UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

FORM 10-Q
(MARK ONE)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2015
or
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ____________

Commission File No. 0-11676
_____________________

BEL FUSE INC.
206 Van Vorst Street
Jersey City, NJ  07302
(201) 432-0463

(Address of principal executive offices and zip code)
(Registrant's telephone number, including area code)

NEW JERSEY
 
22-1463699
(State of  incorporation)
 
(I.R.S. Employer Identification No.)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [   ]
     
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]
No [   ]
     
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [    ]
Accelerated filer [X]
Non-accelerated filer [    ]
(Do not check if a smaller reporting company)
Smaller reporting company [    ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [   ]
No [X]



Title of Each Class
 
Number of Shares of Common Stock Outstanding
 as of August 1, 2015
Class A Common Stock ($0.10 par value)
 
2,174,912
Class B Common Stock ($0.10 par value)
 
9,723,727




BEL FUSE INC.
       
INDEX
       
     
Page
Part I
 
Financial Information
 
       
 
Item 1.
2
       
     
   
2
       
     
   
3
       
     
   
4
       
     
   
5
       
   
6 - 18
       
 
Item 2.
 
   
19 - 24
       
 
Item 3.
 
   
24
       
 
Item 4.
25
       
Part II
 
Other Information
 
       
 
Item 1.
25
       
 
Item 1A.
25
       
 
Item 6.
26
       
   
27

 
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION

The terms the "Company," "Bel," "we," "us," and "our" as used in this report refer to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.

The Company's consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in Item 1A of our 2014 Annual Report on Form 10-K. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, operating results, and common stock prices.  Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission ("SEC") contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements") with respect to the business of the Company.  Forward-looking statements are necessarily subject to risks and uncertainties, many of which are outside our control, and which could cause actual results to differ materially from these statements. Forward-looking statements can be identified by such words as "anticipates," "believes," "plans to," "assumes," "could," "should," "estimates," "expects," "intends," "potential," "seek," "predict," "may," "will" and similar expressions. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in Item 1A of our 2014 Annual Report on Form 10-K, which could cause actual results to differ materially from these Forward-Looking Statements.  The Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Any forward-looking statement made by the Company is based only on information currently available to us and speaks only as of the date on which it is made.


 
PART I.  Financial Information

Item 1.  Financial Statements (Unaudited)
 
BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
(unaudited)
 
 
 
   
 
 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
ASSETS
 
   
(Revised)
 
Current Assets:
 
   
 
Cash and cash equivalents
 
$
71,408
   
$
77,138
 
Accounts receivable, net of allowance for doubtful accounts of $1,953
               
  in 2015 and $1,989 in 2014
   
98,493
     
99,605
 
Inventories
   
111,241
     
113,630
 
Other current assets
   
24,405
     
20,283
 
    Total current assets
   
305,547
     
310,656
 
 
               
Property, plant and equipment, net
   
62,981
     
69,261
 
Intangible assets, net
   
92,199
     
95,502
 
Goodwill
   
122,287
     
118,369
 
Deferred income taxes
   
4,067
     
7,933
 
Other assets
   
32,747
     
33,700
 
    Total assets
 
$
619,828
   
$
635,421
 
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
64,777
   
$
61,926
 
Accrued expenses
   
39,848
     
42,588
 
Current portion of long-term debt
   
16,130
     
13,438
 
Other current liabilities
   
7,899
     
3,850
 
    Total current liabilities
   
128,654
     
121,802
 
 
               
Long-term Liabilities:
               
Long-term debt
   
190,120
     
219,187
 
Liability for uncertain tax positions
   
41,426
     
39,767
 
Minimum pension obligation and unfunded pension liability
   
14,733
     
14,205
 
Deferred income taxes
   
13,335
     
15,739
 
Other liabilities
   
2,798
     
448
 
    Total liabilities
   
391,066
     
411,148
 
 
               
Commitments and contingencies
               
 
               
Stockholders' Equity:
               
Preferred stock, no par value, 1,000,000 shares authorized; none issued
   
-
     
-
 
Class A common stock, par value $.10 per share, 10,000,000 shares
               
    authorized; 2,174,912 shares outstanding at each date (net of
               
    1,072,769 treasury shares)
   
217
     
217
 
Class B common stock, par value $.10 per share, 30,000,000 shares
               
     authorized; shares outstanding: 9,725,727 in 2015 and 9,686,777
               
     in 2014 (net of 3,218,307 treasury shares)
   
973
     
969
 
Additional paid-in capital
   
22,998
     
21,626
 
Retained earnings
   
223,170
     
213,409
 
Accumulated other comprehensive loss
   
(18,596
)
   
(11,948
)
    Total stockholders' equity
   
228,762
     
224,273
 
    Total liabilities and stockholders' equity
 
$
619,828
   
$
635,421
 
 
               
See accompanying notes to unaudited condensed consolidated financial statements.
 
 


BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share data)
 
(unaudited)
 
 
 
   
   
   
 
  
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
 
 
   
   
   
 
Net sales
 
$
145,658
   
$
99,439
   
$
287,673
   
$
182,085
 
Cost of sales
   
117,098
     
81,493
     
232,301
     
150,069
 
Gross profit
   
28,560
     
17,946
     
55,372
     
32,016
 
 
                               
Selling, general and administrative expenses
   
20,764
     
13,176
     
38,372
     
24,365
 
Restructuring charges
   
344
     
1,056
     
502
     
1,056
 
Income from operations
   
7,452
     
3,714
     
16,498
     
6,595
 
 
                               
Interest expense
   
(1,994
)
   
(225
)
   
(4,173
)
   
(255
)
Interest income and other, net
   
17
     
49
     
420
     
100
 
Earnings before provision for income taxes
   
5,475
     
3,538
     
12,745
     
6,440
 
 
                               
(Benefit) provision for income taxes
   
(587
)
   
473
     
1,363
     
872
 
Net earnings available to common stockholders
 
$
6,062
   
$
3,065
   
$
11,382
   
$
5,568
 
 
                               
 
                               
Net earnings per common share:
                               
Class A common share - basic and diluted
 
$
0.49
   
$
0.25
   
$
0.91
   
$
0.45
 
Class B common share - basic and diluted
 
$
0.52
   
$
0.27
   
$
0.97
   
$
0.49
 
 
                               
Weighted-average number of shares outstanding:
                               
Class A common share - basic and diluted
   
2,175
     
2,175
     
2,175
     
2,175
 
Class B common share - basic and diluted
   
9,693
     
9,332
     
9,682
     
9,333
 
 
                               
Dividends paid per common share:
                               
Class A common share
 
$
0.06
   
$
0.06
   
$
0.12
   
$
0.12
 
Class B common share
 
$
0.07
   
$
0.07
   
$
0.14
   
$
0.14
 
 
                               
 
                               
See accompanying notes to unaudited condensed consolidated financial statements.
 


BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(dollars in thousands)
 
(unaudited)
 
 
 
   
   
   
 
  
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
 
 
   
   
   
 
Net earnings available to common stockholders
 
$
6,062
   
$
3,065
   
$
11,382
   
$
5,568
 
 
                               
Other comprehensive income (loss):
                               
Currency translation adjustment, net of taxes of ($34) in the three months
                               
   ended June 30, 2015, $89 in the three months ended June 30, 2014, ($194) in
                               
   the six months ended June 30, 2015 and $123 in the six months ended
                               
    June 30, 2014
   
3,535
     
368
     
(6,801
)
   
537
 
Unrealized holding gains on marketable securities arising during the period,
                               
net of taxes of ($18) in the three months ended June 30, 2015, $48 in the
                               
three months ended June 30, 2014, $15 in the six months ended June 30,
                               
2015 and $65 in the six months ended June 30, 2014
   
(30
)
   
78
     
25
     
106
 
Change in unfunded SERP liability, net of taxes of $28 in the three months
                               
ended June 30, 2015, $14 in the three months ended June 30, 2014, $56 in
                               
the six months ended June 30, 2015 and $28 in the six months ended
                               
 June 30, 2014
   
64
     
32
     
128
     
63
 
Other comprehensive income (loss)
   
3,569
     
478
     
(6,648
)
   
706
 
 
                               
Comprehensive income
 
$
9,631
   
$
3,543
   
$
4,734
   
$
6,274
 
 
                               
 
                               
See accompanying notes to unaudited condensed consolidated financial statements.
 

BEL FUSE INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollars in thousands)
 
(unaudited)
 
    
Six Months Ended
 
   
June 30,
 
   
2015
   
2014
 
Cash flows from operating activities:
       
Net earnings available to common stockholders
 
$
11,382
   
$
5,568
 
Adjustments to reconcile net earnings to net
               
 cash provided by operating activities:
               
Depreciation and amortization
   
11,589
     
6,507
 
Stock-based compensation
   
1,376
     
1,143
 
Amortization of deferred financing costs
   
823
     
-
 
Deferred income taxes
   
(1,857
)
   
(475
)
Net unrealized (gains) losses on foreign currency revaluation
   
(4,906
)
   
290
 
Other, net
   
(3,912
)
   
(21
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
423
     
(4,235
)
Inventories
   
1,621
     
4,539
 
Accounts payable
   
3,306
     
2,692
 
Accrued expenses
   
(2,387
)
   
(2,298
)
Other operating assets/liabilities, net
   
6,207
     
(1,016
)
      Net cash provided by operating activities
   
23,665
     
12,694
 
                 
Cash flows from investing activities:
               
Increase in cash equivalents within Rabbi Trust
   
-
     
(2,936
)
Purchase of company-owned life insurance (COLI)
   
-
     
(2,820
)
Purchases of property, plant and equipment
   
(5,723
)
   
(2,969
)
Payment for acquisition, net of cash acquired (see Note 2)
   
-
     
(109,879
)
Proceeds from surrender of COLI
   
-
     
5,756
 
Proceeds from disposal/sale of property, plant and equipment
   
58
     
20
 
       Net cash used in investing activities
   
(5,665
)
   
(112,828
)
                 
Cash flows from financing activities:
               
Dividends paid to common stockholders
   
(1,527
)
   
(1,511
)
Payment of deferred financing costs
   
(15
)
   
(5,422
)
Borrowings under revolving credit line
   
3,500
     
-
 
Repayments of revolving credit line
   
(15,500
)
   
(12,000
)
Reduction in notes payable
   
(463
)
   
(255
)
Proceeds from long-term debt
   
-
     
145,000
 
Repayments of long-term debt
   
(14,375
)
   
-
 
       Net cash (used in) provided by financing activities
   
(28,380
)
   
125,812
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
4,650
     
(32
)
                 
Net (decrease) increase in cash and cash equivalents
   
(5,730
)
   
25,646
 
Cash and cash equivalents - beginning of period
   
77,138
     
62,123
 
Cash and cash equivalents - end of period
 
$
71,408
   
$
87,769
 
                 
Supplementary information:
               
Cash paid during the period for income taxes, net of refunds
 
$
1,894
   
$
1,387
 
Cash paid during the period for interest
 
$
3,359
   
$
60
 
                 
See accompanying notes to unaudited condensed consolidated financial statements.
 



BEL FUSE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The condensed consolidated balance sheet as of June 30, 2015, and the condensed consolidated statements of operations, comprehensive income and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented have been made.  The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Bel Fuse Annual Report on Form 10-K for the year ended December 31, 2014.

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted from the following condensed consolidated financial statements pursuant to the rules and regulations of the SEC.  The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

On June 19, 2014, we completed our acquisition of 100% of the issued and outstanding capital stock of the Power-One Power Solutions business ("Power Solutions") from ABB Ltd.  On July 25, 2014, we completed our acquisition of 100% of the issued and outstanding capital stock of the U.S. and U.K. Connectivity Solutions businesses from Emerson Electric Co. ("Emerson").  On August 29, 2014, we completed our acquisition of the Connectivity Solutions business in China from Emerson (collectively with the U.S. and U.K. portion of the transaction, "Connectivity Solutions").  The acquisitions of Power Solutions and Connectivity Solutions may hereafter be referred to collectively as either the "2014 Acquisitions" or the "2014 Acquired Companies".  As of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their estimated fair values.  The fair values of assets acquired and liabilities assumed in the Power Solutions acquisition were finalized during the second quarter of 2015.  The measurement period related to the Connectivity Solutions acquisition ends in the third quarter of 2015, and the fair value of assets acquired and liabilities assumed in that acquisition will be finalized at that time.  See Note 2, Acquisitions and Disposition, for further details.  The Company's condensed consolidated results of operations for the three and six months ended June 30, 2015 include the operating results of the acquired companies.  The Company's condensed consolidated results of operations for the three and six months ended June 30, 2014 include the results of the Power Solutions acquisition from its acquisition date of June 19, 2014.

The accompanying consolidated balance sheet as of December 31, 2014 has been revised to reflect the acquisition-date fair values related to property, plant and equipment, intangible assets and deferred taxes for the Power Solutions business.  These measurement period adjustments were not material to the condensed consolidated financial statements.  See Note 2, Acquisitions and Disposition, for further details.

The Company's significant accounting policies are summarized in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2014.  There were no significant changes to these accounting policies during the six months ended June 30, 2015.

All amounts included in the tables to these notes to condensed consolidated financial statements, except per share amounts, are in thousands.

Recently Adopted Accounting Standards

In April 2014, the FASB issued guidance for the reporting of discontinued operations, which also contains new disclosure requirements for both discontinued operations and other disposals that do not meet the definition of a discontinued operation. This guidance was adopted by the Company effective January 1, 2015. The effects of this guidance will depend on future disposals by the Company.

Accounting Standards Issued But Not Yet Adopted

In July 2015, the FASB issued guidance which requires entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market.  The update is effective for fiscal years beginning after December 15, 2016, and interim periods therein.  Early application is permitted.  Management is currently evaluating the impact that this guidance will have on the Company's condensed consolidated financial statements, if any.

In April 2015, the FASB issued guidance on simplifying the balance sheet presentation of debt issuance costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early application is permitted. Management does not believe that the adoption of this guidance will have any material impact on the Company's condensed consolidated financial position or results of operations.

In January 2015, the FASB issued guidance on simplifying the income statement presentation by eliminating the concept of extraordinary items.  Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.  Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration.  This amendment is effective for annual periods beginning after December 15, 2015.  The adoption of this standard is not expected to have a material impact on our condensed consolidated financial position or results of operations.

In August 2014, the FASB issued guidance on the presentation of financial statements when there is substantial doubt about an entity's ability to continue as a going concern. The amendment requires that an entity's management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. If conditions or events raise substantial doubt about an entity's ability to continue as a going concern, additional disclosure is required to enable users of the financial statements to understand the conditions or events, management's evaluation of the significance of those conditions and events and management's plans that are intended to alleviate or management's plans that have alleviated substantial doubt. The amendment is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Management does not believe that the adoption of this guidance will have any material impact on the Company's condensed consolidated financial position or results of operations.

In June 2014, the FASB issued guidance on stock compensation.  The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards.  Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  The amendment is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015.  Earlier adoption is permitted.  Management does not believe that the adoption of this guidance will have any material impact on the Company's condensed consolidated financial position or results of operations.

In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance allows for both retrospective and prospective methods of adoption and is effective for periods beginning after December 15, 2016.  On July 9, 2015, the FASB decided to defer the effective date of this guidance by one year, however, early adoption as of the original effective date will be permitted.  Management is currently evaluating the impact that this guidance will have on the Company's condensed consolidated financial statements, if any, including which transition method it will adopt.

2.            ACQUISITIONS AND DISPOSITION

Acquisitions

On June 19, 2014, the Company completed its acquisition of Power Solutions for $109.9 million, net of cash acquired.  Power Solutions is a leading provider of high-efficiency and high-density power conversion products for server, storage and networking equipment, industrial applications and power systems. In connection with its acquisition of Power Solutions, the Company acquired a 49% interest in a joint venture in the People's Republic of China ("PRC").  The Company has assigned no value to this investment.  See Note 15, Related Party Transactions, for additional information. During the second quarter of 2015, the Company finalized its valuation of the Power Solutions acquisition as further detailed in the table below.  At the conclusion of the measurement period and as of June 30, 2015, there were certain working capital and tax related items outstanding with ABB Ltd.  Any changes in facts and circumstances related to these items will be recorded on a prospective basis and not included as purchase price adjustments.  See Note 9, Income Taxes, for further information on the tax related items.

On July 25, 2014, the Company completed its acquisition of the U.S. and U.K. entities of Connectivity Solutions. On August 29, 2014, the China portion of the transaction closed.  The Company paid a total of $98.8 million for Connectivity Solutions, net of cash acquired and including a working capital adjustment.  Connectivity Solutions is a leading provider of high‑performance RF/Microwave and Harsh Environment Optical Connectors and Assemblies for military, aerospace, wireless communications, data communications, broadcast and industrial applications.

During the three and six months ended June 30, 2015, the Company incurred $0.1 million and $0.5 million, respectively, of acquisition-related costs associated with the independent valuations of the 2014 Acquisitions and completion of the independent carve-out audit of Connectivity Solutions. During each of the three and six months ended June 30, 2014, the Company incurred $1.5 million of acquisition related costs. These costs are included in selling, general and administrative expense on the condensed consolidated statements of operations.

Fair Value Estimate of Assets Acquired and Liabilities Assumed

With respect to the Connectivity Solutions acquisition, we are continuing our review of our fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as we receive the information we are seeking about facts and circumstances that existed as of the acquisition date, or learn that more information is not available. This measurement period will not exceed one year from the acquisition date.

The table below depicts the Company's final purchase price allocation for the Power Solutions acquisition and fair value estimates of assets acquired and liabilities assumed for the Connectivity Solutions acquisition as of the respective acquisition dates.  The amounts noted in the table below for Connectivity Solutions are provisional since the valuations of property and equipment, intangible assets acquired, income taxes and goodwill are still under review. Accordingly, there could be material adjustments to our condensed consolidated financial statements, including changes to our depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.


   
Power Solutions
   
Connectivity Solutions
   
2014 Acquisitions
 
   
June 19, 2014
   
Measurement
     
June 19,
   
July 25/August 29,
   
Acquisition-Date
 
   
(As Reported at
   
Period Adjustments
     
2014
   
2014(a)
   
Fair Values
 
   
December 31, 2014)
   
During 2015
     
(Revised)
   
(As adjusted)
   
(As adjusted)
 
Cash
  $
20,912
     $
-
     
$
20,912
   
$
6,544
   
$
27,456
 
Accounts receivable
   
29,389
     
-
       
29,389
     
9,375
     
38,764
 
Inventories
   
36,429
     
-
       
36,429
     
17,632
     
54,061
 
Other current assets
   
7,350
     
-
       
7,350
     
2,615
     
9,965
 
Property, plant and equipment
   
28,175
     
(1,060
)
 (b)
   
27,115
     
9,900
     
37,015
 
Intangible assets
   
33,220
     
-
       
33,220
     
40,000
     
73,220
 
Other assets
   
19,171
     
-
       
19,171
     
2,345
     
21,516
 
     Total identifiable assets
   
174,646
     
(1,060
)
     
173,586
     
88,411
     
261,997
 
                                           
Accounts payable
   
(26,180
)
   
-
       
(26,180
)
   
(10,682
)
   
(36,862
)
Accrued expenses
   
(25,545
)
   
-
       
(25,545
)
   
(5,307
)
   
(30,852
)
Other current liabilities
   
223
     
-
       
223
     
(57
)
   
166
 
Noncurrent liabilities
   
(42,062
)
   
(7,198
)
 (c)
   
(49,260
)
   
(17,314
)
   
(66,574
)
     Total liabilities assumed
   
(93,564
)
   
(7,198
)
     
(100,762
)
   
(33,360
)
   
(134,122
)
     Net identifiable assets acquired
   
81,082
     
(8,258
)
     
72,824
     
55,051
     
127,875
 
     Goodwill
   
49,710
     
8,258
       
57,968
     
50,306
     
108,274
 
     Net assets acquired
  $
130,792
     $
-
     
$
130,792
   
$
105,357
   
$
236,149
 
                                           
                                           
Cash paid
 
$
130,792
   
$
-
     
$
130,792
   
$
105,357
   
$
236,149
 
Assumption of liability
   
-
     
-
       
-
     
-
     
-
 
     Fair value of consideration
                                         
         transferred
   
130,792
     
-
       
130,792
     
105,357
     
236,149
 
     Deferred consideration
   
-
     
-
       
-
     
-
     
-
 
     Total consideration paid
 
$
130,792
   
$
-
     
$
130,792
   
$
105,357
   
$
236,149
 

(a)
The Company acquired the U.S. and U.K. entities of Connectivity Solutions on July 25, 2014 and the China entity of Connectivity Solutions on August 29, 2014.  These values represent the estimated fair values as of the respective acquisition dates.
(b)
Represents the purchase accounting adjustments reflecting the finalization of the acquisition-date fair values of property, plant and equipment associated with completion of third-party valuations.
(c)
Represents the impact to deferred taxes reflecting the finalization of the allocation of identifiable intangible assets acquired.

Of the $58.0 million of goodwill noted above for Power Solutions, $56.3 million will be deductible for tax purposes.  None of the goodwill related to the Connectivity Solutions acquisition will be deductible for tax purposes.

The results of operations of the 2014 Acquired Companies have been included in the Company's condensed consolidated financial statements for the period subsequent to their respective acquisition dates.  During the three months and six months ended June 30, 2015, the 2014 Acquired Companies contributed revenue of $58.4 million and $117.2 million respectively, and operating (loss) income of approximately ($1.2) million and $4.4 million, respectively, to the Company's condensed consolidated financial results.  During the three and six months ended June 30, 2014, the Power Solutions acquisition contributed revenue of $7.2 million and an operating loss of approximately $1.0 million in each period.

The following unaudited pro forma information presents a summary of the combined results of operations of the Company and the aggregate results of Power Solutions and Connectivity Solutions for the periods presented as if the 2014 Acquisitions had occurred on January 1, 2013, along with certain pro forma adjustments.  The unaudited pro forma results are presented for illustrative purposes only and are not necessarily indicative of the results that would have actually been obtained if the acquisitions had occurred on January 1, 2013, nor is the pro forma data intended to be a projection of results that may be obtained in the future:


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2014
 
         
Revenue
 
$
156,842
   
$
317,479
 
Net loss
   
(3,057
)
   
(1,399
)
Loss per Class A common share - basic and diluted
 
$
(0.26
)
 
$
(0.13
)
Loss per Class B common share - basic and diluted
 
$
(0.27
)
 
$
(0.12
)


Disposition – Sale of NPS

On January 23, 2015, the Company completed the sale of the Network Power Systems ("NPS") product line and related transactions of the acquired Power Solutions business to Unipower LLC ("Unipower") for $9.0 million in cash. The sale also included $1.0 million of escrow pending Unipower's realization of certain sales targets. The net proceeds of $9.0 million from the sale were used to repay outstanding borrowings in accordance with the provisions of the Credit and Security Agreement (see Note 8, Debt).  The transaction provides that Bel will move processes and people to Unipower under an interim transition services agreement and Bel will also continue to manufacture the NPS products for up to 24 months under a manufacturing services agreement.

As a result of the sale and related transactions, the Company recorded deferred revenue of $9.0 million.  Of this amount, the Company has recognized net sales of $1.1 million and $2.1 million, respectively, in the condensed consolidated statement of operations for the three and six months ended June 30, 2015.  The Company will recognize the $1 million currently in escrow when and if Unipower realizes certain sales targets and such amount would be included in interest income and other, net on the condensed consolidated statements of operations.


3.
RESTRUCTURING ACTIVITIES

Activity and liability balances related to restructuring costs for the six months ended June 30, 2015 are as follows:


 
 
   
   
   
 
 
 
Liability at
   
   
Cash Payments
   
Liability at
 
 
 
December 31,
   
New
   
and Other
   
June 30,
 
 
 
2014
   
Charges
   
Settlements
   
2015
 
Severance costs
 
$
-
   
$
501
   
$
(447
)
 
$
54
 
Other restructuring costs
   
-
     
1
     
(1
)
   
-
 
     Total
 
$
-
   
$
502
   
$
(448
)
 
$
54
 

During the six months ended June 30, 2015, the Company's restructuring charges included costs related to reductions in headcount and consolidation and relocation of certain facilities and offices in Asia and Europe and additional headcount reductions at Cinch US and Array.


4.            FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date.  Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.  There are three levels of inputs that may be used to measure fair value:

Level 1 – Observable inputs such as quoted market prices in active markets;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 – Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2015 and December 31, 2014, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of securities that are among the Company's investments in a rabbi trust which are intended to fund the Company's Supplemental Executive Retirement Plan ("SERP") obligations, and other marketable securities described below.  The securities that are held in the rabbi trust are categorized as available-for-sale securities and are included as other assets in the accompanying condensed consolidated balance sheets at June 30, 2015 and December 31, 2014.  The gross unrealized gains associated with the investment securities held in the rabbi trust were $0.7 million at both June 30, 2015 and December 31, 2014.  Such unrealized gains are included, net of tax, in accumulated other comprehensive loss.

As of June 30, 2015 and December 31, 2014, the Company had marketable securities with a combined fair value of less than $0.1 million at each date, and gross unrealized gains of less than $0.1 million at each date.  Such unrealized gains are included, net of tax, in accumulated other comprehensive income.  The fair value of the equity securities is determined based on quoted market prices in public markets and is categorized as Level 1.  As of June 30, 2015 and December 31, 2014, our available-for-sale securities, which primarily consist of investments held in a rabbi trust of $6.5 million at each date, are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs.  The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2015.  There were no changes to the Company's valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the six months ended June 30, 2015.

There were no financial assets accounted for at fair value on a nonrecurring basis as of June 30, 2015 or December 31, 2014.

The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued expenses and notes payable, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature.  The fair value of the Company's long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities (Level 2 inputs).  At June 30, 2015, the estimated fair value of long-term debt was $206.9 million compared to a carrying amount of 206.3 million. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2015 or December 31, 2014.

Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis.   These items are tested for impairment on the occurrence of a triggering event or, in the case of goodwill and indefinite-lived intangible assets, on at least an annual basis.  There were no triggering events that occurred during the six months ended June 30, 2015 or 2014 that would warrant interim impairment testing.


5.            INVENTORIES

The components of inventories are as follows:

 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
Raw materials
 
$
52,307
   
$
51,638
 
Work in progress
   
17,106
     
16,128
 
Finished goods
   
41,828
     
45,864
 
Inventories
 
$
111,241
   
$
113,630
 



6.
 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:


 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
Land
 
$
2,228
   
$
3,293
 
Buildings and improvements
   
28,790
     
31,067
 
Machinery and equipment
   
118,508
     
117,178
 
Construction in progress
   
5,276
     
4,764
 
 
   
154,802
     
156,302
 
Accumulated depreciation
   
(91,821
)
   
(87,041
)
Property, plant and equipment, net
 
$
62,981
   
$
69,261
 


Depreciation expense for the three months ended June 30, 2015 and 2014 was $4.0 million and $2.5 million, respectively.  Depreciation expense for the six months ended June 30, 2015 and 2014 was $8.1 million and $5.3 million, respectively.


7.            ACCRUED EXPENSES

Accrued expenses consist of the following:


 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
Sales commissions
 
$
3,039
   
$
3,017
 
Subcontracting labor
   
3,587
     
2,217
 
Salaries, bonuses and related benefits
   
16,370
     
17,964
 
Warranty accrual
   
4,699
     
6,032
 
Other
   
12,153
     
13,358
 
 
 
$
39,848
   
$
42,588
 

Warranties vary by product line and are competitive for the markets in which the Company operates.  Warranties generally extend for one to three years from the date of sale. The Company reviews its warranty liability quarterly based on an analysis of actual expenses and failure rates accompanied with estimated future costs and projected failure rate trends. Factors taken into consideration when evaluating our warranty reserve are (i) historical claims for each product, (ii) volume increases, (iii) life of warranty, (iv) historical warranty repair costs and (v) other factors. To the extent that actual experience differs from our estimate, the provision for product warranties will be adjusted in future periods. Actual warranty repair costs are charged against the reserve balance as incurred.

A tabular presentation of the activity within the warranty accrual account for the six months ended June 30, 2015 is presented below:


Beginning balance as of January 1, 2015
 
$
6,032
 
Charges and costs accrued
   
2,781
 
Adjustments related to pre-existing warranties (including changes in estimates)
   
(1,040
)
Less repair costs incurred
   
(1,577
)
Less cash settlements
   
(1,522
)
Currency translation
   
25
 
Ending balance as of June 30, 2015
 
$
4,699
 



8.
 DEBT

On June 19, 2014, the Company entered into a senior Credit and Security Agreement with KeyBank National Association ("KeyBank") (as amended, the "Credit and Security Agreement" or "CSA").  The CSA consists of (i) a $50 million revolving credit facility ("Revolver"), (ii) a $145 million term loan facility ("Term Loan") and (iii) a $70 million delayed draw term loan ("DDTL") and matures on June 18, 2019.  During 2014, the Company borrowed an aggregate amount of $238.0 million under the CSA to fund the 2014 Acquisitions.  The Company had outstanding borrowings of $206.3 million and $232.6 million under the CSA at June 30, 2015 and December 31, 2014, respectively.
The weighted-average interest rate in effect was 2.94% at each of June 30, 2015 and December 31, 2014 and consisted of LIBOR plus the Company's credit spread, as determined per the terms of the CSA.  During the three months ended June 30, 2015 and 2014, the Company incurred interest expense of $2.0 million and $0.2 million, respectively.  During the six months ended June 30, 2015 and 2014, the Company incurred interest expense of $4.2 million and $0.2 million, respectively.
The CSA contains customary representations and warranties, covenants and events of default and financial covenants that measure (i) the ratio of the Company's total funded indebtedness, on a consolidated basis, to the amount of the Company's consolidated EBITDA, as defined, ("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"). If an event of default occurs, the lenders under the CSA 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 June 30, 2015, the Company was in compliance with its debt covenants, including its most restrictive covenant, the Leverage Ratio.  The unused credit available under the credit facility at June 30, 2015 was $39.0 million.

9.   INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions.  The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2011 and for state examinations before 2008.   Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2003 in Asia and generally 2007 in Europe.

As a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company's condensed consolidated financial statements at June 30, 2015.  An immaterial amount of previously recorded liabilities for uncertain tax positions relates principally to the 2011 tax year.  The statute of limitations related to these liabilities is scheduled to expire on September 15, 2015.

The Company's liabilities for uncertain tax positions are included in the following balance sheet captions:


 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
Income taxes payable
 
$
38
   
$
203
 
Liability for uncertain tax positions
   
41,426
     
39,767
 
 
 
$
41,464
   
$
39,970
 


As part of the acquisition of Power Solutions the Company acquired a $35.8 million liability for uncertain tax positions.  Of this amount, $12.0 million relates to an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd.) for the years 2004 through 2006.  The Company also acquired a liability for additional uncertain tax positions related to various tax matters for the years 2007 through 2013.  At the conclusion of the measurement period related to the Power Solutions acquisition and as of June 30, 2015, certain of these tax matters were being pursued with the applicable taxing authority.  From the date of acquisition through June 30, 2015, the Company has recorded $2.5 million of interest and penalties pertaining to this issue and will continue to accrue applicable interest and penalties until the matters are resolved or upon expiration of the respective statute of limitations. Any changes in facts and circumstances related to these tax matters will be recorded on a prospective basis and not included as purchase price adjustments.  Of the amounts noted in the table above, $29.5 million at June 30, 2015 and $2.8 million at December 31, 2014, if recognized, would reduce the Company's effective tax rate.

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits arising from uncertain tax positions as a component of the current provision for income taxes.  During the six months ended June 30, 2015 and 2014, the Company recognized $1.4 million and an immaterial amount, respectively, in interest and penalties in the condensed consolidated statements of operations.  During the six months ended June 30, 2015, the Company recognized a benefit of an immaterial amount for the reversal of such interest and penalties.  The Company has approximately $3.0 million and $1.6 million, accrued for the payment of such interest and penalties at June 30, 2015 and December 31, 2014, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the condensed consolidated balance sheets.

Upon completion of the acquisitions of Power Solutions and Connectivity Solutions, there were net deferred tax assets of $2.2 million and $1.2 million, respectively, arising from various temporary differences and net operating loss carry forward acquired, which are included in the condensed consolidated balance sheet at June 30, 2015.  In connection with the 2014 Acquisitions, the Company was required to complete a fair market value report of property, plant and equipment and intangibles.  As a result of that report, the Company established deferred tax liabilities at the date of acquisition in the amount of $3.1 million and $16.4 million, respectively, for the Power Solutions and Connectivity Solutions acquisitions. At June 30, 2015, a net deferred tax liability of $12.4 million remains on the condensed consolidated balance sheet for the 2014 Acquisitions.  The amounts for the Connectivity Solutions acquisition are preliminary since the measurement period for this acquisition is still open.  The amounts will be finalized prior to the conclusion of the measurement period, which will not exceed one year from the respective acquisition dates.  See Note 2, Acquisitions and Disposition, for further information about the 2014 Acquisitions.

The Company intends to make elections to step up the tax basis to fair value under IRC Section 338(g) for the Power Solutions acquisitions and for certain jurisdictions with respect to the Connectivity Solutions acquisition.  The elections made under Section 338(g) only affect U.S. income taxes (not those of the foreign country where the acquired entities were incorporated).

On December 31, 2013, under the "American Taxpayer Relief Act" ("ATRA"), the Research and Experimentation credit ("R&E") expired.  On December 16, 2014, the R&E credit was extended back to January 1, 2014. The R&E credits for the year ending 2015 have not been extended.

The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.

10.            RETIREMENT FUND AND PROFIT SHARING PLAN

The Company maintains the Bel Fuse Inc. Employees' Savings Plan, a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended (the "Code"). The Employees' Savings Plan allows eligible employees to voluntarily contribute a percentage of their eligible compensation, subject to Code limitations, which contributions are matched by the Company. For plan years beginning on and after January 1, 2012, the Company's matching contributions are made in cash and are equal to 100% of the first 1% of compensation contributed by participants, and 50% of the next 5% of compensation contributed by participants. Prior to January 1, 2012, the Company's matching and profit sharing contributions were made in the form of shares of Bel Fuse Inc. Class A and Class B common stock. The expense for the three months ended June 30, 2015 and 2014 amounted to $0.3 million and $0.1 million, respectively.  The expense for the six months ended June 30, 2015 and 2014 amounted to $0.6 million and $0.3 million, respectively. As of June 30, 2015, the plan owned 13,928 and 172,269 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Company's subsidiaries in Asia have a retirement fund covering substantially all of their Hong Kong based full-time employees.  Eligible employees contribute up to 5% of salary to the fund.  In addition, the Company must contribute a minimum of 5% of eligible salary, as determined by Hong Kong government regulations.  The Company currently contributes 7% of eligible salary in cash or Company stock.  The expense for the three months ended June 30, 2015 and 2014 amounted to $0.1 million in each period. The expense for the six months ended June 30, 2015 and 2014 amounted to $0.2 million and $0.1 million, respectively. As of June 30, 2015, the plan owned 3,323 and 17,342 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Company maintains a SERP, which is designed to provide a limited group of key management and highly compensated employees of the Company with supplemental retirement and death benefits.  As discussed in Note 4, Fair Value Measurements, the Company has investments in a rabbi trust which are intended to fund the obligations of the SERP.

The components of SERP expense are as follows:


 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
Service cost
 
$
138
   
$
138
   
$
276
   
$
276
 
Interest cost
   
142
     
135
     
283
     
270
 
Net amortization
   
92
     
46
     
183
     
92
 
Net periodic benefit cost
 
$
372
   
$
319
   
$
742
   
$
638
 



 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
Balance sheet amounts:
 
   
 
   Minimum pension obligation
 
   
 
      and unfunded pension liability
 
$
14,733
   
$
14,205
 
 
               
   Amounts recognized in accumulated
               
      other comprehensive loss, pretax:
               
         Prior service cost
 
$
957
   
$
1,048
 
         Net loss
   
3,210
     
3,302
 
 
 
$
4,167
   
$
4,350
 


11.            ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss at June 30, 2015 and December 31, 2014 are summarized below:


 
 
June 30,
   
December 31,
 
 
 
2015
   
2014
 
 
 
   
 
Foreign currency translation adjustment, net of taxes of ($336) at
 
   
 
  June 30, 2015 and ($142) at December 31, 2014
 
$
(16,152
)
 
$
(9,351
)
Unrealized holding gains on available-for-sale securities, net of taxes of
               
  $274 at June 30,  2015 and $259 at December 31, 2014
   
454
     
429
 
Unfunded SERP liability, net of taxes of ($1,269) at June 30, 2015
               
  and ($1,325) at December 31, 2014
   
(2,898
)
   
(3,026
)
 
               
Accumulated other comprehensive loss
 
$
(18,596
)
 
$
(11,948
)


Changes in accumulated other comprehensive loss by component during the six months ended June 30, 2015 are as follows.  All amounts are net of tax.


 
 
Foreign Currency
   
Unrealized Holding Gains on
   
 
 
 
 
 
 
Translation
   
Available-for-
   
Unfunded
 
 
 
 
 
 
Adjustment
   
Sale Securities
   
SERP Liability
 
 
 
Total
 
 
 
   
   
 
 
 
 
Balance at January 1, 2015
 
$
(9,351
)
 
$
429
   
$
(3,026
)
 
 
$
(11,948
)
     Other comprehensive (loss) income before reclassifications
   
(6,801
)
   
25
     
-
 
 
   
(6,776
)
     Amount reclassified from accumulated other
                       
 
       
          comprehensive loss
   
-
     
-
     
128
 
 (a)
   
128
 
     Net current period other comprehensive (loss) income
   
(6,801
)
   
25
     
128
 
 
   
(6,648
)
 
                       
 
       
Balance at June 30, 2015
 
$
(16,152
)
 
$
454
   
$
(2,898
)
 
 
$
(18,596
)
 
                       
 
       
(a) This reclassification relates to the amortization of prior service costs and gains/losses associated with the Company's SERP plan.
 
This expense is allocated between cost of sales and selling, general and administrative expense based upon the employment
 
      classification of the plan participants.
                       
 
       


12.            COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is party to a number of legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Company's results of operations or financial position.  See the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for the details of all of Bel's material pending lawsuits.

The Company was a defendant in a lawsuit captioned SynQor, Inc. v. Artesyn Technologies, Inc., et al. brought in the United States District Court, Eastern District of Texas in November 2007 ("SynQor I case").  The plaintiff alleged that eleven defendants, including Bel, infringed its patents covering certain power products. With respect to the Company, the plaintiff claimed that the Company infringed its patents related to unregulated bus converters and/or point-of-load (POL) converters used in intermediate bus architecture power supply systems. The case initially went to trial in December 2010.  A decision was ultimately rendered in November 2013 in favor of the plaintiff, and the Company released a payment to SynQor of $10.9 million.  The Company subsequently received a $2.1 million payment from one of its customers related to an indemnification agreement and reimbursement of certain legal fees.

In a related matter, on September 29, 2011, the United States District Court for the Eastern District of Texas ordered SynQor, Inc.'s continuing causes of action for post-verdict damages to be severed from the original action and assigned to a new case number.  The new action captioned SynQor, Inc. v. Artesyn Technologies, Inc., et al. (Case Number 2:11cv444) is a patent infringement action for damages in the form of lost profits and reasonable royalties for the period beginning January 24, 2011 ("SynQor II case").  SynQor, Inc. also seeks enhanced damages.  The Company has an indemnification agreement in place with one of its customers specifically covering post-verdict damages related to this case.  This case went to trial on July 30, 2013.  In April 2014, a final judgment was rendered in this case, whereby the Company was assessed an additional $0.7 million in post-verdict damages.  This amount was paid by the Company in July 2014 and was subsequently reimbursed by one of its customers under the terms of the indemnification agreement referenced above.  SynQor filed an appeal of the final judgment in May 2014, which is currently pending with the CAFC. The CAFC heard oral arguments from the parties on this matter on March 2, 2015. The Court has yet to render its decision on this case.

The Company is a plaintiff in a lawsuit captioned Bel Fuse Inc. et al. v. Molex Inc. brought in the United District Court of New Jersey in April 2013.  The Company claims that Molex infringed three of the Company's patents related to integrated magnetic connector products.  Molex filed a motion to dismiss the complaint on August 6, 2013.  The Company filed an amended complaint and response on August 20, 2013.  Molex withdrew its original Motion to Dismiss and filed a second, revised Motion to Dismiss on September 6, 2013.  The Company filed its response on October 7, 2013.  The Court denied Molex's revised Motion to Dismiss on June 16, 2014.  In June 2014, Molex initiated an Inter Partes Review (IPR) at the U.S. Patent and Trademark Office for one of the three patents associated with this case.  The Company and Molex executed an agreement in September 2014 to terminate the IPR and to withdraw one of the patents from the district court litigation.  The case continues to proceed in the District Court and now involves two of the Company's patents related to integrated magnetic connector products.

In connection with the acquisition of Power Solutions, there is an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd, or "BPS China") for the years 2004 to 2006.  In September 2012, the Tax Court of Arezzo ruled in favor of BPS China and cancelled the claim.  In February 2013, the Arezzo Revenue Agency filed an appeal of the Tax Court's ruling. The hearing of the appeal was held on October 2, 2014.  On October 13, 2014, BPS China was informed of the Regional Tax Commission of Florence ruling which was in favor of the Arezzo Revenue Agency and against BPS China.  The estimated liability related to this matter is approximately $12.0 million and has been included as a liability for uncertain tax positions on the accompanying condensed consolidated balance sheet.  As Bel is fully indemnified in this matter per the terms of the stock purchase agreement with ABB, an offsetting indemnification asset is also reflected in other assets on the accompanying condensed consolidated balance sheet at June 30, 2015.

The Company, through its subsidiary Cinch Connectors Inc., is a defendant in an asbestos lawsuit captioned Richard Skrzypek vs. Adience Inc., et al. The lawsuit was filed in the Circuit Court for the County of Wayne in the State of Michigan. The complaint was amended to include Cinch Connectors Inc. and other defendants on November 13, 2014. The Company filed its answer to the complaint on January 23, 2015.

The Company is not a party to any other legal proceeding, the adverse outcome of which is likely to have a material adverse effect on the Company's condensed consolidated financial condition or results of operations.

13.             SEGMENTS

The Company operates in one industry with three reportable operating segments, which are geographic in nature.  The segments consist of North America, Asia and Europe.  The primary criteria by which financial performance is evaluated and resources are allocated are net sales and income from operations.  The following is a summary of key financial data:


 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
Net Sales to External Customers:
 
   
   
   
 
    North America
 
$
76,504
   
$
35,064
   
$
153,264
   
$
63,795
 
    Asia
   
48,610
     
51,223
     
94,131
     
94,271
 
    Europe
   
20,544
     
13,152
     
40,278
     
24,019
 
 
 
$
145,658
   
$
99,439
   
$
287,673
   
$
182,085
 
 
                               
Net Sales:
                               
North America
 
$
84,491
   
$
39,405
   
$
171,508
   
$
70,859
 
Asia
   
80,189
     
61,968
     
153,338
     
111,860
 
Europe
   
41,967
     
16,550
     
83,504
     
27,441
 
Less intercompany net sales
   
(60,989
)
   
(18,484
)
   
(120,677
)
   
(28,075
)
 
 
$
145,658
   
$
99,439
   
$
287,673
   
$
182,085
 
 
                               
Income from Operations:
                               
North America
 
$
(1,215
)
 
$
(1,617
)
 
$
2,255
   
$
(734
)
Asia
   
5,161
     
4,715
     
5,713
     
6,388
 
Europe
   
3,506
     
616
     
8,530
     
941
 
 
 
$
7,452
   
$
3,714
   
$
16,498
   
$
6,595
 

Net Sales – Segment net sales are attributed to individual segments based on the geographic source of the billing for such customer sales.  Intercompany sales include finished products manufactured in foreign countries which are then transferred to the United States and Europe for sale; finished goods manufactured in the United States which are transferred to Europe and Asia for sale; and semi-finished components manufactured in the United States which are sold to Asia for further processing. Income from operations represents net sales less operating costs and expenses and does not include any amounts related to intercompany transactions.

The following items are included in the segment data presented above:

Recent Acquisitions – The 2014 Acquisitions contributed to Bel's segment sales and income from operations during the three and six months ended June 30, 2015 and 2014 as follows:



 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
Net Sales to External Customers:
 
   
   
   
 
North America:
 
   
   
   
 
    Power Solutions
 
$
32,999
   
$
5,037
   
$
66,398
   
$
5,037
 
    Connectivity Solutions
   
13,986
     
-
     
28,475
     
-
 
 
   
46,985
     
5,037
     
94,873
     
5,037
 
Asia:
                               
    Power Solutions
   
292
     
357
     
642
     
357
 
    Connectivity Solutions
   
1,160
     
-
     
2,238
     
-
 
 
   
1,452
     
357
     
2,880
     
357
 
Europe:
                               
    Power Solutions
   
8,065
     
1,839
     
15,981
     
1,839
 
    Connectivity Solutions
   
1,913
     
-
     
3,491
     
-
 
 
   
9,978
     
1,839
     
19,472
     
1,839
 
 
                               
 
 
$
58,415
   
$
7,233
   
$
117,225
   
$
7,233
 
 
                               



 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
Income (Loss) from Operations:
 
   
   
   
 
North America:
 
   
   
   
 
    Power Solutions
 
$
(2,954
)
 
$
(1,125
)
 
$
(1,855
)
 
$
(1,125
)
    Connectivity Solutions
   
585
     
-
     
1,521
     
-
 
 
   
(2,369
)
   
(1,125
)
   
(334
)
   
(1,125
)
Asia:
                               
    Power Solutions
   
(563
)
   
(162
)
   
(1,510
)
   
(162
)
    Connectivity Solutions
   
(327
)
   
-
     
(493
)
   
-
 
 
   
(890
)
   
(162
)
   
(2,003
)
   
(162
)
Europe:
                               
    Power Solutions
   
1,858
     
297
     
6,318
     
297
 
    Connectivity Solutions
   
217
     
-
     
398
     
-
 
 
   
2,075
     
297
     
6,716
     
297
 
 
                               
 
 
$
(1,184
)
 
$
(990
)
 
$
4,379
   
$
(990
)



14.
EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted net earnings per common share under the two-class method for the three and six months ended June 30, 2015 and 2014:


    
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Numerator:
               
Net earnings
 
$
6,062
   
$
3,065
   
$
11,382
   
$
5,568
 
Less dividends declared:
                               
     Class A
   
130
     
131
     
261
     
261
 
     Class B
   
682
     
653
     
1,360
     
1,307
 
Undistributed earnings
 
$
5,250
   
$
2,281
   
$
9,761
   
$
4,000
 
                                 
Undistributed earnings allocation - basic and diluted:
                               
     Class A undistributed earnings
 
$
924
   
$
414
   
$
1,720
   
$
726
 
     Class B undistributed earnings
   
4,326
     
1,867
     
8,041
     
3,274
 
     Total undistributed earnings
 
$
5,250
   
$
2,281
   
$
9,761
   
$
4,000
 
                                 
Net earnings allocation - basic and diluted:
                               
     Class A net earnings
 
$
1,054
   
$
545
   
$
1,981
   
$
987
 
     Class B net earnings
   
5,008
     
2,520
     
9,401
     
4,581
 
     Net earnings
 
$
6,062
   
$
3,065
   
$
11,382
   
$
5,568
 
                                 
Denominator:
                               
Weighted-average shares outstanding:
                               
     Class A - basic and diluted
   
2,175
     
2,175
     
2,175
     
2,175
 
     Class B - basic and diluted
   
9,693
     
9,332
     
9,682
     
9,333
 
                                 
Net earnings per share:
                               
     Class A - basic and diluted
 
$
0.49
   
$
0.25
   
$
0.91
   
$
0.45
 
     Class B - basic and diluted
 
$
0.52
   
$
0.27
   
$
0.97
   
$
0.49
 



15.            RELATED PARTY TRANSACTIONS

In connection with the acquisition of Power Solutions in 2014, the Company maintains minority ownership in a joint venture in the PRC.  See Note 2, Acquisitions and Disposition.  The joint venture may purchase raw components and other goods from the Company and may sell finished goods to the Company as well as to other third parties.  The Company paid $0.3 million and $1.5 million for inventory purchases from the joint venture during the three and six months ended June 30, 2015, respectively.  At June 30, 2015, the Company owed the joint venture approximately $0.5 million, which is included in accounts payable on the condensed consolidated balance sheet.




Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Company's condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this quarterly report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2014 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 2014 Annual Report on Form 10-K. See Part II, Item 1A, "Risk Factors," below and "Cautionary Notice Regarding Forward-Looking Statements," above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars are in millions, except per share amounts or where otherwise noted. When we cross-reference to a "Note," we are referring to our "Notes to Condensed Consolidated Financial Statements," unless the context indicates otherwise.  All amounts noted within the tables are in thousands and amounts and percentages are approximate due to rounding.


Overview

Our Company

Bel designs, manufactures and markets a broad array of products that power, protect and connect electronic circuits.  These products are primarily used in the networking, telecommunications, computing, military, aerospace, transportation and broadcasting industries.  Bel's portfolio of products also finds application in the automotive, medical and consumer electronics markets.

The Company operates through three geographic segments:  North America, Asia and Europe.  In the six months ended June 30, 2015, 53% of the Company's revenues were derived from North America, 33% from Asia and 14% from its Europe operating segment.  By product group, 38% of sales for the six months ended June 30, 2015 related to the Company's power solutions and protection products, 32% related to the Company's connectivity solutions products and 30% related to the Company's magnetics products.

Our operating expenses are driven principally by the cost of labor where we produce our products, the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs.  As labor and material costs vary by product line and region, any significant shift in mix of product sold may have an associated impact on our costs of sales.  Costs are recorded as incurred for all products manufactured.  Such amounts are determined based upon the estimated stage of production and include labor cost and benefits and related allocations of factory overhead. Our products are manufactured in various facilities globally.

In the PRC, where we generally enter into processing arrangements with several independent third-party contractors and also have our own manufacturing facilities, the availability of labor is cyclical and is significantly affected by the migration of workers in relation to the annual Lunar New Year holiday as well as economic conditions in the PRC.  In addition, 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.  Accordingly, we must continually recruit and train new workers to replace those lost to attrition each year and to 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 demand, can add volatility to the costs incurred by us for labor in the PRC.

The consolidated results included in this MD&A include the results of the 2014 Acquisitions discussed in Note 2, Acquisitions and Disposition, from their respective acquisition dates.

Key Factors Affecting our Business

The Company believes the key factors affecting Bel's results for the three and six months ended June 30, 2015 and/or future results include the following:

·
Recent Acquisitions – The Company completed its acquisition of Power Solutions in June 2014, and its acquisition of Connectivity Solutions in July 2014 and August 2014. During the three and six months ended June 30, 2015, the acquired companies contributed combined sales of $58.4 million and $117.2 million, respectively.

·
Revenues – Excluding the revenue contributions from the 2014 Acquisitions as described above, the Company's revenues for the three and six months ended June 30, 2015 decreased by $5.0 million and $4.4 million, respectively, as compared to the same periods of 2014.

·
Product Mix – Material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the Company's gross margin percentage.  As compared to the pre-2014 (legacy-Bel) business on average, the recently acquired Power Solutions business has lower margins and Connectivity Solutions has higher margins.  Fluctuations in sales volume of Power Solutions or Connectivity Solutions products will have a corresponding impact on Bel's profit margins.

·
Pricing and Availability of Materials – Pricing and availability of components that constitute raw materials in our manufacturing processes have been stable for most of the Company's product lines, although lead times on certain electrical components continue to be extended.  Pricing of electrical components during the six months ended June 30, 2015 was flat compared to the same period of 2014.  With regard to commodity pricing, the costs of certain commodities that are contained in components and other raw materials, such as gold and copper, were lower during the three and six months ended June 30, 2015 as compared to the same periods of 2014.  Any fluctuations in component prices and other commodity prices associated with Bel's raw materials will have a corresponding impact on Bel's operating results.

·
Restructuring – The Company continues to implement restructuring programs in connection with integrating the 2014 Acquisitions into the legacy-Bel structure. During the three and six months ended June 30, 2015, the Company incurred $0.3 million and $0.5 million, respectively, as compared to $1.1 million in each of the same periods of 2014, primarily for severance and termination benefits.  Restructuring efforts are expected to continue into the second half of 2015, and we anticipate additional costs of approximately $1.0 million in the second half of 2015.  These efforts are projected to result in incremental savings of $3 million to $4 million on an annualized basis, beginning in the fourth quarter of 2015.  The preceding discussions represent Forward-Looking Statements.  See "Cautionary Notice Regarding Forward-Looking Statements."

·
Labor Costs – Labor costs as a percentage of sales for the legacy-Bel business were 14.0% of sales during the six months ended June 30, 2015 as compared to 14.2% during the six months ended June 30, 2014.  With the inclusion of the 2014 Acquisitions in our results, we expect lower consolidated labor costs as a percentage of sales in future periods.  Labor costs for the Power Solutions business during the six months ended June 30, 2015 were 5.6% of their respective sales and Connectivity Solutions' labor costs were 7.5% of their respective sales.

·
Acquisition-Related Costs – As a result of the 2014 Acquisitions, we incurred acquisition-related costs of $0.1 million and $0.5 million during the three and six months ended June 30, 2015, respectively, which includes professional fees for independent valuations and the completion of the independent carve-out audit for Connectivity Solutions.  The Company anticipates these costs to be minimal for the remainder of 2015.

·
Impact of Foreign CurrencySince we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars.  Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results and the revaluation of certain intercompany transactions to and from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact to our condensed consolidated statements of operations and cash flows.  The Company monitors changes in foreign currencies and implements pricing actions to help mitigate the impact that changes in foreign currencies may have on its operating results. See Selling, General and Administrative Expenses and Inflation and Foreign Currency Exchange below for further details.

·
Effective Tax Rate – The Company's effective tax rate will fluctuate based on the geographic segment in which our pretax profits are earned.  Of the geographic segments in which we operate, the U.S. has the highest tax rates; Europe's tax rates are generally lower than U.S. tax rates; and Asia has the lowest tax rates of the Company's three geographical segments. See (Benefit) Provision for Income Taxes below and Note 9, Income Taxes.

With the majority of our integration efforts and sales force restructuring with respect to the 2014 Acquisitions substantially completed, our main focus for the remainder of 2015 will be on top line sales growth. As noted above, we are also looking at additional efficiencies that can be achieved in various areas of the business through facility consolidations and other streamlining efforts which are expected to provide meaningful cost savings starting in late 2015.  Such expectation is a Forward-Looking Statement.  See "Cautionary Notice Regarding Forward-Looking Statements."


Summary by Operating Segment

Net sales to external customers by operating segment for the three and six months ended June 30, 2015 and 2014 were as follows:


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
    North America
 
$
76,504
     
53
%
 
$
35,064
     
35
%
 
$
153,264
     
53
%
 
$
63,795
     
35
%
    Asia
   
48,610
     
33
%
   
51,223
     
52
%
   
94,131
     
33
%
   
94,271
     
52
%
    Europe
   
20,544
     
14
%
   
13,152
     
13
%
   
40,278
     
14
%
   
24,019
     
13
%
   
$
145,658
     
100
%
 
$
99,439
     
100
%
 
$
287,673
     
100
%
 
$
182,085
     
100
%


Net sales to external customers in the Company's North America and Europe operating segments were favorably impacted during the three and six months ended June 30, 2015 as compared to the same periods of 2014 due to the 2014 Acquisitions.  During the three months ended June 30, 2015, the 2014 Acquisitions contributed $47.0 million of their total net sales to North America, $1.5 million to Asia and $10.0 million to Europe. During the six months ended June 30, 2015, the 2014 Acquisitions contributed $94.9 million of their total net sales to North America, $2.9 million to Asia and $19.5 million to Europe.

Net sales and income from operations by operating segment for the three months and six months ended June 30, 2015 and 2014 were as follows. Segment net sales are attributed to individual segments based on the geographic source of the billing for customer sales.


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Total segment sales:
               
     North America
 
$
84,491
   
$
39,405
   
$
171,508
   
$
70,859
 
     Asia
   
80,189
     
61,968
     
153,338
     
111,860
 
     Europe
   
41,967
     
16,550
     
83,504
     
27,441
 
Total segment sales
   
206,647
     
117,923
     
408,350
     
210,160
 
Reconciling item:
                               
     Intersegment sales
   
(60,989
)
   
(18,484
)
   
(120,677
)
   
(28,075
)
Net sales
 
$
145,658
   
$
99,439
   
$
287,673
   
$
182,085
 
                                 
Income from operations:
                               
    North America
 
$
(1,215
)
 
$
(1,617
)
 
$
2,255
   
$
(734
)
    Asia
   
5,161
     
4,715
     
5,713
     
6,388
 
    Europe
   
3,506
     
616
     
8,530
     
941
 
   
$
7,452