The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes related thereto. The discussion of results, causes and trends should not be construed to imply any conclusion that such results, causes or trends will necessarily continue in the future.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, investments, SERP expense, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company maintains allowances for doubtful accounts for estimated losses from the inability of its customers to make required payments. The Company determines its reserves by both specific identification of customer accounts where appropriate and the application of historical loss experience to non-specific accounts. As of December 31, 2008 and 2007, the Company had an allowance for doubtful accounts of $0.7 million and $1.0 million, respectively. While historical loss experience is utilized in determining the Company's allowance for doubtful accounts, the Company believes this factor may not provide an accurate depiction of future losses, given the current economic conditions. If the financial condition of the Company's customers were to deteriorate, to the extent that their ability to make payments is impaired, additional allowances may be required.

Inventory

The Company makes purchasing and manufacturing decisions principally based upon firm sales orders from customers, projected customer requirements and the availability and pricing of raw materials. Future events that could adversely affect these decisions and result in significant charges to the Company's operations include miscalculating customer requirements, technology changes which render certain raw materials and finished goods obsolete, loss of customers and/or cancellation of sales orders, stock rotation with distributors and termination of distribution agreements. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon the aforementioned assumptions. During the fourth quarter of 2008, the Company recorded $0.3 million related to the writedown of inventory associated with the closure of the Westborough, Massachusetts facility. This charge is included in cost of sales in the accompanying statement of operations for the year ended December 31, 2008. As of December 31, 2008 and 2007, the Company had reserves for excess or obsolete inventory of $4.1 million and $3.3 million, respectively. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

When inventory is written-off, it is never written back up; the cost remains at zero or the level to which it has been written-down. When inventory that has been written-off is subsequently used in the manufacturing process, the lower adjusted cost of the material is charged to cost of sales. Should any of this inventory be used in the manufacturing process for customer orders, the improved gross profit will be recognized at the time the completed product is shipped and the sale is recorded.

Goodwill and Intangible Assets

The assets and liabilities of acquired businesses are recorded under the purchase method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses.

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. We have reviewed the carrying value of our goodwill and other indefinite-lived intangible assets as required by Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". The identification and measurement of goodwill impairment involves the estimation of the fair value of geographic reporting units. The estimates of fair value of geographic reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows and contemplate other valuation techniques. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities. As of December 31, 2008, the Company had the following reporting units that had goodwill assigned to them (there were no changes in the reporting units between December 31, 2007 and December 31, 2008):

· North America

· Asia

· Europe

For the annual goodwill impairment assessment performed in 2008, the Company's fair value analysis was supported by a weighting of two generally accepted valuation approaches, including the income approach and the market approach, as further described below. These approaches include numerous assumptions with respect to future circumstances, such as industry and/or local market conditions that might directly impact each of the operating segment's operations in the future, and are therefore uncertain. These approaches are utilized to develop a range of fair values and a weighted average of these approaches is utilized to determine the best fair value estimate within that range.

Income Approach - Discounted Cash Flows. This valuation approach derives a present value of the operating segment's future annual cash flows over the next four years and the present value of the residual value of the operating segment. The Company uses a variety of underlying assumptions to estimate these future cash flows, including assumptions relating to future economic market conditions, product pricing, sales volumes, cost and expenses and capital expenditures. These assumptions may vary by each reporting unit depending on regional market conditions, including competitive position, supply and demand for raw materials, labor costs and other industry conditions.

Market Approach - Multiples of EBIT, EBITDA, DFNI and DFCF (as defined in the chart below). This valuation approach first identifies public companies in the electronic component manufacturing and distribution industries that are similar to Bel. A grouping of applicable value measures was then selected and the appropriate market multiples were calculated based on the fundamental value measures of the selected guideline companies. The last step involved selecting the multiple to apply to Bel's various value measures, which was used to calculate the indicated value of each operating segment.

Detailed below is a table of key underlying assumptions utilized in the fair value estimate calculation for the years ended December 31, 2008 and December 31, 2007. Assumptions may vary by operating segment. The table below shows the range of assumptions utilized across the various operating segments.

                                                       Goodwill Impairment Analysis
                                                              Key Assumptions
                                                         2008                 2007

Income Approach - Discounted Cash Flows:
Revenue growth rates                                 (8.9%) - 10.3%            5.0%
Cost of equity capital                               13.0% - 13.6%         13.2% - 16.1%
Cost of debt capital                                  4.9% - 7.7%           3.5% - 5.5%
Weighted average cost of capital                     11.0% - 13.3%         11.2% - 15.0%

Market Approach - Multiples of Guideline
Companies (a):
EBIT multiples used                                    6.0 - 10.7           9.7 - 14.3
EBITDA multiples used                                  5.0 - 7.5            8.7 - 10.0
DFNI multiples used                                    9.3 - 13.5          not utilized
DFCF multiples used                                    6.4 - 7.4            11.4 - 14.4
Control premium (b)                                  27.5% - 31.7%             20.0%

Weighting of Valuation Methods:
Income Approach - Discounted Cash Flows (c)               75%                   50%
Market Approach - Multiples of Guideline
Companies (c)                                             25%                   50%

Definitions:
EBIT - Earnings before interest and taxes EBITDA - Earnings before interest, taxes, depreciation and amortization DFNI - Debt-free net income
DFCF - Debt-free cash flow

(a) Multiple range reflects multiples used throughout the North America, Asia and Europe operating segments
(b) Determined based on the industry mean control premium as published each year in MergerStat Review
(c) The weighting of valuation methods was changed in 2008, as management's projections provided for the discounted cash flow analysis are believed to be more indicative of Bel's future performance. The guideline company approach relies on the market and given the present state of the economy with significant market fluctuations, management believes the discounted cash flow projections are a more reliable base.

During the fourth quarter of 2008, we conducted our annual impairment test related to the Company's goodwill by operating segment. The valuation test, which heavily weights future cash flow projections, indicated that the goodwill associated with our North America operating segment was fully impaired as of the valuation date. The reduced expected future cash flows in North America was related to a combination of the ending of a certain product's life cycle and an overall reduction in sales anticipated during 2009 given the current economic conditions. Sales are projected to return to 2008 levels in 2010, with moderate growth in subsequent years. This statement reflects a Forward Looking Statement. Actual results may differ, depending in part on the timing associated with the current economic recession and the impact of that recession on Bel's customers. As a result, the Company recorded a goodwill impairment charge of $14.1 million during the fourth quarter of 2008.

No impairment existed at the assessment date for our Asia or Europe operating segments; however, there can be no assurances that goodwill impairments will not occur in the future. Our valuation model utilizes assumptions which represent our best estimate of future events, but would be sensitive to positive or negative changes in each of the underlying assumptions as well as to an alternative weighting of valuation methods which would result in a potentially higher or lower goodwill impairment expense. Specifically, a continued decline in demand for Bel's products and corresponding revenues declining at rates greater than management's expectations, may lead to additional goodwill impairment charges, especially in the Company's Asia operating segment, where the carrying value closely approximates its estimated fair value. Furthermore, a continued decline in the guideline company multiples may also lead to additional goodwill impairment charges. Our goodwill balance was $14.3 million and $28.4 million at December 31, 2008 and 2007, respectively. See Note 2 to the Consolidated Financial Statements for further information on the Company's goodwill.

Income taxes are accounted for under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Significant judgment is required in determining the worldwide provisions for income taxes. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such asset. In the ordinary course of a global business, the ultimate tax outcome is uncertain for many transactions. Effective January 1, 2007, uncertain tax positions are accounted for in accordance with FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). It is the Company's policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management's assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions. FIN 48 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and, consequently, affect our operating results.

Revenue Recognition

The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" and other relevant accounting literature. Revenue is recognized when the product has been delivered and title and risk of loss have passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sale price is fixed and determinable.

Historically the Company has been successful in mitigating the risks associated with its revenue. Some issues relate to product warranty, credit worthiness of its customers and concentration of sales among a few major customers.

The Company is not contractually obligated to accept returns from non-distributor customers except for defective product or in instances where the product does not meet the Company's quality specifications. If these conditions existed, the Company would be obligated to repair or replace the defective product or make a cash settlement with the customer. Distributors generally have the right to return up to 5% of their purchases over the previous three to six months and are obligated to purchase an amount at least equal to the return. If the Company terminates a distributor, the Company is obligated to accept as a return all of the distributor's inventory from the Company. The Company accrues an estimate for anticipated returns based on historical experience at the time revenue is recognized and adjusts such estimate as specific anticipated returns are identified. If a distributor terminates its relationship with the Company, the Company is not obligated to accept any inventory returns.

The Company has a significant amount of sales with several customers, including two major customers with sales of $34.7 million and $28.1 million in 2008, representing 13.4% and 10.9%, respectively, of the Company's total sales during the year ended December 31, 2008. The loss of one or both customers could have a material adverse effect on the Company's results of operations, financial position and cash flows.

Overview

Our Company

Bel is a leading producer of electronic products that help make global connectivity a reality. The Company designs, manufactures and markets a broad array of magnetics, modules (including power conversion and integrated modules), circuit protection devices and interconnect products. While these products are deployed primarily in the computer, networking and telecommunication industries, Bel's expanding portfolio of products also finds application in the automotive, medical and consumer electronics markets. Bel's products are designed to protect, regulate, connect, isolate or manage a variety of electronic circuits.

Bel's business is operated through three geographic segments: North America, Asia and Europe. During 2008, 64% of the Company's revenues were derived from Asia, 26% from North America and 10% from its Europe operating segment. The Company's revenues are primarily driven by working closely with its customers' engineering staffs and aligning them with industry standards committees and various integrated circuit (IC) manufacturers. Sales of the Company's magnetic products represented approximately 46% of our total net sales for 2008. The remaining 2008 revenues related to sales of the Company's modules products (30%), interconnect products (18%) and circuit protection products (6%).

The Company's expenses are driven principally by the cost of labor where Bel's factories are located and the cost of the materials that it uses. As labor and material costs vary by product line, any significant shift in product mix has an associated impact on the Company's costs of sales. Bel generally enters into processing arrangements with several independent third party contractors in Asia. Costs are recorded as incurred for all products manufactured either at third party facilities or at the Company's own manufacturing facilities. Such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead. The Company manufactures finished goods at its own manufacturing facilities in Glen Rock, Pennsylvania, Inwood, New York, the Dominican Republic, Mexico, the Czech Republic and through December 31, 2008, in its Westborough, Massachusetts facility.

Trends Affecting our Business

The Company believes the key factors affecting Bel's 2008 and future results include the following:

· Increasing pressures in the U.S. and global economy related to the global economic downturn, the credit crisis, volatility in interest rates, investment returns, energy prices and other elements that impact commercial and end-user consumer spending, are creating a highly challenging environment for Bel and its customers.

· These weakening economic conditions have resulted in reductions in capital expenditures by end-user consumers of our products, resulting in decreased backlog of orders in 2009.

· With the overall reduction in demand in our industry, competition will continue to increase. As a result, Bel is being faced with pricing pressures, which will impact our future profit margins.

· Commodity prices, especially those pertaining to gold and copper, have been highly volatile during 2008. Fluctuations in these prices and other commodity prices associated with our raw materials, will have a corresponding impact on our profit margins.

· The costs of labor, particularly in the People's Republic of China where several of our factories are located, have risen significantly during 2008 as a result of government mandates for new minimum wage and overtime requirements. These rising labor costs will continue to have a negative impact on our profit margins.

· The global nature of our business exposes us to earnings volatility resulting from exchange rate fluctuations.

These factors are expected to continue into the foreseeable future. With reduced demand for our products, coupled with maintaining competitive pricing and the challenge of curbing internal costs, the Company anticipates that its results of operations for 2009 will be materially adversely affected by the continuing economic crisis.

Our 2008 Results

The current market conditions have impacted the Company considerably during the year ended December 31, 2008. While our 2008 revenues remained steady from 2007, various asset impairment charges, including those related to the closure of our Westborough, Massachusetts facility, and a decline in the stock prices of companies associated with Bel's investments, have lead to an unprecedented net loss for Bel for 2008.

· Net Sales. The Company's sales decreased by $0.8 million or 0.3% during the year ended December 31, 2008 as compared to 2007, primarily due to a decrease in magnetic sales of $7.0 million and a decrease in circuit protection sales of $4.0 million during the year ended December 31, 2008, as compared to 2007. The decrease in magnetic sales primarily resulted from the production inefficiencies in the People's Republic of China ("PRC") referred to below, which inhibited the Company's ability to increase product shipments through the second quarter of 2008. The decrease in 2008 magnetic and circuit protection sales was largely offset by an increase in module sales of $7.1 million for the year ended December 31, 2008, as compared to 2007. This increase was principally due to the introduction of new products. In addition, the Company's interconnect sales increased by $3.1 million for the year ended December 31, 2008, as compared to 2007.

· (Loss) Income from Operations. The Company's income from operations decreased significantly from income of $25.5 million during the year ended December 31, 2007 to a loss of $10.7 million for the year ended December 31, 2008. This reduction was primarily attributable to the following factors:

††† Impairment of Assets. In connection with its annual valuation of the Company's goodwill, it was determined that an impairment existed in the Company's North America operating segment, due to a reduction in estimated future cash flows. As a result, the Company recorded a $14.1 million charge related to the impairment of its goodwill from its North America operation segment. The Company also recorded a $0.7 million charge related to the impairment of its fixed assets in connection with the closure of its Westborough, Massachusetts facility.

††† Production Inefficiencies. Bel experienced an unusually high increase in backlog at its manufacturing facilities in the People's Republic of China ("PRC") after the Lunar New Year holiday in February 2008. Bel contracted for approximately 5,300 factory workers (net of turnover), resulting in production inefficiencies and curtailed output through the second quarter 2008.

††† Rising Labor Costs. Effective April 1, 2008, PRC officials implemented an increase in social benefits and wage rates in the areas where our products are manufactured, plus double-time rates for Saturdays and Sundays.

††† Unfavorable Exchange Rate Fluctuations. During 2008, the U.S. dollar continued to fall in value against the PRC yuan, the currency in which all of Bel's PRC factory workers and subcontractors are paid. In addition, the U.S. dollar increased in value versus other currencies, particularly the Euro, causing foreign exchange losses of $0.6 million during the year ended December 31, 2008.

††† Restructuring Charges. The Company ceased manufacturing at its Bel Power manufacturing facility in Westborough, Massachusetts as of December 31, 2008. Related to this closure, the Company incurred severance costs of $0.6 million and costs associated with its facility lease obligation of $0.5 million during the year ended December 31, 2008.

· Net Loss. The Company's net (loss) income also decreased significantly from a net income of $26.3 million in 2007 to a net loss of $14.9 million in 2008. In addition to the factors impacting income from operations discussed above, the following non-operating factors impacted the 2008 net loss:

††† Impairment Charges on Investments. During the year ended December 31, 2008, the Company recorded $10.4 million in other-than-temporary impairment charges and realized losses related to the Company's investments in Toko, Inc. and Power-One, Inc. and the Columbia Strategic Cash Portfolio, as compared to a gain on sale of investment of $2.1 million in 2007.

††† Reduced Interest Rates. Interest income decreased from $4.2 million in 2007 to $2.5 million in 2008 primarily as a result of significantly lower interest rates earned on invested balances in 2008.

††† Reversal of Tax Liability. During the year ended December 31, 2008, certain statute of limitations expired which resulted in a reversal of a previously recognized liability for uncertain tax positions in the amount of $2.3 million.

Results of Operations

The following table sets forth, for the past three years, the percentage relationship to net sales of certain items included in the Company's consolidated statements of operations.

                                                        Percentage of Net Sales
                                                       Years Ended December 31,
                                                     2008         2007        2006

      Net sales                                        100.0 %     100.0 %     100.0 %
      Cost of sales                                     84.0        78.3        75.7
      Selling, general and
       administrative expenses                          14.0        13.9        14.8
      Impairment of assets                               5.7           -           -
      Restructuring charges                              0.4           -           -
      Gain on sale of property, plant
      and equipment                                        -         2.1           -
      (Impairment charge)/gain on sale
        of investment                                   (4.0 )       0.8         2.0
      Casualty loss                                                    -         0.4
      Interest income, net of interest
      and financing expense                              1.0         1.6         1.1
      (Loss) earnings before (benefit) provision
       for income taxes                                 (7.2 )      12.2        12.2
      Income tax (benefit) provision                    (1.4 )       2.1         2.3
      Net (loss) earnings                               (5.8 )      10.2         9.9

The following table sets forth the year over year percentage increases or . . .