Edgar Filing: BEL FUSE INC /NJ

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, 2005

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________

Commission File Number 0-11676

	BEL FUSE, INC.
	(Exact name of registrant as specified in its charter)

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

206 Van Vorst Street
Jersey City, New Jersey		07302
(Address of principal executive offices)		(Zip Code)

	(201) 432-0463
	(Registrant's telephone number, including area code)


	(Former name, former address and former fiscal year, if changed since last report)

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 and 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.

x Yes oNo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

x Yes oNo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

At November 1, 2005, there were 2,702,677 shares of Class A Common Stock, $0.10 par value, outstanding and 9,009,138 shares of Class B Common Stock, $0.10 par value, outstanding.

BEL FUSE INC.

INDEX

			Page
Part I		Financial Information

	Item 1.	Financial Statements	1

		Consolidated Balance Sheets as of September 30, 2005
		(unaudited) and December 31, 2004	2-3

		Consolidated Statements of Operations for the
		Nine and Three Months Ended September 30, 2005 and
		2004 (unaudited)	4

		Consolidated Statements of Stockholders' Equity
		for the Years Ended December 31, 2004 and 2003 and
		the Nine Months Ended September 30, 2005 (unaudited)	5-6

		Consolidated Statements of Cash Flows for the Nine
		Months Ended September 30, 2005 and 2004 (unaudited)	7-9

		Notes to Consolidated Financial Statements (unaudited)	10-27

	Item 2.	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	28-46

	Item 3.	Quantitative and Qualitative Disclosures About
		Market Risk	47

	Item 4.	Controls and Procedures	48

Part II		Other Information

	Item 1.	Legal Proceedings	49

	Item 6.	Exhibits	50

	Signatures		51

PART I. Financial Information

Item 1. Financial Statements

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements 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, 2004.

The results of operations for the nine and three months ended September 30, 2005 and 2004 are not necessarily indicative of the results for the entire fiscal year or for any other period.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2005		2004
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	61,966,283	$	71,197,891
Marketable securities		20,547,904		23,120,028
Accounts receivable - less allowance for doubtful
accounts of $1,172,000 and $1,610,000 as of
September 30, 2005 and December 31, 2004, respectively		39,738,422		33,247,911
Inventories		34,785,707		29,101,060
Prepaid expenses and other current
assets		1,982,624		2,404,718
Assets held for sale		816,597		696,013

Total Current Assets		159,837,537		159,767,621

Property, plant and equipment - net		41,638,588		41,244,759
Deferred income taxes		2,401,000		-
Intangible assets - net		3,528,033		2,691,682
Goodwill		22,339,505		9,881,854
Prepaid pension costs		1,127,941		1,127,941
Other assets		3,147,869		3,062,714

TOTAL ASSETS	$	234,020,473	$	217,776,571

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2005		2004
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt	$	-	$	2,000,000
Short-term debt		480,885		-
Accounts payable		14,536,222		8,814,161
Accrued expenses		10,260,922		10,293,576
Deferred income taxes		229,000		3,322,000
Income taxes payable		10,502,892		7,172,955
Dividends payable		545,000		541,000
Total Current Liabilities		36,554,921		32,143,692

Long-term Liabilities:
Minimum pension obligation		2,722,583		2,261,583
Due to employee		303,561		-
Long-term debt - net of current portion		-		4,500,000
Deferred income taxes		-		410,000
Total Long-term Liabilities		3,026,144		7,171,583

Total Liabilities		39,581,065		39,315,275

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, no par value,
authorized 1,000,000 shares;
none issued		-		-
Class A common stock, par value
$.10 per share - authorized
10,000,000 shares; outstanding
2,702,677 and 2,702,677 shares, respectively
(net of 1,072,770 treasury shares)		270,268		270,268
Class B common stock, par value
$.10 per share - authorized
30,000,000 shares; outstanding 8,831,978
and 8,660,589 shares, respectively
(net of 3,218,310 treasury shares)		883,198		866,059
Additional paid-in capital		25,726,273		21,989,174
Retained earnings		165,278,811		149,949,283
Accumulated other comprehensive
income		2,280,858		5,386,512
Total Stockholders' Equity		194,439,408		178,461,296

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	234,020,473	$	217,776,571

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2005			2004			2005		2004

Net Sales	$	159,231,451		$	140,732,891		$	56,247,745	$	49,985,626

Costs and expenses:
Cost of sales		113,800,708			97,994,687			40,419,800		35,007,672
Selling, general and administrative		24,650,866			23,053,991			8,810,927		7,984,406
Fixed asset impairment		-			1,032,786			-		-
		138,451,574			122,081,464			49,230,727		42,992,078

Income from operations		20,779,877			18,651,427			7,017,018		6,993,548
Interest expense		(207,469	)		(176,931	)		-		(60,457	)
Interest income		980,029			448,835			347,379		169,256
Lawsuit proceeds		-			2,935,000			-		-

Earnings before provision for income taxes		21,552,437			21,858,331			7,364,397		7,102,347
Income tax provision		4,584,000			3,164,000			1,378,000		208,000

Net earnings	$	16,968,437		$	18,694,331		$	5,986,397	$	6,894,347

Earnings per common share - basic	$	1.48		$	1.66		$	0.52	$	0.61

Earnings per common share - diluted	$	1.47		$	1.63		$	0.52	$	0.60

Weighted average common shares
outstanding - basic		11,447,675			11,260,597			11,500,704		11,331,012
Weighted average common shares
outstanding - diluted		11,542,205			11,490,057			11,575,205		11,537,814

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

									Cumulative
									Other
				Compre-					Compre-
				hensive					hensive			Class A		Class B		Additional
	Total			Income (loss)		Retained Earnings			Income (loss)			Common Stock		Common Stock		Paid-In Capital

Balance, January 1, 2003	$	130,659,147				$	115,632,819		$	(50,132	)	$	267,623	$	826,149	$	13,982,688

Exercise of stock
options		2,580,224											2,544		19,920		2,557,760
Tax benefits arising
from the disposition of
non-qualified
incentive stock options		812,000															812,000
Cash dividends on Class A
common stock		(322,234	)				(322,234	)
Cash dividends on Class B
common stock		(1,667,586	)				(1,667,586	)
Currency translation
adjustment - net of taxes		1,014,808		$	1,014,808					1,014,808
Increase in unrealized gain on
marketable securities-net of taxes		14,900			14,900					14,900
Net earnings		13,763,694			13,763,694		13,763,694
Comprehensive income				$	14,793,402

Balance, December 31, 2003		146,854,953					127,406,693			979,576			270,167		846,069		17,352,448

Exercise of stock
options		3,891,266											101		19,990		3,871,175
Tax benefits arising
from the disposition of
non-qualified
incentive stock options		765,551															765,551
Cash dividends on Class A
common stock		(430,707	)				(430,707	)
Cash dividends on Class B
common stock		(1,748,292	)				(1,748,292	)
Currency translation
adjustment - net of taxes		386,257		$	386,257					386,257
Increase in unrealized gain on
marketable securities-net of taxes		4,020,679			4,020,679					4,020,679
Net earnings		24,721,589			24,721,589		24,721,589
Comprehensive income				$	29,128,525

Balance, December 31, 2004		178,461,296					149,949,283			5,386,512			270,268		866,059		21,989,174

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

										Cumulative
										Other
				Compre-						Compre-
				hensive						hensive			Class A		Class B		Additional
	Total			Income (loss)			Retained Earnings			Income (loss)			Common Stock		Common Stock		Paid-In Capital


Exercise of stock
options		3,351,046												-		17,139		3,333,907
Tax benefits arising
from the disposition of
non-qualified
incentive stock options		403,192																403,192
Cash dividends on Class A
common stock		(323,205	)					(323,205	)
Cash dividends on Class B
common stock		(1,315,704	)					(1,315,704	)
Currency translation
adjustment - net of taxes		(639,538	)	$	(639,538	)					(639,538	)
Decrease in unrealized gain on
marketable securities-net of taxes		(2,466,116	)		(2,466,116	)					(2,466,116	)
Net earnings		16,968,437			16,968,437			16,968,437
Comprehensive income				$	13,862,783

Balance, September 30, 2005 (unaudited)	$	194,439,408					$	165,278,811		$	2,280,858		$	270,268	$	883,198	$	25,726,273

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,
	2005			2004
Cash flows from operating
activities:
Net earnings	$	16,968,437		$	18,694,331
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization		7,197,253			7,112,701
Fixed asset impairment		-			1,032,786
Other		864,192			928,000
Deferred income taxes		(2,908,000	)		1,496,000
Changes in operating assets
and liabilities (net of acquisitions)		2,477,012			(5,408,089	)
Net Cash Provided by
Operating Activities		24,598,894			23,855,729

Cash flows from investing activities:
Purchase of property, plant
and equipment		(4,551,341	)		(3,772,543	)
Purchase of marketable
securities		(3,355,913	)		(17,723,615	)
Payment for acquisitions - net of
cash acquired		(20,589,139	)		(74,539	)
Proceeds from repayment
by contractors		-			21,750
Proceeds from sale of marketable
securities		643,424			5,599,894
Net Cash Used In
Investing Activities		(27,852,969	)		(15,949,053	)

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

	Nine Months Ended
	September 30,
	2005			2004
Cash flows from financing
activities:
Proceeds from borrowings		8,000,000			-
Loan repayments		(15,360,694	)		(1,500,000	)
Proceeds from exercise of
stock options		3,351,046			3,515,405
Dividends paid to common
shareholders		(1,638,909	)		(1,628,199	)
Net Cash (Used In) Provided By
Financing Activities		(5,648,557	)		387,206

Effect of exchange rate changes on cash		(328,976	)		(48,090	)

Net (Decrease) Increase in
Cash and Cash Equivalents		(9,231,608	)		8,245,792
Cash and Cash Equivalents
- beginning of period		71,197,891			57,461,152
Cash and Cash Equivalents
- end of period	$	61,966,283		$	65,706,944


Changes in operating assets
and liabilities (net of acquisitions) consist of:
Increase in accounts receivable	$	(3,043,507	)	$	(3,241,831	)
Increase in inventories		(2,966,895	)		(7,879,365	)
Decrease (increase) in prepaid
expenses and other
current assets		495,361			(888,907	)
Decrease (increase) in other assets		644,347			(259,037	)
Increase in accounts payable		3,604,016			4,830,008
Increase in income taxes payable		3,335,425			531,326
Increase in accrued expenses		408,265			1,499,717

	$	2,477,012		$	(5,408,089	)

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

	Nine Months Ended
	September 30,
	2005		2004

Supplementary information:
Cash paid during the nine months for:
Income taxes	$	3,733,000	$	879,000
Interest	$	207,469	$	176,931

Details of acquisitions:
Fair value of assets
acquired (excluding acquired cash of
$311,856 in 2005)	$	6,167,138	$	-
Intangibles		2,445,235		74,539
Goodwill		12,457,651		-
		21,070,024		74,539
Less: Amounts due on acquisition payment		480,885		-

Cash paid for acquisition	$	20,589,139	$	74,539

See notes to unaudited consolidated financial statements.

BEL FUSE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The consolidated balance sheet as of September 30, 2005, and the consolidated statements of operations 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 information for the consolidated balance sheet as of December 31, 2004 was derived from audited financial statements.

Accounting Policies

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Bel Fuse Inc. and subsidiaries operate in one industry with three geographic reporting segments and are engaged in the design, manufacture and sale of a broad array of magnetics, modules, circuit protection devices and interconnect products. The Company manages its operations geographically through its three reporting units: North America, Asia and Europe. Sales are predominantly in North America, Europe and Asia.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries including the businesses acquired since their respective dates of acquisition. All intercompany transactions and balances have been eliminated.

USE OF ESTIMATES - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS - Cash equivalents include short-term investments in U.S. treasury bills and commercial paper with an original maturity of three months or less when purchased. At September 30, 2005 and December 31, 2004, cash equivalents approximated $24,202,000 and $38,355,000, respectively.

MARKETABLE SECURITIES - The Company classifies its equity securities as "available for sale", and accordingly, reflects unrealized gains and losses, net of deferred income taxes, as other comprehensive income.

The fair values of marketable securities are based on quoted market prices. Realized gains or losses from the sale of marketable securities are based on the specific identification method.

ACQUISITION EXPENSES - The Company capitalizes all direct costs associated with proposed acquisitions. If the proposed acquisitions are consummated, such costs will be included as a component of the overall cost of the acquisition. Such costs are expensed at such time as the Company deems the consummation of a proposed acquisition to be unsuccessful.

FOREIGN CURRENCY TRANSLATION - The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments are recorded in Other Comprehensive Income. The U.S. Dollar is used as the functional currency for certain foreign operations that conduct their business in U.S. Dollars. A combination of current and historical exchange rates is used in measuring the local currency transactions of these subsidiaries and the resulting exchange adjustments are included in the statement of operations. Current exchange rates are used for all foreign subsidiaries except for two subsidiaries in the Far East which use both current and historical exchange rates. Realized foreign currency (gains) losses were $(78,000) and $(2,000) for the nine months ended September 30, 2005 and 2004, and $27,000 and $(76,000) for the three months ended September 30, 2005 and 2004, respectively, and are included in Selling, General and Administrative expenses in the consolidated statement of operations.

CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and temporary cash investments. The Company grants credit to customers that are primarily original equipment manufacturers and to subcontractors of original equipment manufacturers based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company controls its exposure to credit risk through credit approvals, credit limits and monitoring procedures and establishes allowances for anticipated losses.

The Company places its temporary cash investments with quality financial institutions and commercial issuers of short-term paper and, by policy, limits the amount of credit exposure in any one financial instrument.

INVENTORIES - Inventories are stated at the lower of weighted average cost or market.

REVENUE RECOGNITION -The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). Revenue is recognized when the product has been delivered and title and risk of loss has passed to the customer, collection of the resulting receivable is deemed probable by management, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Substantially all of the Company's shipments are FCA (free carrier) which provides for title to pass upon delivery to the customer's freight carrier. Some product is shipped DDP/DDU with title passing when the product arrives at the customer's dock.

For certain customers, the Company provides consigned inventory, either at the customer’s facility or at a third party warehouse. Sales of consigned inventory are recorded when the customer withdraws inventory from consignment. During all periods in 2005 and 2004, inventory on consignment was immaterial.

The Company typically has a twelve-month warranty policy for workmanship defects. Warranty returns have historically averaged at or below 1% of annual net sales. The Company establishes warranty reserves when a warranty issue becomes known as warranty claims have historically been immaterial. No general reserves for warranties have been established.

The Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the customer's quality specifications. However, the Company may permit its customers to return product for other reasons. In these instances, the Company would generally require a significant cancellation penalty payment by the customer. The Company estimates such returns, where applicable, based upon management's evaluation of historical experience, market acceptance of products produced and known negotiations with customers. Such estimates are deducted from gross sales and provided for at the time revenue is recognized.

GOODWILL AND OTHER INTANGIBLES -The Company tests goodwill for impairment annually (fourth quarter), using a fair value approach at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment for which discrete financial information is available and reviewed regularly by management. Assets and liabilities of the Company have been assigned to the reporting units to the extent that they are employed in or are considered a liability related to the operations of the reporting unit and were considered in determining the fair value of the reporting unit.

DEPRECIATION - Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated primarily using the declining-balance method for machinery and equipment and the straight-line method for buildings and improvements over their estimated useful lives.

INCOME TAXES - The Company accounts for income taxes using an asset and liability approach under which deferred income taxes are recognized by applying enacted tax rates applicable to future years to the differences between the financial statement carrying amounts and the tax bases of reported assets and liabilities.

Except for a portion of foreign earnings, an income tax provision has not been recorded for U.S. federal income taxes on the undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the repatriation of earnings.

During the fourth quarter of 2005, the Company anticipates repatriating up to $35.0 million of foreign subsidiary earnings to take advantage of the temporary 85% dividends received deductions for cash dividends in excess of the historical "base-period" average. This favorable tax treatment created under the American Jobs Creation Act of 2004 expires on December 31, 2005. The dividend repatriation will result in an additional income tax of up to approximately $1.8 million, which will be recorded at the time of repatriation.

The principal items giving rise to deferred taxes are unrealized gains on marketable securities available for sale, the use of accelerated depreciation methods for machinery and equipment, timing differences between book and tax amortization of intangible assets and goodwill and certain expenses which have been deducted for financial reporting purposes which are not currently deductible for income tax purposes.

STOCK-OPTION PLAN - The Company accounts for equity-based compensation issued to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". APB No. 25 requires the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. The Company makes disclosures of pro forma net earnings and earnings per share as if the fair-value-based method of accounting had been applied as required by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).

Subsequent to the end of the quarter, during October and November 2005, the Company issued 156,200 class B common shares under a restricted stock plan to various officers and employees. The shares vest 25% after two years of employment with an additional 25% vesting in each of years three through five.

The Company grants stock options with exercise prices at fair market value at the date of the grant. The Company will continue to account for stock-based employee compensation under the recognition and measurement principle of APB Opinion No. 25 and related interpretations through December 31, 2005. Thereafter, the Company will account for stock based compensation under SFAS No. 123 (R), "Share-Based Payment" . The Company is currently evaluating its position and will make its determination to account for stock-based compensation costs either prospectively or retroactively at the time of adoption.

The Company has adopted the disclosure-only provisions of SFAS No. 123. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 2005 and 2004 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net earnings - as reported	$	16,968,437		$	18,694,331		$	5,986,397		$	6,894,347
Deduct: Total stock-based
employee compensation expense
determined under fair value based
method for all awards		(482,604	)		(929,696	)		(160,868	)		(309,899	)
Net earnings- pro forma	$	16,485,833		$	17,764,635		$	5,825,529		$	6,584,448
Earnings per common share -
basic-as reported	$	1.48		$	1.66		$	0.52		$	0.61
Earnings per common share -
basic-pro forma	$	1.44		$	1.58		$	0.51		$	0.58
Earnings per common share -
diluted-as reported	$	1.47		$	1.63		$	0.52		$	0.60
Earnings per common share -
diluted-pro forma	$	1.43		$	1.55		$	0.50		$	0.57

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2004: dividend yield of .9%, expected volatility of 35% for Class B; risk-free interest rate of 5% and expected lives of 5 years. No options were granted during the nine months ended September 30, 2005 or 2004.

RESEARCH AND DEVELOPMENT - Research and development costs are expensed as incurred, and are included in cost of sales. Generally all research and development is performed internally for the benefit of the Company. The Company does not perform such activities for others. Research and development costs include salaries, building maintenance and utilities, rents, materials, administration costs and miscellaneous other items. Research and development expenses for the nine months ended September 30, 2005 and 2004 amounted to $5.5 million and $5.6 million, respectively, and for the three months ended September 30, 2005 and 2004 amounted to $1.8 million and $1.8 million, respectively.

EVALUATION OF LONG-LIVED ASSETS - The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.

EARNINGS PER SHARE - 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 are computed by dividing net earnings by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares used in computing diluted earnings per share relate to stock options and warrants which, if exercised, would have a dilutive effect on earnings per share.

The following table includes a reconciliation of shares used in the calculation of basic and diluted earnings per share:

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Weighted average shares outstanding - basic		11,447,675		11,260,597		11,500,704		11,331,012

Dilutive impact of options outstanding		94,530		229,460		74,501		206,802

Weighted average shares oustanding - diluted		11,542,205		11,490,057		11,575,205		11,537,814

During the nine and three months ended September 30, 2005, 20,000 and 20,000 outstanding options, respectively, were not included in the foregoing computations because they were antidilutive. No such exclusion occurred during 2004.

FAIR VALUE OF FINANCIAL INSTRUMENTS - For financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for bank debt. Management believes that the carrying amount of bank debt is a reasonable estimate of its fair value.

2. ACQUISITIONS

On March 22, 2005, the Company acquired the common stock of Galaxy Power Inc. ("Galaxy"), located in Westborough, Massachusetts, for approximately $18.8 million in cash including transaction costs of approximately $0.2 million. Galaxy is a designer and manufacturer of high-density dc-dc converters for distributed power and telecommunication applications. Purchase price allocations have been initially estimated by management and are subject to adjustment. Management is in the process of obtaining independent valuations and independent formal appraisals and may adjust the purchase price allocations accordingly. Management has estimated approximately $11.5 million of goodwill and $2.0 million of identifiable intangible assets arose from the transaction. The identifiable intangible assets and related deferred tax liabilities are being amortized on a straight-line basis over their estimated useful lives.

The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of operations of Galaxy have been included in the Company's consolidated financial statements from March 23, 2005.

There was no in-process research and development acquired as part of this acquisition.

On June 30, 2005, the Company acquired the common stock of Netwatch s.r.o., located in Prague, the Czech Republic, for approximately $1.9 million in cash of which $0.5 million is due to the sellers by June 30, 2006. Netwatch s.r.o. is a designer and manufacturer of high-performance fiber optic and copper cable assemblies for data and telecommunication applications. Purchase price allocations have been estimated by management and are subject to adjustment. Management has estimated approximately $1.0 million of goodwill arose from the transaction.

There was no in-process research and development acquired as part of this acquisition.

The following unaudited pro forma summary results of operations assume that Galaxy and Netwatch s.r.o. had been acquired as of January 1, 2004 (in thousands, except per share data):

	Nine Months Ended
	September 30,
	2005		2004
Net sales	$	164,543	$	156,786
Net earnings		16,692		19,362
Earnings per share - diluted		1.45		1.69

The information above is not necessarily indicative of the results of operations that would have occurred if the Galaxy and Netwatch s.r.o. acquisitions had been consummated as of January 1, 2004. Such information should not be construed as a representation of the future results of operations of the Company.

A condensed combined balance sheet of the major assets and liabilities of Galaxy and Netwatch s.r.o., as of their acquisition dates is as follows:


Cash	$	311,856
Accounts receivable		3,687,331
Inventories		2,862,571
Prepaid expenses		96,120
Income taxes receivable		5,488
Property, plant and
equipment		1,545,526
Other assets		32,083
Deferred tax asset		1,392,850
Goodwill		12,457,651
Intangible assets		1,960,000
Notes payable		(860,694	)
Accounts payable		(2,129,165	)
Accrued expenses		(465,002	)

Net assets acquired	$	20,896,615

3. GOODWILL AND OTHER INTANGIBLES

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to, at a minimum, an annual impairment test which is performed during the fourth quarter. If the carrying value of goodwill or intangible assets exceeds its fair market value, an impairment loss would be recorded.

Other intangibles include patents, product information, covenants not-to-compete and supply agreements. Amounts assigned to these intangibles have been determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. Other intangibles are being amortized over 1 to 10 years. Amortization expense was $1,610,000 and $1,069,000 for the nine months ended September 30, 2005 and 2004, respectively and $629,000 and $494,000 for the three months ended September 30, 2005 and 2004, respectively.

Under the terms of the E-Power and Current Concepts, Inc. acquisition agreements of May 11, 2001, the Company is required to make contingent purchase price payments up to an aggregate of $7.6 million should the acquired companies attain specified sales levels. E-Power will be paid $2.0 million in contingent purchase price payments if sales, as defined, reach $15.0 million and an additional $4.0 million if sales reach $25.0 million on a cumulative basis through May 2007. No payments have been required through September 30, 2005 with respect to E-Power. Current Concepts will be paid 16% of sales, as defined, on the first $10.0 million of sales through May 2007. During the nine months ended September 30, 2005 and 2004, the Company paid $485,000 and $75,000, respectively, in contingent price payments to Current Concepts. During the three months ended September 30, 2005 and 2004, the Company paid approximately $189,000 and $-0-, respectively, in contingent purchase price payments to Current Concepts. The contingent purchase price payments are accounted for as additional purchase price and as an increase to covenants not to compete within intangible assets when such payment obligations are incurred.

The changes in the carrying value of goodwill classified by geographic reporting units for the nine months ended September 30, 2005 and the year ended December 31, 2004 are as follows:

	Total		Asia		North America		Europe

Balance, January 1, 2004	$	9,881,854	$	6,407,435	$	2,869,092	$	605,327

Goodwill allocation
related to acquisitions		-		-		-		-

Balance, December 31, 2004		9,881,854		6,407,435		2,869,092		605,327

Goodwill allocation
related to acquisitions		12,457,651		-		11,454,643		1,003,008

Balance, September 30, 2005	$	22,339,505	$	6,407,435	$	14,323,735	$	1,608,335

The components of intangible assets other than goodwill by geographic reporting unit are as follows:

	December 31, 2004
	Total				Asia				North America
	Gross Carrying		Accumulated		Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization		Amount		Amortization

Patents and Product
Information	$	2,935,000	$	1,338,765	$	2,653,000	$	1,188,654	$	282,000	$	150,111

Covenants not-to-compete		3,523,516		2,428,069		3,523,516		2,428,069		-		-

Supply agreement		2,660,000		2,660,000		1,409,800		1,409,800		1,250,200		1,250,200

	$	9,118,516	$	6,426,834	$	7,586,316	$	5,026,523	$	1,532,200	$	1,400,311


	September 30, 2005
	Total				Asia				North America
	Gross Carrying		Accumulated		Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization		Amount		Amortization

Patents and Product
Information	$	2,935,000	$	1,694,331	$	2,653,000	$	1,523,088	$	282,000	$	171,243

Customer relationship		1,160,000		120,833		-		-		1,160,000		120,833

Covenants not-to-compete		4,809,543		3,561,346		4,009,543		3,204,263		800,000		357,143

	$	8,904,543	$	5,376,510	$	6,662,543	$	4,727,291	$	2,242,000	$	649,219

Estimated amortization expense for intangible assets for the next five years is as follows:

	Estimated
Year Ending	Amortization
December 31,	Expense

2005	$	2,395,087
2006		1,282,901
2007		638,166
2008		363,176
2009		404,528

4. MARKETABLE SECURITIES

The Company has acquired a total of 2,037,500 shares of the common stock of Artesyn Technologies, Inc. (“Artesyn”) at a total purchase price of $16,331,469. These purchases were reflected on the Company's consolidated statement of cash flows in the third quarter of 2004 as purchases of marketable securities and have since been reflected on the Company's consolidated balance sheet as marketable securities. As of September 30, 2005, the Company has recorded an unrealized gain, net of income taxes, of approximately $1,498,000, which is included in accumulated other comprehensive income as stated in the consolidated statement of stockholders' equity. In connection with this transaction, the Company is obligated to pay an investment banker's advisory fee to a third party of 20% of the appreciation in the stock of Artesyn, or $1 million, whichever is lower. As of September 30, 2005, the Company has accrued a fee in the amount of approximately $523,000. Such amount has been deferred as deferred acquisition costs and recorded within other assets. The Company has proposed to Artesyn that the Company acquire Artesyn, but to date Artesyn has not indicated any interest in negotiating such a transaction with the Company. If the proposed acquisition of Artesyn is consummated, the fee will be capitalized as part of the acquisition costs. Such amount will be expensed at such time as the Company deems the consummation of the proposed acquisition to be unsuccessful.

At September 30, 2005 and December 31, 2004, respectively, marketable securities have a cost of approximately $18,054,000 and $16,516,000, an estimated fair value of approximately $20,548,000 and $23,120,000 and gross unrealized gains of approximately $2,494,000 and $6,604,000. Such unrealized gains, net of tax, are included in other comprehensive income.

5. INVENTORIES

The components of inventories are as follows:

	September 30,		December 31,
	2005		2004
Raw materials	$	20,153,572	$	15,236,393
Work in progress		2,151,554		1,607,052
Finished goods		12,480,581		12,257,615
	$	34,785,707	$	29,101,060

6. BUSINESS SEGMENT INFORMATION

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

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Total segment revenues
North America	$	62,002,064		$	59,572,098		$	24,882,906		$	19,868,199
Asia		106,420,536			99,815,521			34,910,620			35,085,095
Europe		11,633,694			12,281,273			4,219,386			4,262,553
Total segment revenues		180,056,294			171,668,892			64,012,912			59,215,847
Reconciling items:
Intersegment revenues		(20,824,843	)		(30,936,001	)		(7,765,167	)		(9,230,221	)
Net sales	$	159,231,451		$	140,732,891		$	56,247,745		$	49,985,626

Income (loss) from Operations:
North America	$	5,481,830		$	3,953,654		$	1,640,800		$	2,212,762
Asia		15,329,791			13,583,612			5,530,004			4,754,118
Europe		(31,744	)		1,114,161			(153,786	)		26,668
	$	20,779,877		$	18,651,427		$	7,017,018		$	6,993,548

7. DEBT

a. Short-term debt

Previously the Company had available one domestic line of credit of $10 million. During March 2005, the Company borrowed $8 million against the line of credit to partially finance the acquisition of Galaxy. The outstanding balance was paid off in its entirety on June 20, 2005. During July 2005, the Company amended its credit agreement to increase the line of credit to $20 million, which expires on July 21, 2008. There was no balance outstanding as of September 30, 2005.

Subsequent to the end of the quarter during October 2005 the Company borrowed approximately $2.0 million against its line of credit. The loan currently bears interest at 4.87% annually. The interest rate is based on LIBOR plus the applicable margin, which is based on the estimated term of the loan (from one to six months).

b. Long-term debt

On March 21, 2003, the Company entered into a $10 million secured term loan, which was paid off in June 2005. The loan was used to partially finance the Company's acquisition of Insilco's Passive Components Group. This term loan facility is no longer available.

For the nine months ended September 30, 2005 and 2004, the Company recorded interest expense of approximately $207,000 and $177,000, respectively. For the three months ended September 30, 2005 and 2004, the Company recorded interest expense of approximately $-0- and $60,000, respectively.

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30,		December 31,
	2005		2004
Sales commissions	$	1,549,663	$	1,431,169
Investment banking commissions		523,000		1,000,000
Subcontracting labor		1,501,022		1,624,963
Salaries, bonuses and
related benefits		3,961,490		3,480,213
Other		2,725,747		2,757,231
	$	10,260,922	$	10,293,576

9. RETIREMENT FUND AND PROFIT SHARING PLAN

The Company maintains a domestic profit sharing plan and a contributory stock ownership and savings 401(K) plan, which combines stock ownership and individual voluntary savings provisions to provide retirement benefits for plan participants. The plan provides for participants to voluntarily contribute a portion of their compensation, subject to certain legal maximums. The Company will match, based on a sliding scale, up to $350 for the first $600 contributed by each participant. Matching contributions plus additional discretionary contributions will be made with Company stock purchased in the open market. The expense for the nine months ended September 30, 2005 and 2004 amounted to approximately $400,000 and $316,000, respectively. The expense for the three months ended September 30, 2005 and 2004 amounted to approximately $152,000 and $168,000, respectively. These expenses are included as a component of cost of sales and selling, general and administrative expenses on the accompanying consolidated statements of operations. As of September 30, 2005, the plans owned 18,710 and 132,688 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Company's Far East subsidiaries 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 may contribute an amount up to 7% of eligible salary, as determined by Hong Kong government regulations, in cash or Company stock. The expense for the nine months ended September 30, 2005 and 2004 amounted to approximately $298,000 and $301,000, respectively. The expense for the three months ended September 30, 2005 and 2004 amounted to approximately $89,000 and $96,000, respectively. As of September 30, 2005, the plan owned 3,323 and 17,756 shares of Bel Fuse Inc. Class A and Class B common stock, respectively.

The Supplemental Executive Retirement Plan (the “Plan” or "SERP") is designed to provide a limited group of key management and highly compensated associates of the Company supplemental retirement and death benefits. The Plan was established by the Company in 2002. Employees are selected at the sole discretion of the Board of Directors of the Company to participate in the Plan. The Plan is unfunded. The Company utilizes life insurance to partially cover its obligations under the Plan. The benefits available under the Plan vary according to when and how the participant terminates employment with the Company. If a participant retires (with the prior written consent of the Company) on his normal retirement date (65 years old, 20 years of service, and 5 years of Plan participation), his normal retirement benefit under the Plan would be annual payments equal to 40% of his average base compensation (calculated using compensation from the highest 5 consecutive calendar years of Plan participation), payable in monthly installments for the remainder of his life.

If a participant retires early from the Company (55 years old, 20 years of service, and 5 years of Plan participation), his early retirement benefit under the Plan would be an amount (i) calculated as if his early retirement date were in fact his normal retirement date, (ii) multiplied by a fraction, with the numerator being the actual years of service the participant has with the Company and the denominator being the years of service the participant would have had if he had retired at age 65, and (iii) actuarially reduced to reflect the early retirement date. If a participant dies prior to receiving 120 monthly payments under the Plan, his beneficiary would be entitled to continue receiving benefits for the shorter of (i) the time necessary to complete 120 monthly payments or (ii) 60 months.

If a participant dies while employed by the Company, his beneficiary would receive, as a survivor benefit, an annual amount equal to (i) 100% of the participant’s annual base salary at date of death for one year, and (ii) 50% of the participant’s annual base salary at date of death for each of the following 4 years, each payable in monthly installments. The Plan also provides for disability benefits, and a forfeiture of benefits if a participant terminates employment for reasons other than those contemplated under the Plan. The expense for the nine months ended September 30, 2005 and 2004 amounted to approximately $461,000 and $306,000, respectively. The expense for the three months ended September 30, 2005 and 2004 amounted to approximately $120,000 and $102,000, respectively.

The components of SERP expense are as follows:

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Service cost	$	208,000	$	107,000	$	54,000	$	36,000
Interest cost		153,000		120,000		40,000		40,000
Amortization of adjustments		100,000		79,000		26,000		26,000
Total SERP expense	$	461,000	$	306,000	$	120,000	$	102,000

	September 30,		December 31,
	2005		2004
Balance sheet amounts:
Accrued pension liability	$	2,722,583	$	2,261,583
Intangible asset		1,127,941		1,127,941

10. COMMON STOCK

During 2000, the Board of Directors of the Company authorized the purchase of up to ten percent (10%) of the Company’s outstanding Class B common shares. As of September 30, 2005, the Company had cumulatively purchased and retired 23,600 Class B common shares at a cost of approximately $808,000 which reduced the number of Class B common shares outstanding.

The Company maintains two classes of outstanding common stock, Class A Common Stock (“Class A”) and Class B Common Stock (“Class B”). The following is a summary of the pertinent rights and privileges of each class outstanding:

·	Voting - Class A receives one vote per share; Class B is non-voting;

Dividends (cash) - Cash dividends are payable at the discretion of the Board of Directors and is subject to a 5% provision whereby cash dividends paid out to Class B must be at least 5% higher per share annually than Class A. At the discretion of the Board of Directors, Class B may receive a cash dividend without Class A receiving a cash dividend.

·	Dividends (other than cash) and distributions in connection with any recapitalization and upon liquidation, dissolution or winding up of the Company - Shared equally among Class A and Class B;

·	Mergers and consolidations - Equal amount and form of consideration per share among Class A and Class B;

Class B Protection - Any person or group that purchases 10% or more of the outstanding Class A (excluding certain shares, as defined) must make a public cash tender offer (within 90 days) to acquire additional shares of Class B to avoid disproportionate voting rights. Failure to do so will result in forfeiture of voting rights for those shares acquired after the recapitalization. Alternatively, the purchaser can sell Class A shares to reduce the purchaser's holdings below 10% (excluding shares owned prior to recapitalization). Above 10%, this protection transaction is triggered every 5% (i.e., 15%, 20%, 25%, etc.);

Convertibility - Not convertible into another class of Common Stock or any other security by the Company, unless by resolution by the Board of Directors to convert such shares as a result of either class becoming excluded from quotation on NASDAQ, or if total outstanding shares of Class A falls below 10% of the aggregate number of outstanding shares of both classes (in which case, all Class B shares will be automatically converted in Class A shares).

·	Transferability and trading - Both Class A and Class B are freely transferable and publicly traded on NASDAQ National Market;

·	Subdivision of shares - Any split, subdivision or combination of the outstanding shares of Class A or Class B must be proportionately split with the other class in the same manner and on the same basis.

11. COMPREHENSIVE INCOME

Comprehensive income for the nine and three months ended September 30, 2005 and 2004 consists of:

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Net earnings	$	16,968,437	$	18,694,331	$	5,986,397	$	6,894,347
Currency translation adjustment-