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 September 30, 2014
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 [   ]
No [X]
     
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 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 November 1, 2014
Class A Common Stock ($0.10 par value)
 
2,174,912
Class B Common Stock ($0.10 par value)
  
9,704,877



BEL FUSE INC.
       
INDEX
       
     
Page
Part I
    
       
 
       
     
   
       
     
   
       
     
   
       
     
   
       
   
       
   
   
       
   
   
       
 
       
Part II
    
       
 
       
 
       
   
 
PART I.                          Financial Information

Item 1.                          Financial Statements (Unaudited)

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 Securities and Exchange Commission.  The following condensed consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results for the entire fiscal year or for any other period.




BEL FUSE INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED BALANCE SHEETS
  
(dollars in thousands, except share and per share data)
  
(Unaudited)
  
         
    
September 30,
    
December 31,
  
   
2014
    
2013
  
ASSETS
        
Current Assets:
        
Cash and cash equivalents
  
$
83,140
    
$
62,123
  
Accounts receivable - less allowance for doubtful accounts of $1,836
                
  and $941 at September 30, 2014 and December 31, 2013, respectively
    
103,701
      
63,849
  
Inventories
    
113,506
      
70,019
  
Prepaid expenses and other current assets
    
7,548
      
3,519
  
Refundable income taxes
    
6,303
      
1,650
  
Deferred income taxes
    
3,679
      
2,995
  
    Total Current Assets
    
317,877
      
204,155
  
                 
Property, plant and equipment - net
    
74,104
      
40,896
  
Deferred income taxes
    
4,688
      
1,680
  
Intangible assets - net
    
84,151
      
29,472
  
Goodwill
    
130,224
      
18,490
  
Other assets
    
32,443
      
13,448
  
    TOTAL ASSETS
  
$
643,487
    
$
308,141
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Current Liabilities:
                
Accounts payable
  
$
63,929
    
$
29,518
  
Accrued expenses
    
44,551
      
22,442
  
Short-term borrowings under revolving credit line
    
-
      
12,000
  
Current maturities of long-term debt
    
12,094
      
-
  
Notes payable
    
163
      
739
  
Income taxes payable
    
2,861
      
1,496
  
Dividends payable
    
894
      
786
  
    Total Current Liabilities
    
124,492
      
66,981
  
                 
Long-term Liabilities:
                
Long-term debt, noncurrent
    
223,219
      
-
  
Liability for uncertain tax positions
    
38,412
      
1,218
  
Minimum pension obligation and unfunded pension liability
    
11,649
      
10,830
  
Deferred income taxes
    
15,887
      
-
  
Other long-term liabilities
    
535
      
410
  
    Total Long-term Liabilities
    
289,702
      
12,458
  
    Total Liabilities
    
414,194
      
79,439
  
                 
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; 9,704,877 and 9,335,677 shares outstanding, respectively
                
     (net of 3,218,307 treasury shares)
    
971
      
933
  
Additional paid-in capital
    
20,833
      
18,914
  
Retained earnings
    
212,691
      
207,993
  
Accumulated other comprehensive (loss) income
    
(5,419
)
    
645
  
    Total Stockholders' Equity
    
229,293
      
228,702
  
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
643,487
    
$
308,141
  
                 
See notes to unaudited condensed consolidated financial statements.
  





BEL FUSE INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
(dollars in thousands, except share and per share data)
  
(Unaudited)
  
                 
    
Three Months Ended
    
Nine Months Ended
  
    
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
                 
Net Sales
  
$
156,341
    
$
101,164
    
$
338,426
    
$
258,173
  
                                 
Costs and expenses:
                                
Cost of sales
    
128,250
      
81,132
      
278,319
      
213,781
  
Selling, general and administrative
    
23,110
      
12,300
      
47,475
      
35,041
  
Restructuring charges
    
309
      
-
      
1,365
      
1,387
  
     
151,669
      
93,432
      
327,159
      
250,209
  
                                 
Income from operations
    
4,672
      
7,732
      
11,267
      
7,964
  
                                 
Gain on sale of investment
    
-
      
98
      
-
      
98
  
Interest expense
    
(1,869
)
    
(67
)
    
(2,124
)
    
(75
)
Interest income and other, net
    
21
      
81
      
121
      
188
  
                                 
Earnings before provision (benefit) for income taxes
    
2,824
      
7,844
      
9,264
      
8,175
  
Provision (benefit) for income taxes
    
1,317
      
464
      
2,189
      
(336
)
                                 
Net earnings
  
$
1,507
    
$
7,380
    
$
7,075
    
$
8,511
  
                                 
                                 
Earnings per share:
                                
Class A common share - basic and diluted
  
$
0.12
    
$
0.62
    
$
0.57
    
$
0.70
  
Class B common share - basic and diluted
  
$
0.13
    
$
0.65
    
$
0.62
    
$
0.76
  
                                 
Weighted-average shares outstanding:
                                
Class A common share - basic and diluted
    
2,174,912
      
2,174,912
      
2,174,912
      
2,174,912
  
Class B common share - basic and diluted
    
9,590,586
      
9,228,731
      
9,420,111
      
9,221,032
  
                                 
Dividends paid per share:
                                
Class A common share
  
$
0.06
    
$
0.06
    
$
0.18
    
$
0.18
  
Class B common share
  
$
0.07
    
$
0.07
    
$
0.21
    
$
0.21
  
                                 
                                 
See notes to unaudited condensed consolidated financial statements.
  



BEL FUSE INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
  
(dollars in thousands)
  
(Unaudited)
  
                 
    
Three Months Ended
    
Nine Months Ended
  
    
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
                 
Net earnings
  
$
1,507
    
$
7,380
    
$
7,075
    
$
8,511
  
                                 
Other comprehensive (loss) income:
                                
Currency translation adjustment, net of taxes of ($181), $212, ($57) and ($4), respectively
    
(6,791
)
    
1,801
      
(6,254
)
    
619
  
Reclassification adjustment for gain on sale of marketable securities included in
                                
     net earnings, net of tax of $0, ($37), $0 and ($37)
    
-
      
(61
)
    
-
      
(61
)
Unrealized holding (losses) gains on marketable securities arising during the period,
                                
net of taxes of ($7), $28, $58 and $17, respectively
    
(12
)
    
46
      
95
      
27
  
Change in unfunded SERP liability, net of taxes of $14, $24, $42 and $20, respectively
    
32
      
53
      
95
      
46
  
Other comprehensive (loss) income
    
(6,771
)
    
1,839
      
(6,064
)
    
631
  
                                 
Comprehensive (loss) income
  
$
(5,264
)
  
$
9,219
    
$
1,011
    
$
9,142
  
                                 
                                 
See notes to unaudited condensed consolidated financial statements.
  


BEL FUSE INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(dollars in thousands)
  
(Unaudited)
  
    
Nine Months Ended
  
    
September 30,
  
   
2014
    
2013
  
Cash flows from operating activities:
        
Net earnings
  
$
7,075
    
$
8,511
  
Adjustments to reconcile net earnings to net
                
 cash provided by operating activities:
                
Depreciation and amortization
    
12,677
      
8,676
  
Stock-based compensation
    
1,926
      
1,376
  
Gain on disposal of property, plant and equipment
    
19
      
-
  
Realized gain on sale of investment
    
-
      
(98
)
Amortization of deferred financing costs
    
348
      
-
  
Other, net
    
(1,520
)
    
356
  
Deferred income taxes
    
(10
)
    
(519
)
Changes in operating assets and liabilities (see page 6)
    
(1,580
)
    
(12,241
)
      Net Cash Provided by Operating Activities
    
18,935
      
6,061
  
                 
Cash flows from investing activities:
                
Increase in cash equivalents within Rabbi Trust
    
(1,536
)
    
-
  
Purchase of company-owned life insurance (COLI)
    
(2,820
)
    
(2,820
)
Purchase of SERP investments
    
(1,400
)
    
-
  
Purchase of property, plant and equipment
    
(5,234
)
    
(5,127
)
Purchase of intangible asset
    
-
      
(1,336
)
Payment for acquisitions, net of cash acquired (see page 6)
    
(206,536
)
    
(30,931
)
Proceeds from surrender of COLI
    
5,756
      
-
  
Proceeds from sale of SERP investments
    
-
      
2,820
  
Proceeds from sale of property, plant and equipment
    
21
      
-
  
       Net Cash Used in Investing Activities
    
(211,749
)
    
(37,394
)
                 
Cash flows from financing activities:
                
Dividends paid to common shareholders
    
(2,270
)
    
(2,264
)
Deferred financing costs
    
(5,774
)
    
-
  
Borrowings under revolving credit line
    
23,000
      
12,000
  
Repayments under revolving credit line
    
(12,000
)
        
(Decrease) increase in notes payable
    
(553
)
    
314
  
Proceeds from long-term debt
    
215,000
      
-
  
Repayments of long-term debt
    
(2,688
)
    
-
  
Purchase and retirement of Class B common stock
    
-
      
(3,356
)
       Net Cash Provided by Financing Activities
    
214,715
      
6,694
  
                 
Effect of exchange rate changes on cash
    
(884
)
    
297
  
                 
Net Increase (Decrease) in Cash and Cash Equivalents
    
21,017
      
(24,342
)
Cash and Cash Equivalents - beginning of period
    
62,123
      
71,262
  
Cash and Cash Equivalents - end of period
  
$
83,140
    
$
46,920
  
                 
(Continued)
  
See notes to unaudited condensed consolidated financial statements.
  

BEL FUSE INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
  
(dollars in thousands)
  
(Unaudited)
  
    
Nine Months Ended
  
    
September 30,
  
   
2014
    
2013
  
         
Changes in operating assets and liabilities consist of:
        
Increase in accounts receivable
  
$
(2,034
)
  
$
(13,015
)
Decrease (increase) in inventories
    
9,737
      
(6,746
)
Decrease (increase) in prepaid expenses and other current assets
    
856
      
(1,483
)
Increase in other assets
    
(171
)
    
(95
)
(Decrease) increase in accounts payable
    
(2,030
)
    
6,920
  
(Decrease) increase in accrued expenses
    
(7,291
)
    
2,640
  
Increase in other liabilities
    
63
      
274
  
Decrease in accrued restructuring costs
    
-
      
(122
)
Decrease in income taxes payable
    
(710
)
    
(614
)
    
$
(1,580
)
  
$
(12,241
)
                 
Supplementary information:
                
Cash paid during the period for:
                
    Income taxes, net of refunds received
  
$
2,536
    
$
1,152
  
    Interest
    
1,633
      
75
  
                 
Details of acquisitions:
                
   Fair value of identifiable net assets acquired
  
$
122,041
    
$
34,541
  
   Goodwill
    
111,952
      
4,812
  
       Fair value of net assets acquired
  
$
233,993
    
$
39,353
  
                 
   Fair value of net assets acquired
  
$
233,993
    
$
39,353
  
   Less:  Cash acquired in acquisition
    
(27,457
)
    
(8,388
)
   Deferred consideration
    
-
      
(34
)
      Cash paid for acquisitions, net of cash acquired
  
$
206,536
    
$
30,931
  
See 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 September 30, 2014, and the condensed consolidated statements of operations, comprehensive income and cash flows for the periods presented herein have been prepared by Bel Fuse Inc. (the "Company" or "Bel") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.  The results for the three and nine months ended September 30, 2014 should not be viewed as indicative of the Company's annual results or the Company's results for any other period.  The information for the condensed consolidated balance sheet as of December 31, 2013 was derived from audited financial statements.  These 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, 2013.

On March 9, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of GigaCom Interconnect AB ("GigaCom").  On July 31, 2012, the Company consummated its acquisition of 100% of the issued and outstanding capital stock of Fibreco Ltd. ("Fibreco").  On September 12, 2012, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Powerbox Italia S.r.L ("Powerbox").  The acquisitions of GigaCom, Fibreco and Powerbox may hereafter be referred to collectively as either the "2012 Acquisitions" or the "2012 Acquired Companies".  Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values.  The accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2013 have been restated to reflect immaterial measurement period adjustments related to the applicable 2012 Acquisitions.

On March 29, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Transpower Technologies (HK) Limited ("Transpower") and certain other tangible and intangible assets related to the Transpower magnetics business of TE Connectivity ("TRP").  On August 20, 2013, the Company completed its acquisition of 100% of the issued and outstanding capital stock of Array Connector Corporation ("Array"). The acquisitions of TRP and Array may hereafter be referred to collectively as either the "2013 Acquisitions" or the "2013 Acquired Companies".  Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values. The Company's condensed consolidated results of operations include the operating results of the 2013 Acquisitions since their respective acquisition dates.  The accompanying condensed consolidated financial statements as of December 31, 2013 and for the three and nine months ended September 30, 2013 have been restated to reflect measurement period adjustments, as further described in Note 3, related to the  TRP acquisition.

On June 19, 2014, the Company completed its acquisition of 100% of the issued and outstanding capital stock of the Power-One Power Solutions business ("Power Solutions") of ABB Ltd.  On July 25, 2014, the Company completed its 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, the Company completed its 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". Accordingly, as of the respective acquisition dates, all of the assets acquired and liabilities assumed were recorded at their preliminary fair values. The Company's condensed consolidated results of operations for the three and nine months ended September 30, 2014 include the operating results of the 2014 Acquisitions from their respective acquisition dates through September 30, 2014.

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, 2013.  There were no significant changes to these accounting policies during the nine months ended September 30, 2014.

Recently Adopted Standards

In July 2013, the FASB issued revised guidance to address the diversity in practice related to the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The Company adopted this guidance as of January 1, 2014, on a prospective basis. The adoption did not have a material impact on the Company's financial statements.

Standards Issued Not Yet Adopted

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 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Management believes that the adoption of this guidance will not have a material impact on the Company's financial statements.

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 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Entities can choose to apply the guidance using either the full retrospective approach or a modified retrospective approach. Management is currently evaluating the impact that this guidance will have on the Company's financial statements, if any, including which transition method it will adopt.

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 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 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 financial position or results of operations.

2. EARNINGS PER SHARE

The Company utilizes the two-class method to report its earnings per share.  The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings.  The Company's Certificate of Incorporation, as amended, states that Class B common shares are entitled to dividends at least 5% greater than dividends paid to Class A common shares, resulting in the two-class method of computing earnings per share.  In computing earnings per share, the Company has allocated dividends declared to Class A and Class B based on amounts actually declared for each class of stock and 5% more of the undistributed earnings have been allocated to Class B shares than to the Class A shares on a per share basis.  Basic earnings per common share are computed by dividing net earnings by the weighted-average number of common shares outstanding during the period.  Diluted earnings per common share, for each class of common stock, are computed by dividing net earnings by the weighted-average number of common shares and potential common shares outstanding during the period. There were no potential common shares outstanding during the three or nine months ended September 30, 2014 or September 30, 2013 which would have had a dilutive effect on earnings per share.



The earnings and weighted-average shares outstanding used in the computation of basic and diluted earnings per share are as follows (dollars in thousands, except share and per share data):


    
Three Months Ended
    
Nine Months Ended
  
    
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
                 
Numerator:
                
Net earnings
  
$
1,507
    
$
7,380
    
$
7,075
    
$
8,511
  
Less Dividends declared:
                                
     Class A
    
131
      
131
      
391
      
391
  
     Class B
    
679
      
650
      
1,986
      
1,925
  
Undistributed earnings
  
$
697
    
$
6,599
    
$
4,698
    
$
6,195
  
                                 
Undistributed earnings allocation - basic and diluted:
                                
     Class A undistributed earnings
  
$
124
    
$
1,209
    
$
847
    
$
1,137
  
     Class B undistributed earnings
    
573
      
5,390
      
3,851
      
5,058
  
     Total undistributed earnings
  
$
697
    
$
6,599
    
$
4,698
    
$
6,195
  
                                 
Net earnings allocation - basic and diluted:
                                
     Class A net earnings
  
$
255
    
$
1,340
    
$
1,238
    
$
1,528
  
     Class B net earnings
    
1,252
      
6,040
      
5,837
    
$
6,983
  
     Net earnings
  
$
1,507
    
$
7,380
    
$
7,075
    
$
8,511
  
                                 
Denominator:
                                
Weighted-average shares outstanding:
                                
     Class A common share - basic and diluted
    
2,174,912
      
2,174,912
      
2,174,912
      
2,174,912
  
     Class B common share - basic and diluted
    
9,590,586
      
9,228,731
      
9,420,111
      
9,221,032
  
                                 
Earnings per share:
                                
     Class A common share - basic and diluted
  
$
0.12
    
$
0.62
    
$
0.57
    
$
0.70
  
     Class B common share - basic and diluted
  
$
0.13
    
$
0.65
    
$
0.62
    
$
0.76
  


3.            ACQUISITIONS

2014 Acquisitions:

On June 19, 2014, the Company completed its acquisition of Power Solutions for $110.0 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.  Power Solutions offers a premier line of standard, modified-standard and custom designed AC/DC, DC/DC and other specific power conversion products for a variety of technologies in data centers, telecommunications and industrial applications.  The acquisition of Power Solutions brings a complementary, industry-leading power product portfolio to Bel's existing line of power products, expands our current customer base in the areas of server, storage and networking equipment and adds industrial and additional transportation applications to the Company's product offering.

On July 25, 2014, the Company completed its acquisition of the U.S. and U.K. entities of the Emerson Network Power Connectivity Solutions business ("CS") from Emerson Electric Co. with a payment, net of cash acquired and including a working capital adjustment, of $90.7 million.  On August 29, 2014, an additional payment of $9 million was made in connection with the closing of the China portion of the transaction.  CS 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. CS is headquartered in Bannockburn, Illinois, and has manufacturing facilities in North America, the U.K. and China.  CS will become part of Bel's Connectivity Solutions product group under the Cinch Connector business.  Management believes the acquisition of CS will enable the Company to further expand into the aerospace and military markets where long-term product reliability resulting from highly engineered solutions is critical. The addition of the CS Stratos brand with our Fibreco/Gigacom Interconnect products will also give the Company a solid position in the expanded beam fiber optic market place.  The CS group will also significantly expand the Company's existing copper‑based product offerings with the addition of RF/Microwave components and assemblies.

During the three and nine months ended September 30, 2014, the Company incurred $3.8 million and $5.3 million, respectively, of acquisition-related costs associated with the 2014 Acquisitions.  These costs are included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2014.

While the initial accounting related to the acquisitions of Power Solutions and Connectivity Solutions is not complete as of the filing date of this Quarterly Report on Form 10-Q, the following table depicts the Company's current estimate of the respective acquisition date fair values of the consideration paid and identifiable net assets acquired (in thousands):
 
   
Power Solutions
      
Connectivity Solutions
      
2014 Acquisitions
  
       
Measurement
    
June 19,
              
Acquisition-Date
  
   
June 19,
    
Period
    
2014
      
July 25/August 29,
      
Fair Values
  
   
2014
    
Adjustments
    
(As adjusted)
        2014*
 
    
(As adjusted)
  
Cash
  
$
20,913
    
$
-
    
$
20,913
      
$
6,544
      
$
27,457
  
Accounts receivable
    
29,388
      
1
      
29,389
        
9,413
        
38,802
  
Inventories
    
33,156
      
3,273
      
36,429
  
(a)
    
17,601
  
(a)
    
54,030
  
Other current assets
    
5,387
      
1,688
      
7,075
        
2,634
        
9,709
  
Property, plant and equipment
    
28,176
      
-
      
28,176
  
(b)
    
10,440
  
(b)
    
38,616
  
Intangible assets
    
21,188
      
(9,153
)
    
12,035
  
(c)
    
46,505
  
(c)
    
58,540
  
Other assets
    
536
      
18,212
      
18,748
  
(d)
    
2,684
        
21,432
  
     Total identifiable assets
    
138,744
      
14,021
      
152,765
        
95,821
        
248,586
  
                                             
Accounts payable
    
(26,180
)
    
-
      
(26,180
)
      
(10,682
)
      
(36,862
)
Accrued expenses
    
(20,290
)
    
(4,505
)
    
(24,795
)
(d)
    
(4,934
)
      
(29,729
)
Other current liabilities
    
223
      
-
      
223
        
(57
)
      
166
  
Noncurrent liabilities
    
761
      
(39,686
)
    
(38,925
)
(d)
    
(21,195
)
      
(60,120
)
     Total liabilities assumed
    
(45,486
)
    
(44,191
)
    
(89,677
)
      
(36,868
)
      
(126,545
)
     Net identifiable assets acquired
    
93,258
      
(30,170
)
    
63,088
        
58,953
        
122,041
  
     Goodwill
    
37,534
      
30,170
      
67,704
  
(e)
    
44,248
  
(e)
    
111,952
  
     Net assets acquired
  
$
130,792
    
$
-
    
$
130,792
      
$
103,201
      
$
233,993
  
                                             
                                             
Cash paid
  
$
130,792
    
$
-
    
$
130,792
      
$
103,201
      
$
233,993
  
Assumption of liability
    
-
      
-
      
-
        
-
        
-
  
     Fair value of consideration
                                            
         transferred
    
130,792
      
-
      
130,792
        
103,201
        
233,993
  
     Deferred consideration
    
-
      
-
      
-
        
-
        
-
  
     Total consideration paid
  
$
130,792
    
$
-
    
$
130,792
      
$
103,201
      
$
233,993
  
                                             

* 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 date.

(a)
The inventory amounts noted above for both Power Solutions and Connectivity Solutions include preliminary adjustments to acquisition-date fair value.
(b)
The appraisals related to machinery and equipment acquired were still in progress as of this filing date; however, the amount noted above for Connectivity Solutions includes preliminary adjustments to acquisition-date fair value.  The amounts noted above for Power Solutions property, plant and equipment only include the carrying value of those assets on Power Solutions' balance sheet as of the acquisition date.
(c)
The Company has identified certain intangible assets related to the Power Solutions acquisition, including trademarks and trade names, developed technology and potential in-process research and development, license agreements, non-compete agreements, an investment in a 49%-owned joint venture and customer relationships, which are being valued by a third-party appraiser.  These appraisals were not complete as of the date of this filing.  The Company has also identified certain intangible assets related to the Connectivity Solutions acquisition, including trademarks, developed technology and customer relationships, which are being valued by a third-party appraiser.  While these appraisals were still in progress as of the date of this filing, preliminary estimated adjustments to fair value have been reflected in the table above.
(d)
The Company recorded measurement period adjustments related to estimated uncertain tax provisions and other tax liabilities, including an indemnification asset related to certain liabilities.  While these estimates were still in progress as of the date of this filing, preliminary estimated adjustments to these liabilities have been reflected in the table above.
(e)
The amount of goodwill is provisional as of the filing date, as the fair value determination of inventory acquired, and appraisals related to property, plant and equipment, various intangible assets and certain liabilities such as lease liabilities are still underway.  As the final amount of goodwill has not yet been determined or allocated by segment, the Company is unable to determine at this time the portion of goodwill, if any, that will be deductible for tax purposes.
 
The preliminary fair value of identifiable intangible assets related to the 2014 Acquired Companies is shown in the table below (dollars in thousands).  For those intangible assets with finite lives, the acquisition-date fair values will be amortized over their respective estimated future lives utilizing the straight-line method.


Weighted-Average Life
  
Acquisition-Date Fair Value
  
Trademarks
Indefinite
  
$
7,115
  
Technology
20 years
    
20,818
  
Customer relationships
15 years
    
30,607
  
    Total identifiable intangible assets acquired
    
$
58,540
  


The results of operations of the 2014 Acquired Companies have been included in the Company's consolidated financial statements for the period subsequent to their respective acquisition dates.  During the three and nine months ended September 30, 2014, the 2014 Acquired Companies contributed revenue of $63.1 million and $70.3 million, respectively, and net loss of approximately $0.8 million and $1.6 million, respectively, to the Company's consolidated financial results.

The following unaudited pro forma information presents a summary of the combined results of operations of the Company and the aggregate results of TRP, Array, Power Solutions and Connectivity Solutions for the periods presented as if the 2013 Acquisitions had occurred on January 1, 2012 and the 2014 Acquisitions had occurred on January 1, 2013, along with certain pro forma adjustments.  These pro forma adjustments give effect to the amortization of certain definite-lived intangible assets, adjusted depreciation based upon estimated fair value of assets acquired, interest expense and amortization of deferred financing costs related to the financing of the business combinations, and related tax effects.  The 2014 unaudited pro forma net earnings for the three and nine months ended September 30, 2014 were adjusted to exclude $3.9 million and $5.4 million ($2.4 million and $3.3 million after tax), respectively, of non-recurring expenses which were incurred in connection with the 2013 and 2014 Acquisitions.  The 2013 unaudited pro forma net earnings were adjusted to include these charges in addition to an estimated non-recurring expense related to a fair value adjustment to acquisition-date inventory of $4.6 million ($4.4 million after tax) during each of the three and nine months ended September 30, 2013, respectively.  The 2013 results reflected below include merger-related charges incurred by Power Solutions in connection with its acquisition by ABB in July 2013. The pro forma results do not reflect the realization of any potential cost savings, or any related integration costs. Certain cost savings may result from these acquisitions; however, there can be no assurance that these cost savings will be achieved. 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 the assumed dates, nor is the pro forma data intended to be a projection of results that may be obtained in the future (in thousands):
 
   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
                 
Revenue
  
$
163,040
    
$
185,091
    
$
480,482
    
$
533,605
  
Net earnings
    
8,417
      
(28,213
)
    
6,388
      
(39,714
)
Earnings per Class A common share - basic and diluted
    
0.68
      
(2.38
)
    
0.51
      
(3.36
)
Earnings per Class B common share - basic and diluted
    
0.72
      
(2.50
)
    
0.56
      
(3.51
)

2013 Acquisitions:

On March 29, 2013, the Company completed its acquisition of TRP for $21.0 million, net of cash acquired. The Company's purchase of TRP consisted of the integrated connector module ("ICM") family of products, including RJ45, 10/100 Gigabit, 10G, PoE/PoE+, MRJ21 and RJ.5, a line of modules for smart-grid applications, and discrete magnetics.

On August 20, 2013, the Company completed its acquisition of Array, a manufacturer of aerospace and mil-spec connector products based in Miami, Florida, for $10.0 million in cash.  The acquisition of Array expands the Company's portfolio of connector products that can be offered to the combined customer base, and provides an opportunity to sell other products that Bel manufactures to Array's customers.  Array has become part of Bel's Cinch Connector business.

During the three and nine months ended September 30, 2014, the Company incurred less than $0.1 million and $0.1 million, respectively, of acquisition-related costs associated with the 2012 and 2013 Acquisitions.  During the three and nine months ended September 30, 2013, the Company incurred acquisition costs of $0.1 million and $0.8 million, respectively, related to the 2012 and 2013 Acquisitions.  These costs are included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013.



The purchase price allocations for TRP and Array were finalized during the first quarter of 2014.  The following table depicts the finalized respective acquisition date fair values of the consideration paid and identifiable net assets acquired (in thousands):


   
TRP
    
Array
    
2013 Acquisitions
  
       
Measurement
    
March 29,
        
Measurement
    
August 20,
    
Acquisition-Date
  
   
March 29,
    
Period
    
2013
    
August 20,
    
Period
    
2013
    
Fair Values
  
   
2013
    
Adjustments
    
(As finalized)
    
2013
    
Adjustments
    
(As finalized)
    
(As finalized)
  
Cash
  
$
8,388
    
$
-
    
$
8,388
    
$
-
    
$
-
    
$
-
    
$
8,388
  
Accounts receivable
    
11,580
      
(39
)
    
11,541
      
994
      
-
      
994
      
12,535
  
Inventories
    
6,258
      
1,097
      
7,355
      
2,588
      
(1,595
)
    
993
      
8,348
  
Other current assets
    
1,953
      
(334
)
    
1,619
      
83
      
345
      
428
      
2,047
  
Property, plant and equipment
    
4,693
      
1,097
      
5,790
      
2,285
      
1,225
      
3,510
      
9,300
  
Intangible assets
    
-
      
6,110
      
6,110
      
-
      
1,470
      
1,470
      
7,580
  
Other assets
    
1,151
      
198
      
1,349
      
84
      
1,663
      
1,747
      
3,096
  
     Total identifiable assets
    
34,023
      
8,129
      
42,152
      
6,034
      
3,108
      
9,142
      
51,294
  
                                                         
Accounts payable
    
(8,565
)
    
331
      
(8,234
)
    
(677
)
    
1
      
(676
)
    
(8,910
)
Accrued expenses
    
(4,003
)
    
(462
)
    
(4,465
)
    
(206
)
    
(79
)
    
(285
)
    
(4,750
)
Other current liabilities
    
(25
)
    
(734
)
    
(759
)
    
(214
)
    
214
      
-
      
(759
)
Noncurrent liabilities
    
-
      
(586
)
    
(586
)
    
(643
)
    
(1,105
)
    
(1,748
)
    
(2,334
)
     Total liabilities assumed
    
(12,593
)
    
(1,451
)
    
(14,044
)
    
(1,740
)
    
(969
)
    
(2,709
)
    
(16,753
)
     Net identifiable assets acquired
    
21,430
      
6,678
      
28,108
      
4,294
      
2,139
      
6,433
      
34,541
  
     Goodwill
    
8,278
      
(7,038
)
    
1,240
      
5,666
      
(2,094
)
    
3,572
      
4,812
  
     Net assets acquired
  
$
29,708
    
$
(360
)
  
$
29,348
    
$
9,960
    
$
45
    
$
10,005
    
$
39,353
  
                                                         
                                                         
Cash paid
  
$
22,400
    
$
6,948
    
$
29,348
    
$
9,960
    
$
45
    
$
10,005
    
$
39,353
  
Assumption of severance payment
    
109
      
(109
)
    
-
      
-
      
-
      
-
      
-
  
     Fair value of consideration
                                                        
         transferred
    
22,509
      
6,839
      
29,348
      
9,960
      
45
      
10,005
      
39,353
  
     Deferred consideration
    
7,199
      
(7,199
)
    
-
      
-
      
-
      
-
      
-
  
     Total consideration paid
  
$
29,708
    
$
(360
)
  
$
29,348
    
$
9,960
    
$
45
    
$
10,005
    
$
39,353
  

The measurement period adjustments noted above primarily relate to adjustments to fair value based on the appraisals on inventory, property, plant and equipment, and intangible assets.  In addition, various other asset and liability accounts had measurement period adjustments related to deferred taxes.

The results of operations of the 2013 Acquired Companies have been included in the Company's consolidated financial statements for the period subsequent to their respective acquisition dates.  During the three and nine months ended September 30, 2014, the 2013 Acquired Companies contributed revenue of $20.7 million and $58.3 million, respectively, and net earnings of $4.0 million and $8.9 million, respectively, to the Company's consolidated financial results.  During the three and nine months ended September 30, 2013, the 2013 Acquired Companies contributed revenue of $26.4 million and $48.6 million, respectively, and net earnings of $4.2 million and $7.4 million, respectively, to the Company's consolidated financial results.


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

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

As of September 30, 2014 and December 31, 2013, 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 September 30, 2014 and December 31, 2013.  The gross unrealized gains associated with the investment securities held in the Rabbi Trust were $0.6 million and $0.4 million at September 30, 2014 and December 31, 2013, respectively.  Such unrealized gains are included, net of tax, in accumulated other comprehensive income.

As of September 30, 2014 and December 31, 2013, the Company had other 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.  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 nine months ended September 30, 2014.  There were no changes to the Company's valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the nine months ended September 30, 2014.

The following table sets forth by level, within the fair value hierarchy, the Company's financial assets accounted for at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 (dollars in thousands).


       
Assets at Fair Value Using
  
   
Total
    
Quoted Prices in Active Markets for Identical Assets (Level 1)
    
Significant Other Observable Inputs (Level 2)
    
Significant Unobservable Inputs (Level 3)
  
As of September 30, 2014
                
Available-for-sale securities:
                
   Investments held in Rabbi Trust
  
$
4,867
    
$
4,867
    
$
-
    
$
-
  
   Marketable securities
    
4
      
4
      
-
      
-
  
                                 
   Total
  
$
4,871
    
$
4,871
    
$
-
    
$
-
  
                                 
As of December 31, 2013
                                
Available-for-sale securities:
                                
   Investments held in Rabbi Trust
  
$
3,313
    
$
3,313
    
$
-
    
$
-
  
   Marketable securities
    
3
      
3
      
-
      
-
  
                                 
   Total
  
$
3,316
    
$
3,316
    
$
-
    
$
-
  


The Company has other financial instruments, such as cash equivalents, cash equivalents held within the Rabbi Trust, accounts receivable, notes receivable, accounts payable, notes payable and accrued expenses, 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.  At September 30, 2014, the estimated fair value of long-term debt was $234.3 million compared to a carrying amount of $235.3 million.  The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of September 30, 2014 or December 31, 2013.

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 nine months ended September 30, 2014 or 2013 that would warrant interim impairment testing.

5.            INVENTORIES

The components of inventories are as follows (dollars in thousands):


   
September 30,
    
December 31,
  
   
2014
    
2013
  
Raw materials
  
$
55,302
    
$
29,428
  
Work in progress
    
16,964
      
8,783
  
Finished goods
    
41,240
      
31,808
  
   
$
113,506
    
$
70,019
  


At September 30, 2014, $46.2 million of inventory related to the 2014 Acquired Companies.

6.
 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (dollars in thousands):


   
September 30,
    
December 31,
  
   
2014
    
2013
  
Land
  
$
3,302
    
$
3,229
  
Buildings and improvements
    
31,259
      
25,216
  
Machinery and equipment
    
118,161
      
82,420
  
Construction in progress
    
5,263
      
4,042
  
     
157,985
      
114,907
  
Accumulated depreciation
    
(83,881
)
    
(74,011
)
   
$
74,104
    
$
40,896
  


At September 30, 2014, $36.5 million of property, plant and equipment related to the 2014 Acquired Companies.

7.             BUSINESS SEGMENT INFORMATION

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 sales and income from operations.  The following is a summary of key financial data (dollars in thousands):


   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
Total segment sales:
                
North America
  
$
91,556
    
$
34,273
    
$
162,415
    
$
95,796
  
Asia
    
87,714
      
69,602
      
199,574
      
166,362
  
Europe
    
44,778
      
9,313
      
72,220
      
30,029
  
Total segment sales
    
224,048
      
113,188
      
434,209
      
292,187
  
Reconciling item:
                                
Intersegment sales
    
(67,707
)
    
(12,024
)
    
(95,783
)
    
(34,014
)
Net sales
  
$
156,341
    
$
101,164
    
$
338,426
    
$
258,173
  
                                 
Income from operations:
                                
North America
  
$
(1,964
)
  
$
(239
)
  
$
(2,698
)
  
$
(3,734
)
Asia
    
3,306
      
7,915
      
9,694
      
11,026
  
Europe
    
3,330
      
56
      
4,271
      
672
  
   
$
4,672
    
$
7,732
    
$
11,267
    
$
7,964
  
                                 
   
September 30,
    
December 31,
                  
     
2014
      
2013
                  
Total Assets:
                                
North America
  
$
205,463
    
$
117,261
                  
Asia
    
243,753
      
148,780
                  
Europe
    
81,642
      
42,100
                  
     
530,858
      
308,141
                  
Unallocated Goodwill
    
112,629
      
-
                  
   
$
643,487
    
$
308,141
                  


Recent Acquisitions – At September 30, 2014, Power Solutions' total assets of $206.7 million and Connectivity Solutions' total assets of $136.9 million are included in the table above.

The acquisitions of TRP in March 2013, Array in August 2013, Power Solutions in June 2014 and Connectivity Solutions in July and August 2014 contributed to Bel's segment sales, income from operations and total assets as follows:
 

   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2014
    
2013
    
2014
    
2013
  
Sales to External Customers:
                
     North America:
                
Array
  
$
1,758
    
$
811
    
$
5,302
    
$
811
  
Power Solutions
    
36,517
      
-
      
41,554
      
-
  
Connectivity Solutions
    
11,941
      
-
      
11,941
      
-
  
     
50,216
      
811
      
58,797
      
811
  
     Asia:
                                
TRP
    
18,228
      
25,096
      
51,060
      
46,885
  
Power Solutions
    
1,600
      
-
      
1,958
      
-
  
Connectivity Solutions
    
749
      
-
      
749
      
-
  
     
20,577
      
25,096
      
53,767
      
46,885
  
     Europe:
                                
TRP
    
727
      
494
      
1,912
      
886
  
Power Solutions
    
10,963
      
-
      
12,802
      
-
  
Connectivity Solutions
    
1,295
      
-
      
1,295
      
-
  
     
12,985
      
494
      
16,009
      
886
  
Net sales from 2013-2014 acquisitions
    
83,778
      
26,401
      
128,573
      
48,582
  
                                 
Income from operations:
                                
     North America:
                                
Array
    
(61
)
    
(135
)
    
(744
)
    
(135
)
Power Solutions
    
1,072
      
-
      
(53
)
    
-
  
Connectivity Solutions
    
(1,299
)
    
-
      
(1,299
)
    
-
  
     
(288
)
    
(135
)
    
(2,096
)
    
(135
)
     Asia:
                                
TRP
    
4,200
      
4,527
      
9,311
      
8,115
  
Power Solutions
    
(3,201
)
    
-
      
(3,363
)
    
-
  
Connectivity Solutions
    
112
      
-
      
112
      
-
  
     
1,111
      
4,527
      
6,060
      
8,115
  
     Europe:
                                
TRP
    
115
      
92
      
343
      
196
  
Power Solutions
    
2,726
      
-
      
3,024
      
-
  
Connectivity Solutions
    
73
      
-
      
73
      
-
  
     
2,914
      
92
      
3,440
      
196
  
Total income from operations from
                                
2013-2014 acquisitions
  
$
3,737
    
$
4,484
    
$
7,404
    
$
8,176
  


Segment Sales – Segment sales are attributed to individual segments based on the geographic source of the billing for such customer sales.  Transfers between geographic areas include finished products and semi-finished components manufactured in any one of the geographic segments and transferred to any of the other geographic segments for sale or further processing. Income from operations represents net sales less operating costs and expenses.


8.   INCOME TAXES

At September 30, 2014 and December 31, 2013, the Company has approximately $38.6 million and $2.2 million, respectively, of liabilities for uncertain tax positions ($0.2 million and $1.0 million, respectively, included in income taxes payable and $38.4 million and $1.2 million, respectively, included in liability for uncertain tax positions) all of which, if recognized, would reduce the Company's effective tax rate.  In connection with the acquisition of Power Solutions, the Company recorded an estimated liability for uncertain tax positions of $35.9 million, including interest and penalties of $11.9 million.

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 September 30, 2014.  A total of $4.8 million of previously recorded liabilities for uncertain tax positions relates principally to the 2011 tax year which expire during the three months ended September 30, 2015.  Additionally, a total of $0.8 million of previously recorded liabilities for uncertain tax positions relating to the 2010 tax year were reversed during the quarter ended September 30, 2014.  This was offset in part by an increase to the liability for uncertain tax positions in the amount of $1.4 million which is included in the condensed consolidated statement of operations during the nine months ended September 30, 2014.  A total of $0.5 million of previously recorded liabilities for uncertain tax positions relating to 2006 and 2009 tax years were reversed during the quarter ended September 30, 2013.

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 nine months ended September 30, 2014 and 2013, the Company recognized $0.7 million and an immaterial amount, respectively, of interest and penalties in the condensed consolidated statements of operations.  The Company has $12.6 million and $0.2 million, respectively, accrued for the payment of such interest and penalties at September 30, 2014 and December 31, 2013, a portion of which is included in each of income taxes payable and liability for uncertain tax positions in the accompanying condensed consolidated balance sheets at each date.  In connection with the estimated liability for uncertain tax positions, the Company will accrue approximately $2.5 million of interest and penalties annually.

Upon completion of the acquisitions of Power Solutions and Connectivity Solutions, there were net deferred tax assets of $7.1 million and deferred tax liabilities of $19.1 million, respectively, arising from various temporary differences and net operating loss carry forward acquired, which are included in the condensed consolidated balance sheet at September 30, 2014.  At September 30, 2014, the fair market value reports have not been completed and therefore the Company had no additional deferred tax amounts relating to the Power Solutions or Connectivity Solutions acquisitions. At September 30, 2014, a net deferred tax liability of $11.0 million remains on the condensed consolidated balance sheet for the 2014 Acquisitions.

The Company intends to make elections to step up the tax basis of the Power Solutions acquisition to fair value under IRC Section 338(g).  The Company does not intend to make an election to step-up the tax basis of the Emerson acquisition to fair value under IRC Section 338(g).

Upon the acquisition of TRP, TRP had a deferred tax asset in the amount of $2.2 million arising from various timing differences related to depreciation and accrued expenses.  Upon the acquisition of Array, Array had a deferred tax liability of $0.7 million arising from timing differences related to depreciation and a deferred tax asset of $2.1 million arising from the NOL acquired.  In connection with the 2013 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 $0.6 million and $1.0 million respectively for the TRP and Array acquisitions.  At September 30, 2014, a net deferred tax asset of $1.7 million remains on the condensed consolidated balance sheet.

The Company does not intend to make any election to step up the tax basis of the 2013 acquisitions to fair value under IRC Section 338(g).

On December 31, 2013, under the "American Taxpayer Relief Act" ("ATRA"), the Research and Experimentation credit ("R&E") expired.  The Company did not recognize any R&E credits during the nine months ended September 30, 2014.  If the R&E credit is extended back to January 1, 2014, the Company will recognize the R&E credit at that time.  The annual R&E credit is approximately $0.3 million.  During the first quarter of 2013, the Company recognized a $0.4 million R&E credit from 2012 as an increase in the March 31, 2013 quarterly benefit for income taxes.

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

 
9.            ACCRUED EXPENSES

Accrued expenses consist of the following (dollars in thousands):



 
  
September 30,
    
December 31,
  
 
  
2014
    
2013
  
Sales commissions
  
$
2,922
    
$
1,431
  
Subcontracting labor
    
2,014
      
2,406
  
Salaries, bonuses and related benefits
    
23,592
      
13,674
  
Litigation reserve
    
-
      
723
  
Warranty accrual
    
3,623
      
-
  
Other
    
12,400
      
4,208
  
 
  
$
44,551
    
$
22,442
  

Warranty Accrual - Power Solutions generally offers its customers a standard two-year warranty on power products sold, although warranty periods may vary by product type and application. The Company reviews its warranty liability quarterly based on an analysis of actual expenses and failure rates by specific product lines and estimated future costs and projected failure rate trends by specific product lines. Factors taken into consideration when evaluating the Company's warranty reserve are (i) historical claims for each product, (ii) the maturity of the product within its life cycle, (iii) volume increases, (iv) life of warranty, (v) historical warranty repair costs and (vi) 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 period from the acquisition date of Power Solutions through September 30, 2014 is presented below (in thousands):

 
  
September 30,
  
 
  
2014
  
Beginning balance as of June 19, 2014
  
$
4,111
  
Charges and costs accrued
    
859
  
Adjustments related to pre-existing warranties (including changes in estimates)
    
(35
)
Less repair costs incurred
    
(1,377
)
Currency translation
    
(43
)
Ending balance as of September 30, 2014
  
$
3,515
  


10.
 DEBT

At December 31, 2013, the Company maintained a $30 million line of credit with Bank of America (the "Credit Agreement"), which was due to expire on October 14, 2016.  At December 31, 2013, the borrowings under the line of credit amounted to $12.0 million and the balance available under the Credit Agreement was $18.0 million.  The Credit Agreement bore interest at LIBOR plus 1.00% to 1.50% based on certain financial statement ratios maintained by the Company.  The interest rate in effect on the borrowings outstanding at December 31, 2013 was 1.4%.  The Company incurred interest expense of less than $0.1 million related to the borrowings under the Credit Agreement during the nine months ended September 30, 2014.  There was no interest expense related to the line of credit during the nine months ended September 30, 2013 as there were no borrowings outstanding during that period.  Under the terms of the Credit Agreement, the Company was required to maintain certain financial ratios and comply with other financial conditions.  During the nine months ended September 30, 2014, the Company repaid the full $12.0 million balance outstanding and terminated the Credit Agreement.

On June 19, 2014, the Company entered into a senior Credit and Security Agreement with KeyBank National Association ("KeyBank"), as administrative agent and lender, which was amended on June 30, 2014 principally to add a syndicate of additional lenders (as so amended, the "New Secured Credit Agreement").  The maturity date of the New Secured Credit Agreement is June 18, 2019.
The New Secured Credit Agreement 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").  Under the terms of the New Secured Credit Agreement, the Company is entitled, subject to the satisfaction of certain conditions, to request additional commitments under the revolving credit facility or term loans in the aggregate principal amount of up to $100 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans.
 
The obligations of the Company under the New Secured Credit Agreement are guaranteed by certain of the Company's material U.S. subsidiaries (together with the Company, the "Loan Parties") and are secured by a first priority security interest in substantially all of the existing and future personal property of the Loan Parties, certain material real property of the Loan Parties and certain of the Loan Parties' material U.S. subsidiaries, including 65% of the voting capital stock of certain of the Loan Parties' direct foreign subsidiaries.
The borrowings under the New Secured Credit Agreement will bear interest at a rate equal to, at the Company's option, either (1) LIBOR, plus a margin ranging from 1.75% per annum to 3.00% per annum depending on the Company's leverage ratio, or (2)(a) an "Alternate Base Rate," which is the highest of (i) the federal funds rate plus 0.50%, (ii) KeyBank's prime rate and (iii) the LIBOR rate with a maturity of one month plus 1.00%, plus (b) a margin ranging from 0.75% per annum to 2.00% per annum, depending on the Company's leverage ratio. The interest rate in effect at September 30, 2014 was 2.25%, which consists of LIBOR of 0.25% plus the Company's margin of 2.00%.
The New Secured Credit Agreement 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 New Secured 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 September 30, 2014, the Company was in compliance with its most restrictive covenant, the Leverage Ratio.  The unused credit available under the credit facility at September 30, 2014 was $27.0 million, of which we had the ability to borrow the full available balance without violating our Leverage Ratio covenant based on the Company's existing consolidated EBITDA.
Concurrent with its entry into the New Secured Credit Agreement on June 19, 2014, the Company borrowed $145.0 million under the Term Loan to complete its acquisition of Power Solutions.  In July 2014, in connection with the acquisition of Connectivity Solutions, the Company borrowed an additional $90.0 million under the New Secured Credit Agreement ($70.0 million through the DDTL and $20.0 million under the Revolver).  During the three and nine months ended September 30, 2014, the Company recorded $0.4 million and $5.8 million in deferred financing costs, respectively, which will be amortized over the five-year term, and incurred $1.9 million and $2.1 million of interest expense, respectively.  At September 30, 2014, borrowings outstanding related solely to the $145.0 million Term Loan, the $70.0 million DDTL and $23.0 million under the revolver.
Scheduled principal payments of the long-term debt outstanding at September 30, 2014 are as follows (in thousands):

2014
  
$
2,687
  
2015
    
13,438
  
2016
    
16,125
  
2017
    
18,812
  
2018
    
24,188
  
Thereafter
    
160,063
  
Total long-term debt
    
235,313
  
Less: Current maturities of long-term debt
    
(12,094
)
Noncurrent portion of long-term debt
  
$
223,219
  

11.            RETIREMENT FUND AND PROFIT SHARING PLAN

The Company maintains the Bel Fuse Inc. Employees' Savings Plan (the "U.S. Plan"), a defined contribution plan that is intended to meet the applicable requirements for tax-qualification under sections 401(a) and (k) of the IRC. The U.S. Plan allows eligible employees to voluntarily contribute a percentage of their eligible compensation, subject to Code limitations, which contributions are matched by the Company. The Company's matching contributions are equal to 100% of the first 1% of compensation contributed by participants, and 50% of the next 5% of compensation contributed by participants. The expense for the three months ended September 30, 2014 and 2013 amounted to approximately $0.3 million and $0.1 million, respectively. The expense for the nine months ended September 30, 2014 and 2013 amounted to approximately $0.6 million and $0.4 million, respectively. Prior to January 1, 2012, the U.S. Plan's structure provided for a Company match and discretionary profit sharing contributions that were made in the form of the Company's common stock.  As of September 30, 2014, the U.S. Plan owned 14,886 and 181,831 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Company also has a retirement fund in Asia (the "Asia Plan") which covers substantially all of its 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 September 30, 2014 and 2013 amounted to approximately $0.1 million in each period. The expense for the nine months ended September 30, 2014 and 2013 amounted to approximately $0.2 million in each period.  As of September 30, 2014, the Asia 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.

The components of SERP expense are as follows (dollars in thousands):


 
  
Three Months Ended
    
Nine Months Ended
  
 
  
September 30,
    
September 30,
  
 
  
2014
    
2013
    
2014
    
2013
  
Service cost
  
$
138
    
$
139
    
$
414
    
$
417
  
Interest cost
    
135
      
112
      
405
      
337
  
Amortization of adjustments
    
46
      
77
      
138
      
231
  
Total SERP expense
  
$
319
    
$
328
    
$
957
    
$
985
  


 
  
September 30,
    
December 31,
  
 
  
2014
    
2013
  
Balance sheet amounts: