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Income Taxes | 12 Months Ended
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Dec. 31, 2014
Income Taxes [Abstract] |
Income Taxes | 9. Income Taxes At December 31, 2014 and 2013, the Company has approximately $40.0 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 on the consolidated balance sheets and $39.8 million and $1.2 million, respectively, included in liability for uncertain tax positions on the consolidated balance sheets) a portion of which ($2.8 million and $2.2 million, respectively), if recognized, would reduce the Company's effective tax rate. 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 statutes 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 consolidated financial statements at December 31, 2014. A total of $0.2 million of previously recorded liabilities for uncertain tax positions relates principally to the 2011 tax year. The statute of limitations related to these liabilities is scheduled to expire on September 15, 2015. 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 year ended December 31, 2014. This was offset by an increase to the liability for uncertain tax positions in the amount of $2.7 million, of which $1.2 million relates to interest and penalties on the uncertain tax positions acquired from Power Solutions, which is included in the consolidated statement of operations during the year ended December 31, 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 year ended December 31, 2013. A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:
|  | 2014 |  |  | 2013 |  |  | 2012 |
Liability for uncertain tax positions - January 1 |  | $ | 2,189 |  |  | $ | 2,711 |  |  | $ | 4,132 |
Additions based on tax positions |  |  |  |  |  |  |  |  |  |  |  |
related to the current year |  |  | 2,732 |  |  |  | 28 |  |  |  | 1,221 |
Additions relating to acquisitions |  |  | 35,874 |  |  |  | - |  |  |  | - |
Settlement/expiration of statutes of limitations |  |  | (825 | ) |  |  | (550 | ) |  |  | (2,642 | )
Liability for uncertain tax positions - December 31 |  | $ | 39,970 |  |  | $ | 2,189 |  |  | $ | 2,711 |
As part of the acquisition of Power Solutions the Company acquired a $35.8 million liability for uncertain tax positions. Of this amount, $12.0 million relates to an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd.) for the years 2004 through 2006, as further described in Note 16. The Company also acquired a liability for additional uncertain tax positions related to various tax matters for the years 2007 through 2013. Resolution of these tax matters are being actively pursued with the applicable taxing authority. From the date of acquisition through December 31, 2014, the Company has recorded $1.2 million of interest and penalties pertaining to this issue and will continue to accrue approximately $2.5 million annually until the issue is resolved. The Company's policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the years ended December 31, 2014 and 2013, the Company recognized $1.6 million and an immaterial amount, respectively, in interest and penalties in the consolidated statements of operations. During the year ended December 31, 2014, the Company recognized a benefit of $0.2 million for the reversal of such interest and penalties. The Company has approximately $1.6 million and $0.2 million accrued for the payment of interest and penalties at December 31, 2014 and 2013, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the consolidated balance sheets. The Company's total income (loss) before provision (benefit) for income taxes included earnings (loss) from domestic operations of ($9.2) million, ($1.2) million and $0.4 million for 2014, 2013 and 2012, respectively, and earnings before provision (benefit) for income taxes from foreign operations of $19.6 million, $16.3 million and $0.6 million for 2014, 2013 and 2012, respectively. The provision (benefit) for income taxes consists of the following:
|  | Years Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,924 |  |  | $ | (1,099 | ) |  | $ | (459 | )
Foreign |  |  | 1,759 |  |  |  | 1,120 |  |  |  | 241 |
State |  |  | 175 |  |  |  | 113 |  |  |  | 76 |
|  |  | 3,858 |  |  |  | 134 |  |  |  | (142 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (2,698 | ) |  |  | (865 | ) |  |  | (807 | )
State |  |  | (407 | ) |  |  | 65 |  |  |  | (58 | )
Foreign |  |  | 543 |  |  |  | (77 | ) |  |  | (369 | )
|  |  | (2,562 | ) |  |  | (877 | ) |  |  | (1,234 | )
|  | $ | 1,296 |  |  | $ | (743 | ) |  | $ | (1,376 | )
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:
|  | Years Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | $ |  |  |  | % |  |  | $ |  |  |  | % |  |  | $ |  |  |  | % |
Tax provision computed at the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
federal statutory rate |  | $ | 3,638 |  |  |  | 35 | % |  | $ | 5,309 |  |  |  | 35 | % |  | $ | 339 |  |  |  | 34 | %
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Different tax rates |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
applicable to foreign operations |  |  | (4,524 | ) |  |  | (44 | %) |  |  | (4,677 | ) |  |  | (31 | %) |  |  | (306 | ) |  |  | (31 | %)
Increase in (reversal of) liability for uncertain |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax positions - net |  |  | 1,907 |  |  |  | 18 | % |  |  | (522 | ) |  |  | (3 | %) |  |  | (1,421 | ) |  |  | (143 | %)
Utilization of research and experimentation, solar and foreign |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax credits |  |  | (508 | ) |  |  | (5 | %) |  |  | (1,049 | ) |  |  | (7 | %) |  |  | - |  |  |  | 0 | %
State taxes, net of federal benefit |  |  | (183 | ) |  |  | (2 | %) |  |  | 117 |  |  |  | 1 | % |  |  | - |  |  |  | 0 | %
Current year valuation allowance - U.S. segment |  |  | 335 |  |  |  | 3 | % |  |  | 49 |  |  |  | 0 | % |  |  | 298 |  |  |  | 30 | %
Federal tax on profit of foreign disregarded entities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
net of deferred tax |  |  | 770 |  |  |  | 7 | % |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | %
Permanent differences applicable to U.S. operations, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
including qualified production activity credits, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP/COLI income, unrealized foreign exchange gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and amortization of purchase accounting intangibles |  |  | (11 | ) |  |  | 0 | % |  |  | (91 | ) |  |  | (1 | %) |  |  | (260 | ) |  |  | (26 | %)
Other |  |  | (128 | ) |  |  | (1 | %) |  |  | 121 |  |  |  | 1 | % |  |  | (26 | ) |  |  | (3 | %)
Tax (benefit) provision computed at the Company's |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
effective tax rate |  | $ | 1,296 |  |  |  | 12 | % |  | $ | (743 | ) |  |  | (5 | %) |  | $ | (1,376 | ) |  |  | (138 | %)
The Company holds an offshore business license from the government of Macao. With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle all of the Company's sales to third-party customers in Asia. Sales by this company consist of products manufactured in the PRC. This company is not subject to Macao corporate profit taxes which are imposed at a tax rate of 12%. Additionally, the Company established TRP International, a China Business Trust ("CBT"), when it acquired the TRP group, as previously discussed. Sales by the CBT consists of products manufactured in the PRC and sold to third-party customers inside and outside Asia. The CBT is not subject to PRC income taxes, which are generally imposed at a tax rate of 25%. As of December 31, 2014, the Company has gross foreign income tax net operating losses ("NOL") of $19.4 million, foreign tax credits of $0.3 million and capital loss carryforwards of $0.2 million which amount to a total of $4.9 million of deferred tax assets. The Company has established valuation allowances totaling $4.9 million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of $27.7 million, including $5.9 million of NOLs acquired from Array and $16.7 million of NOLs acquired from Connectivity Solutions, which amount to $9.0 million of deferred tax assets; capital loss carryforwards of $0.9 million which amount to $0.3 million of deferred tax assets; and tax credit carryforwards of $2.1 million. The Company has established valuation allowances of $0.2 million, $0.3 million and $1.2 million, respectively, against these deferred tax assets. The foreign NOL's can be carried forward indefinitely, the NOL acquired from Array expires at various times during 2026 – 2027, the NOL acquired from Connectivity Solutions expire at various times during 2022-2033, the state NOL's expire at various times during 2015 – 2031 and the tax credit carryforwards expire at various times during 2025 - 2034. Upon completion of the acquisitions of Power Solutions and Connectivity Solutions, there were net deferred tax assets of $7.1 million and $1.2 million, respectively, arising from various temporary differences and net operating loss carry forward acquired, which are included in the consolidated balance sheet at December 31, 2014. In connection with the 2014 Acquisitions, the Company was required to complete a fair market value report of property, plant and equipment and intangibles. As a result of that report, the Company established deferred tax liabilities at the date of acquisition in the amount of $3.1 million and $16.4 million, respectively, for the Power Solutions and Connectivity Solutions acquisitions. At December 31, 2014, a net deferred tax liability of $8.3 million remains on the consolidated balance sheet for the 2014 Acquisitions. The Company intends to make elections to step up the tax basis to fair value under IRC Section 338(g) for the Power Solutions acquisition and for certain jurisdictions with respect to the Connectivity Solutions acquisition. The elections made under Section 338(g) only affect U.S. income taxes (not those of the foreign country where the acquired entities were incorporated). 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 December 31, 2014, a net deferred tax liability of $0.3 million remains on the consolidated balance sheet for the 2013 Acquisitions. 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). Upon the acquisition of Fibreco, Fibreco had a deferred tax liability in the amount of $0.1 million arising from various timing differences. In connection with the 2012 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 $1.7 million, $0.6 million and $0.4 million, respectively for the Fibreco, GigaCom and Powerbox acquisitions. At December 31, 2014, a deferred tax liability of $2.1 million remains on the consolidated balance sheet for the 2012 Acquisitions. The Company has made elections under Internal Revenue Code ("IRC") Section 338(g) to step up the tax basis of the 2012 Acquisitions to fair value. The elections made under Section 338(g) only affect U.S. income taxes (not those of the foreign country where the acquired entities were incorporated). It is the Company's intention to repatriate substantially all net income from its wholly owned PRC subsidiary, Dongguan Transpower Electric Products Co., Ltd, a Chinese Limited Liability Company, to its direct Hong Kong parent Transpower Technologies (Hong Kong) Ltd. Applicable income and dividend withholding taxes have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2014. However, U.S. deferred taxes need not be provided as there is no intention to repatriate such amounts to the U.S. Management's intention is to permanently reinvest the majority of the remaining earnings of foreign subsidiaries in the expansion of its foreign operations. Unrepatriated earnings, upon which U.S. income taxes have not been accrued, are approximately $126.6 million at December 31, 2014. Such unrepatriated earnings are deemed by management to be permanently reinvested. At December 31, 2014, the estimated federal income tax liability (net of estimated foreign tax credits) related to unrepatriated foreign earnings is $32.4 million under the current tax law. Components of deferred income tax assets are as follows:
|  | December 31, |
|  | 2014 |  |  | 2013 |
|  | Tax Effect |  |  | Tax Effect |
Deferred tax assets: |  |  |  |  |  |
State tax credits |  | $ | 954 |  |  | $ | 1,336 |
Unfunded pension liability |  |  | 1,301 |  |  |  | 668 |
Reserves and accruals |  |  | 2,095 |  |  |  | 2,020 |
Federal, state and foreign net operating loss |  |  |  |  |  |  |  |
and credit carryforwards |  |  | 15,361 |  |  |  | 4,634 |
Depreciation |  |  | 962 |  |  |  | 973 |
Amortization |  |  | 995 |  |  |  | 588 |
Acquired deferred taxes |  |  | 10,775 |  |  |  | - |
Other accruals |  |  | 3,253 |  |  |  | 3,303 |
Total deferred tax assets |  |  | 35,696 |  |  |  | 13,522 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Reserves and accruals |  |  | 68 |  |  |  | 68 |
Depreciation |  |  | 707 |  |  |  | 1,076 |
Amortization |  |  | 21,191 |  |  |  | 4,762 |
Acquired deferred taxes |  |  | 8,053 |  |  |  | - |
Other accruals |  |  | 1,522 |  |  |  | 566 |
Total deferred tax liabilities |  |  | 31,541 |  |  |  | 6,472 |
Valuation allowance |  |  | 6,692 |  |  |  | 2,375 |
Net deferred tax assets/(liabilities) |  | $ | (2,537 | ) |  | $ | 4,675 |
On December 31, 2013, under the "American Taxpayer Relief Act" ("ATRA"), the Research and Experimentation credit ("R&E") expired. On December 16, 2014, the R&E credit was extended back to January 1, 2014 and the Company recognized $0.3 million in R&E credits during the fourth quarter of 2014. 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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