 million.
Consistent with the dividend rates declared in prior years, Bel's Board of Directors declared dividends on November 1, 2023 and again on February 21, 2024 on each of our two classes of common stock. These two quarterly payments will be made in the first half of 2024 in the total anticipated amount of $1.7 million.
An increase/decrease in this 2022 discount rate assumption of 25 basis points would have reduced/increased the pension benefit obligation by $0.5 million at December 31, 2022. Other Matters The Company believes that it has sufficient cash reserves to fund its foreseeable working capital needs.
A decrease in this 2023 discount rate assumption of 25 basis points would have increased the pension benefit obligation by $0.6 million at December 31, 2023. Other Matters The Company believes that it has sufficient cash reserves to fund its foreseeable working capital needs.
Our reserve calculations are based on historical experience related to slow-moving inventory in addition to specific known concerns in the case of products going end-of-life or customer cancellations. As of December 31, 2022 and 2021, the Company had reserves for excess or obsolete inventory of $14.5 million and $12.1 million, respectively.
Our reserve calculations are based on historical experience related to slow-moving inventory in addition to specific known concerns in the case of products going end-of-life or customer cancellations. As of December 31, 2023 and 2022, the Company had reserves for excess or obsolete inventory o f $13.7 million and $1 4.5 million, respectively.
Most significant expenses, including raw materials, labor and manufacturing expenses, are incurred primarily in U.S. dollars or the Chinese renminbi, and to a lesser extent in British pounds, Indian rupees and Mexican pesos.
Most significant expenses, including raw materials, labor and manufacturing expenses, are incurred primarily in U.S. dollars, Mexican pesos, or the Chinese renminbi, and to a lesser extent in British pounds, or I ndian ru pees.
Translation of subsidiaries' foreign currency financial statements into U.S. dollars resulted in translation adjustments, net of taxes, of ($8.2) million and ($1.8) million for the years ended December 31, 2022 and 2021, respectively, which are included in accumulated other comprehensive loss on the consolidated balance sheets.
Translation of subsidiaries' foreign currency financial statements into U.S. dollars resulted in translation adjustments, net of taxes, o f $6.7 mi llion and ($8.2) million for the years ended December 31, 2023 and 2022, respectively, which are included in accumulated other comprehensive loss on the consolidated balance sheets.
See Note 9, “Income Taxes”. 2022 as Compared to 2021 The provision for income taxes for the years ended December 31, 2022 and 2021 was $6.4 million and $2.5 million, respectively.
See Note 10, “Income Taxes.” 2023 as Compared to 2022 The provision for income taxes for the years ended December 31, 2023 and 2022 was $9.5 million and $6.4 million, respectively.
Critical Accounting Estimates The Company's consolidated financial statements include certain amounts that are based on management's best estimates and judgments. The Company bases its estimates on historical experience and on various other assumptions, including in some cases future projections, that are believed to be reasonable under the circumstances.
See Note 13, "Derivative Instruments and Hedging Activities" for further details. Critical Accounting Estimates The Company's consolidated financial statements include certain amounts that are based on management's best estimates and judgments. The Company bases its estimates on historical experience and on various other assumptions, including in some cases future projections, that are believed to be reasonable under the circumstances.
The change in the effective tax rate during the year ended December 31, 2022 as compared to fiscal year 2021 is primarily attributable to an increase in U.S. tax expense resulting from higher U.S. income, which was offset by a decrease in tax expense relating to the addition of uncertain tax positions. 27 Table of Contents Other Tax Matters The Company has a portion of its products manufactured on the mainland of the PRC where Bel is not subject to corporate income tax on manufacturing services provided by third parties.
The change in the effective tax rate during the year ended December 31, 2023 as compared to fiscal year 2022 is primarily attributable to a n increase in U.S. tax expense resulting from higher U.S. income, which was offset by a benefit resulting from the impact of permanent differences on U.S. activities, was well as an increase in the tax benefit relating to the reversal of uncertain tax positions resulting from the expiration of certain statute of limitations. 27 Table of Contents Other Tax Matters The Company has a portion of its products manufactured on the mainland of the PRC where Bel is not subject to corporate income tax on manufacturing services provided by third parties.
We operate through three product group segments, in addition to a Corporate segment. In 2022 , 44% of the Company's revenues were derived from Power Solutions and Protection, 29% from Connectivity Solutions and 27% from our Magnetic Solutions operating segment.
We operate through three product group segments, in addition to a Corporate segment. In 2023 , 49% of the Company's revenues were derived from Power Solutions and Protection, 33% from Connectivity Solutions and 18% from our Magnetic Solutions operating segment.
The Company also had outstanding purchase orders related to capital expenditures which totaled $7.8 million at December 31, 2022, of which $7.7 million is expected to be paid in 2023. Pension Benefit Obligations - As further described in Note 14, "Retirement Fund and Profit Sharing Plan", the Company maintains a Supplemental Executive Retirement Plan ("SERP").
The Company also had outstanding purchase orders related to capital expenditures which totaled $5.8 m illion at December 31, 2023, all of which is expected to be paid in 2024. Pension Benefit Obligations - As further described in Note 15, "Re tirement Fund and Profit Sharing Plan" , the Company maintains a Supplemental Executive Retirement Plan ("SERP").
At December 31, 2022, estimated future obligations under the plan amounted to $18.2 million. It is expected that the Company will pay $0.9 million in benefit payments in connection with the SERP during 2023.
At December 31, 2023, estimated future obligations under the plan amounted to $19.5 million. It is expected that the Company will pay $0.8 million in benefit payments in connection with the SERP during 2024.
Also as described below in the discussion captioned "Inflation and Foreign Currency Exchange", the Company realized foreign exchange transactional gains of $0.3 million during 2022, due to the fluctuation of the spot rates of certain currencies in effect when translating our balance sheet accounts at December 31, 2022 versus those in effect at December 31, 2021.
Also as described below in the discussion captioned "Inflation and Foreign Currency Exchange" , the Company realized foreign exchange transactional losses of $ 1.4 mi llion during 2023, due to the fluctuation of the spot rates of certain currencies in effect when translating our balance sheet accounts at December 31, 2023 versus those in effect at December 31, 2022.
We applied a combined weighting of 25% to the market approach when determining the fair value of these reporting units. As indicated in Note 4, "Goodwill and Other Intangible Assets", the fair value of each of our three reporting units exceeded their respective carrying values by a large margin (ranging from 69% to 173%).
We applied a combined weighting of 25% to the market approach when determining the fair value of these reporting units. As indicated i n Note 5, "Goodwill and Other Intangible Assets" , the fair value of each of our four reporting units exceeded their respective carrying values by a large margin (ranging from 71% to 169%).
Anticipated interest payments due amount to $19.5 million, of which $5.3 million is expected to be paid in 2023 based on our debt balance and interest rate in place at December 31, 2022. Lease Obligations - The Company has operating leases for its facilities used for manufacturing, research and development, sales and administration.
Ant icipated interest payments due amount to $10.7 million, of which $4.0 million is expected to be paid in 2024 based on our debt balance and interest rate in place at December 31, 2023. Lease Obligations - The Company has operating leases for its facilities used for manufacturing, research and development, sales and administration.
See Note 9, "Income Taxes," for further discussion. Also included on our consolidated balance sheet at December 31, 2022 is $6.2 million of liabilities for transition tax associated with the 2017 U.S. tax reform, of which $2.0 million is expected to be paid in 2023.
S ee Note 10, "Income Taxes", for furthe r discussion. Also included on our consolidated balance sheet at December 31, 2023 is $2.7 million of liabilities for transition tax associated with the 2017 U.S. tax reform, of which $2.7 million is expected to be paid in 2024.
In the event these funds were needed for Bel's U.S. operations, the Company would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds. 29 Table of Contents Future Cash Requirements The Company expects foreseeable liquidity and capital resource requirements to be met through existing cash and cash equivalents and anticipated cash flows from operations, as well as borrowings available under its revolving credit facility, if needed.
In the event these funds were needed for Bel's U.S. operations, the Company would be required to accrue and pay U.S. state taxes and any applicable foreign withholding taxes to repatriate these funds. 29 Table of Contents Future Cash Requirements The Company expects foreseeable liquidity and capital resource requirements to be met through its existing cash and cash equivalents, held to maturity investments in U.S.
The Company's material cash requirements arising in the normal course of business primarily include: Debt Obligations and Interest Payments - The Company had $95.0 million outstanding under its revolving credit facility at December 31, 2022, as further described below and in Note 10, "Debt".
The Company's material cash requirements arising in the normal course of business primarily include: Debt Obligations and Interest Payments - The Company had $60 m illion outstanding under its revolving credit facility at December 31, 2023, as further described below and in Note 11, "De bt" .
Selling, General and Administrative Expenses ("SG&A") SG&A expenses were $92.3 million in 2022 as compared with $86.6 million in 2021.
Selling, General and Administrative Expenses ("SG&A") SG&A expenses were $99.1 million in 2023 as compared with $92.3 million in 2022 .
At December 31, 2022 and 2021, $50.1 million and $42.0 million, respectively (or 71% and 68%, respectively), of cash and cash equivalents was held by foreign subsidiaries of the Company. During 2022, the Company repatriated $13.0 million of funds from outside of the U.S., with minimal incremental tax liability.
At December 31, 2023 and 2022, $40.9 million and $50.1 million, respectively (or 46% and 71%, respectively), of cash and cash equivalents was held by foreign subsidiaries of the Company. During 2023, the Company repatriated $47.2 m illion of funds from outside of the U.S., with minimal incremental tax liability.
An increase/decrease in this 2022 discount rate assumption of 25 basis points would have decreased/increased the 2022 periodic benefit cost by less than $0.1 million. T he discount rate utilized for the pension benefit obligation was 5.00% at December 31, 2022 and 2.75% at December 31, 2021.
T he discount rate utilized for the pension benefit obligation was 4.75% at December 31, 2023 and 5.00% at December 31, 2022. An increase in this 2023 discount rate assumption of 25 basis points would have reduced the pension benefit obligation by $0.5 million at December 31, 2023.
See "Cautionary Notice Regarding Forward-Looking Information." 24 Table of Contents • Impact of Foreign Currency – As further described below in this "Impact of Foreign Currency" discussion, during 2022, labor and overhead costs were $4.9 million lower than in 2021 due to a favorable foreign exchange environment involving the Chinese renminbi and Euro as compared to the prior year period.
See "Cautionary Notice Regarding Forward-Looking Information." 24 Table of Contents • Impact of Foreign Currency – As further described below in this "Impact of Foreign Currency" discussion, during 2023, labor and overhead costs were less than $0.1 million higher than in 2022 due to an unfavorable foreign exchange environment involving the Mexican peso, and Euro partially offset by favorable foreign exchange fluctuation due to Chinese renminbi as compared to the prior year period.
As of December 31, 2022, the Company was contractually obligated to pay future operating lease payments of $25.1 million, of which $6.8 million is expected to be paid in 2023, and future financing lease obligations of $2.5 million, of which $0.6 million is expected to be paid in 2023. See Note 17, "Leases" for further information.
As of December 31, 2023, the Company was contractually obligated to pay future operating lease payments of $22.6 m illion, of which $ 6.7 million is expected to be paid in 2024, and future financing lease obligations o f $2.1 million, of which $0.7 millio n is expected to be paid in 2024. See Note 18, "Leases," for further information.
The other expenses noted in the table above include fixed cost items such as support labor and fringe, depreciation and amortization, and facility costs (i.e. rent, utilities, insurance). In total, these other expenses increased during 2022 by $11.1 million as compared to 2021.
The other expenses noted in the table above include fixed cost items such as support labor and fringe, depreciation and amortization, and facility costs (i.e. rent, utilities, insurance).
Dividends - The Company has historically paid quarterly dividends on its two classes of common stock, which amounted to $3.4 million in each of 2021 and 2022.
Dividends - The Company has historically paid quarterly dividends on its two classes of common stock, which am ounted to $3.5 million in 2023 as compared to $3.4 million in 2022.
Of the jurisdictions in which the Company operates, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographic regions.
Income Taxes The Company’s effective tax rate will fluctuate based on the geographic regions in which the pretax profits are earned. Of the jurisdictions in which the Company operates, the U.S. and Europe’s tax rates are generally equivalent; and Asia has the lowest tax rates of the Company’s three geographic regions.
Cash and cash equivalents, marketable securities and accounts receivable comprised approximately 31.7% and 29.1% of the Company's total assets at December 31, 2022 and December 31, 2021, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 2.8 to 1 and 2.9 to 1 at December 31, 2022 and December 31, 2021, respectively.
Treasury securities and accounts receivable comprised approximatel y 36.9% and 31.7 % of the Company's total assets at December 31, 2023 and December 31, 2022, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 3.4 to 1 and 2.8 to 1 at December 31, 2023 and December 31, 2022, respectively.
The Company had outstanding purchase orders related to raw materials in the amount of $113.4 million at December 31, 2022, of which $97.2 million is expected to be paid in 2023.
The Company had outstanding purchase orders related to raw materials in the amount of $57.7 million at December 31, 2023 , of which $50.6 million is expected t o be paid in 2024.
The Company’s earnings before income taxes for the year ended December 31, 2022 were approximately $31.7 million higher as compared with the year ended December 31, 2021, primarily attributable to an increase in income in the Asia and North America regions. The Company’s effective tax rate was 10.8% and 9.2% for the years ended December 31, 2022 and 2021, respectively.
The Company’s earnings before income taxes for the year ended December 31, 2023 were approximately $24.2 m illion higher as compared with the year ended December 31, 2022, primarily attributable to an increase in income in the Asia and North America regions.
During the year ended December 31, 2022, accounts receivable increased $20.7 million primarily due to the higher sales volume in the second half of 2022 as compared to the same period of 2021 . Days sales outstanding (DSO) increased to 58 days at December 31, 2022 from 54 days at December 31, 2021.
D uring the year ended December 31, 2023 , accounts receivable decreased $22.5 million primarily due to the lower sales volume in the second half of 2023 as compared to the same period of 2022. Days sales outstanding (DSO) decreased to 55 days at December 31, 2023 from 58 days at December 31, 2022 .
See "Cautionary Notice Regarding Forward-Looking Information." Results of Operations - Summary by Operating Segment Net Sales and Gross Margin The Company's net sales and gross margin by major product line for the years ended December 31, 2022 and 2021 were as follows (dollars in thousands): Year Ended December 31, Net Sales Gross Margin 2022 2021 2022 2021 Connectivity solutions $ 187,085 $ 165,027 25.9 % 26.4 % Magnetic solutions 178,782 160,432 27.6 % 21.3 % Power solutions and protection 288,366 218,035 30.5 % 27.0 % $ 654,233 $ 543,494 28.0 % 24.7 % Connectivity Solutions: Sales of our Connectivity Solutions products increased by $22.0 million in 2022 as compared to 2021.
See "Cautionary Notice Regarding Forward-Looking Information." Results of Operations - Summary by Operating Segment Net Sales and Gross Margin The Company's net sales and gross margin by major product line for the years ended December 31, 2023 and 2022 were as follows (dollars in thousands): Years Ended December 31, Net Sales Gross Margin 2023 2022 2023 2022 Power Solutions and Protection $ 314,105 $ 288,366 38.1 % 30.5 % Connectivity Solutions 210,572 187,085 34.2 % 25.9 % Magnetic Solutions 115,136 178,782 22.0 % 27.6 % $ 639,813 $ 654,233 33.7 % 28.0 % Power Solutions and Protection: Sales of our Power Solutions and Protection products were higher by $25.7 mil lion in 2023 as compared to 2022.
See Note 13, "Segments" for profit margin information by product group. • Pricing and Availability of Materials – There have been ongoing supply constraints related to components that constitute raw materials in our manufacturing processes, particularly with capacitors, discrete semiconductors and copper.
See Note 14, "Segments" for profit margin information by product group. • P ricing and Availability of Materials – Dur ing 2023, while there has been some stabilization of raw materials pricing, overall our cost of materials remain elevated. Supply constraints have eased related to components that constitute raw materials in our manufacturing processes, particularly with capacitors, resistors and copper.
The Effects of COVID-19 on Bel’s Business The Company continues to be focused on the safety and well-being of its associates around the world in light of COVID-19 and the variants of COVID that have followed.
See "Cautionary Notice Regarding Forward-Looking Information." • Potential Future Impacts of COVID – The Company continues to be focused on the safety and well-being of its associates around the world in light of COVID and the variants of COVID that have followed.
Our Power products have a higher cost bill of materials and are impacted to a greater extent by changes in material costs. As our Magnetic Solutions products are more labor intensive, margins on these products are impacted to a greater extent by minimum- and market-based wage increases in the PRC and fluctuations in foreign exchange rates between the U.S.
As our Magnetic Solutions products are more labor intensive, margins on these products are impacted to a greater extent by minimum- and market-based wage increases in the PRC and fluctuations in foreign exchange rates between the U.S. Dollar and the Chinese renminbi. Fluctuations in sales volume among our product groups will have a corresponding impact on Bel's profit margins.
Under its existing credit facility, the Company is required to obtain its lender's consent for certain additional debt financing and to comply with other covenants, including the application of specific financial ratios, and may be restricted from paying cash dividends on its common stock.
Under its existing credit facility, the Company is required to obtain its lender's consent for certain additional debt financing and to comply with other covenants, including the application of specific financial ratios, which may limit the Company’s ability to pay cash dividends on its common stock and/or the amounts thereof, including to the extent that payment of any such dividend would cause noncompliance with any such financial ratio.
During the year ended December 31, 2021, the Company's cash and cash equivalents decreased by $23.2 million.
During the year ended December 31, 2022, the Company's cash and cash equivalents increased by $8.5 million.
Credit Facility In September 2021, the Company entered into a new credit facility (the "New Credit Agreement") which amends, restates and supersedes the Prior Credit Agreement, as further described in Note 10, "Debt". The New Credit Agreement contains customary representations and warranties, covenants and events of default.
Credit Facility The Company is a party to a credit agreement, as further described in Note 11, "Debt" . The credit agreement contains customary representations and warranties, covenants and events of default.
Within SG&A, increases in office expenses of $2.8 million, SG&A salaries and fringe benefits of $2.8 million, sales commissions to reps of $1.7 million, and $1.1 million of higher advertising costs were partially offset by a $1.5 million reduction in legal and professional fees as compared to 2021. 26 Table of Contents Restructuring Charges The Company recorded $7.3 million of restructuring charges in 2022 in connection with the facility consolidations further described in "Other Key Factors Affecting our Business" above.
Within SG&A, increases in salaries and fringe benefits of $6.1 m illion, legal and professional fees of $2.4 million, and travel of $1.0 million were partially offset by a $1.3 million reduction in commissions to outside sales representatives, and a $1.2 million reduction in depreciation and amortization as compared to 2022. 26 Table of Contents Restructuring Charges The Company recorded $10.1 million of restructuring charges in 2023 largel y in connection with the four facility consolidation projects in the U.S., UK and PRC, as further described in "Overview - Key Factors Affecting our Business - Restructuring" above.
Annualized cost savings of approximately $0.7 mi llion are expected to be realized on this UK initiative, beginning in the third quarter of 2023. The Company will continue to review its operations to optimize the business, which may result in restructuring costs being recognized in future periods. The preceding sentences represent Forward-Looking Statements.
We anticipate estimated annualized cost savings of approximately $1.0 million in connection with the Glen Rock initiative to be realized gradually over the course of 2024. The Company will continue to review its operation s to optimize the business, which may result in restructuring costs being recognized in future periods. The preceding sentences represent Forward-Looking Statements.
Accordingly, we must continually recruit and train new workers to replace those lost to attrition and be able 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 any increase in demand, can add volatility to the labor costs incurred by us.
Accordingly, we must continually recruit and train new workers to replace those lost to attrition and be able to address peaks in demand that may occur from time to time.
F urther, if we are unable to achieve the projected revenue growth rates or margins assumed in our projections, this would also impact the fair value of our reporting units.
Further, if we are unable to achieve the projected revenue growth rates or margins assumed in our projections, this would also impact the fair value of our reporting units. Effective with the October 1, 2023 testing date, we changed our reporting unit structure to align with how management is currently reviewing and managing the business.
Interest Expense The Company incurred interest expense of $3.4 million in 2022 and $3.5 million in 2021 primarily due to its outstanding borrowings under the Company's credit and security agreement.
In 2022, a gain of $1.6 million was recorded in connection with the sale of a separate property in Jersey City. Interest Expense The Company incurred interest expense of $2.9 million in 2023 and $3.4 million in 2022 primarily due to its outstanding borrowings under the Company's credit agreement.
Gain on Sale of Property During 2022, the Company recorded a gain of $1.6 million related to the sale of one of its properties in Jersey City, New Jersey. In 2021, a gain of $6.6 million was recorded in connection with the sale of a property in Hong Kong.
In 2022, the Company recorded $7.3 million of restructuring charges related to these same initiatives. Gain on Sale of Properties During 2023, the Company recorded a gain of $3.8 million related to the sale of one of its properties in Jersey City, New Jersey.
Labor costs as a percentage of sales have decreased from 2021 due to the favorable fluctuation in the Chinese renminbi exchange rate versus the U.S. Dollar.
Labor costs in 2023 as a percentage of sales have decreased significantly from the 2022 periods presented due to a variety of factors, including the shift in product mix resulting in a lower consolidated percentage of sales from of our labor-intensive Magnetic products, lower labor costs in the PRC due to the favorable fluctuation in the Chinese Renminbi exchange rate versus the U.S.
The Euro and British pound each depreciated by 12%, the Indian rupee depreciated by 6% and the Chinese renminbi depreciated by 4% versus the U.S. dollar in 2022 compared to 2021. To the extent the renminbi or peso appreciate in future periods, it could result in the Company's incurring higher costs for most expenses incurred in the PRC and Mexico.
To the extent the renminbi or peso appreciate in futu re periods, it could result in the Company's incurring higher costs for most expenses incurred in the PRC and Mexico.
Liquidity and Capital Resources Our principal sources of liquidity include $70.3 million of cash and cash equivalents at December 31, 2022, cash provided by operating activities and borrowings available under our credit facility. We expect to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, dividends, debt obligations and other long-term liabilities.
We expect to use this liquidity for operating expenses, investments in working capital, capital expenditures, interest, taxes, dividends, debt obligations and other long-term liabilities.
By product segment, Power Solutions and Protection sales increased by 32%, Connectivity Solutions sales increased by 13% and Magnetic Solutions sales increased by 12%. • Backlog – Our backlog of orders totaled $565.4 million at December 31, 2022, representing an increase of $97.5 million, or over 21%, from December 31, 2021.
By product segment, Power Solutions and Protection sales increased by 8.9% , Connectivity Solutions sales increased by 12.6% and Magnetic Solutions sales decreased by 35.6% . • Backlog – Our backlog of orders totaled $373.1 million at December 31, 2023, representing a decrease of $192.3 million, or 34%, from December 31, 2022.
With the recent increase in demand for our products coupled with higher raw material prices, our value of inventory on hand has increased by $33.1 million from December 31, 2021 to December 31, 2022.
With the recent decrease in demand for ou r products, our value of inventory on hand has decreased by $35.9 mi llion from December 31, 2022 to December 31, 2023.
Cost of Sales Cost of sales as a percentage of net sales for the years ended December 31, 2022 and 2021 consisted of the following: Year Ended December 31, 2022 2021 Material costs 45.4 % 46.2 % Labor costs 8.3 % 9.0 % Other expenses 18.3 % 20.1 % Total cost of sales 72.0 % 75.3 % Material costs as a percentage of sales during 2022 were fairly stable compared to 2021, as recent pricing actions are helping to offset the continued heightened cost of certain raw materials.
The lower sales volume and favorable exchange rates with the Chinese Renminbi versus the U.S. dollar, was the primary driver of gross margin reduction for this product group compared with 2022. 25 Table of Contents Cost of Sales Cost of sales as a percentage of net sales for the years ended December 31, 2023 and 2022 consisted of the following: Years Ended December 31, 2023 2022 Material costs 40.8 % 45.4 % Labor costs 6.6 % 8.3 % Other expenses 18.9 % 18.3 % Total cost of sales 66.3 % 72.0 % Material costs as a percentage of sales during 2023 came down compared to 2022, as pricing actions helped to offset the continued heightened cost of certain raw materials.
The Company was favorably impacted by transactional foreign exchange gains in 2022 due to the depreciation of the Chinese renminbi and Euro against the U.S. dollar as compared to exchange rates in effect during 2021. The Company has significant manufacturing operations located in in the PRC where labor and overhead costs are paid in local currency.
We were favorably impacted by transactional foreign exchange gains in 2023 due to the depreciation of the Chinese Renminbi against the U.S. dollar, which was largely offset by an appreciation of the Mexican Peso against the U.S. dollar, as compared to exchange rates in effect during 2022.
Research and Development ("R&D") R&D expenses were $20.2 million and $21.9 million for the years ended December 31, 2022 and 2021, respectively. The reduction in R&D expenses during 2022 is largely due to the favorable exchange rate environment related to the Euro and Chinese renminbi versus the U.S. Dollar in 2022.
Research and Development ("R&D") R&D expenses were $ 22.5 million and $20.2 million for the years ended December 31, 2023 and 2022, respectively. The increase noted in R&D expenses during 2023 is largely due to higher salaries, benefits and product development costs.
Demand for our Magnetic Solutions products from our networking customers and through our distribution channels has been the primary driver of the sales increase.
Magnetic Solutions: Sales of our Magnetic Soluti ons products declined by $63.6 million during 2023 as compared to 2022. Reduced demand for our Magnetic Solutions products from our networking customers and through our distribution channels has been the primary driver as we believe these customers continue to work through inventory on hand.
The slight reduction in interest expense during 2022 related to a lower debt balance throughout 2022 as compared to 2021, largely offset by higher interest rates on the Company's variable portion of its outstanding balance during 2021.
The reduction in interest expense during 2023 related to a lower debt balance throughout 2023 as compared to 2022. See "Liquidity and Capital Resources" and Note 11, "Debt" for further information on the Company's outstanding debt.
We saw a 40% in crease in backlog for our Connectivity Solutions products, driven by restored demand from our direct and after-market commercial aerospace customers, as well has higher bookings from our military customers, in 2022. Our Magnetic Solutions backlog decreased by 37%, primarily due to reduced order volume from a large networking customer.
From 2022 to the 2023 year-end, the backlog for our Power Solutions and Protection products decreased by 37%, due to a reduction in demand within the networking end market and in the distribution channel. Our Magnetic Solutions backlog decreased by 69%, primarily due to reduced order volume from a large networking customer.
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