SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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| þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2006
or
| | | |
| 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 1-11471
Bell Industries, Inc.
(Exact name of Registrant as specified in its charter)
| | | | | |
| California | | | | 95-2039211 |
| | | | |
| (State or other jurisdiction | | | | (I.R.S. Employer |
| of incorporation or organization) | | | | Identification No.) |
| | | | | |
| 1960 E. Grand Avenue, Suite 560, | | | | |
| El Segundo, California | | | | 90245 |
| | | | |
| (Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: (310) 563-2355
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerþ
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yeso Noþ
As of the close of business on May 10, 2006, there were 8,566,224 outstanding shares of the Registrant’s Common Stock.
BELL INDUSTRIES, INC.
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited, in thousands, except per share data)
| | | | | | | | | |
| | | Three months ended | |
| | | March 31 | |
| | | 2006 | | | 2005 | |
| Net revenues | | | | | | | | |
| Products | | $ | 19,287 | | | $ | 21,484 | |
| Services | | | 7,870 | | | | 7,204 | |
| | | | | | | |
| | | | 27,157 | | | | 28,688 | |
| | | | | | | |
| Costs and expenses | | | | | | | | |
| Cost of products sold | | | 14,876 | | | | 16,874 | |
| Cost of services provided | | | 6,657 | | | | 6,012 | |
| Selling and administrative | | | 7,004 | | | | 6,516 | |
| Interest, net | | | (75 | ) | | | (52 | ) |
| | | | | | | |
| | | | 28,462 | | | | 29,350 | |
| | | | | | | |
| Loss before income taxes | | | (1,305 | ) | | | (662 | ) |
| Income tax expense | | | 15 | | | | 15 | |
| | | | | | | |
| Net loss | | $ | (1,320 | ) | | $ | (677 | ) |
| | | | | | | |
| Basic and diluted share and per share data | | | | | | | | |
| Net loss | | $ | (.15 | ) | | $ | (.08 | ) |
| | | | | | | |
| Weighted average common shares | | | 8,563 | | | | 8,454 | |
| | | | | | | |
See Accompanying Notes to Consolidated Condensed Financial Statements.
3
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited, dollars in thousands)
| | | | | | | | | |
| | | March 31 | | | December 31 | |
| | | 2006 | | | 2005 | |
ASSETS | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | | $ | 5,111 | | | $ | 7,331 | |
| Accounts receivable, less allowance for doubtful accounts of $819 and $811 | | | 18,117 | | | | 15,306 | |
| Inventories | | | 12,805 | | | | 12,764 | |
| Prepaid expenses and other | | | 2,627 | | | | 2,701 | |
| | | | | | | |
| Total current assets | | | 38,660 | | | | 38,102 | |
| Fixed assets, net | | | 2,591 | | | | 3,143 | |
| Other assets | | | 3,054 | | | | 3,108 | |
| | | | | | | |
| | | $ | 44,305 | | | $ | 44,353 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Floor plan payables | | $ | 31 | | | $ | 68 | |
| Accounts payable | | | 12,109 | | | | 11,023 | |
| Accrued liabilities and payroll | | | 8,760 | | | | 8,440 | |
| | | | | | | |
| Total current liabilities | | | 20,900 | | | | 19,531 | |
| | | | | | | |
| Deferred compensation, environmental matters and other | | | 4,407 | | | | 4,518 | |
| | | | | | | |
| Commitments and contingencies | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
| Preferred stock | | | | | | | | |
| Authorized — 1,000,000 shares, outstanding — none | | | | | | | | |
| Common stock | | | | | | | | |
| Authorized — 35,000,000 shares, outstanding — 8,563,224 and 8,559,224 shares | | | 32,846 | | | | 32,832 | |
| Accumulated deficit | | | (13,848 | ) | | | (12,528 | ) |
| | | | | | | |
| Total shareholders’ equity | | | 18,998 | | | | 20,304 | |
| | | | | | | |
| | | $ | 44,305 | | | $ | 44,353 | |
| | | | | | | |
See Accompanying Notes to Consolidated Condensed Financial Statements.
4
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
| | | | | | | | | |
| | | Three months ended | |
| | | March 31 | |
| | | 2006 | | | 2005 | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (1,320 | ) | | $ | (677 | ) |
| Depreciation and amortization | | | 567 | | | | 331 | |
| Provision for losses on accounts receivable | | | 18 | | | | 37 | |
| Changes in assets and liabilities | | | (1,312 | ) | | | (2,657 | ) |
| | | | | | | |
| Net cash used in operating activities | | | (2,047 | ) | | | (2,966 | ) |
| | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchases of fixed assets and other | | | (2 | ) | | | (199 | ) |
| | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Net payments of floor plan payables | | | (37 | ) | | | (627 | ) |
| Employee stock plans | | | 9 | | | | 55 | |
| Principal payments on capital leases | | | (143 | ) | | | | |
| | | | | | | |
| Net cash used in financing activities | | | (171 | ) | | | (572 | ) |
| | | | | | | |
| Net decrease in cash and cash equivalents | | | (2,220 | ) | | | (3,737 | ) |
| Cash and cash equivalents at beginning of period | | | 7,331 | | | | 10,801 | |
| | | | | | | |
| Cash and cash equivalents at end of period | | $ | 5,111 | | | $ | 7,064 | |
| | | | | | | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable | | $ | (2,819 | ) | | $ | (5,165 | ) |
| Inventories | | | (41 | ) | | | (269 | ) |
| Accounts payable | | | 1,086 | | | | 3,174 | |
| Accrued liabilities and other | | | 462 | | | | (397 | ) |
| | | | | | | |
| Net change | | $ | (1,312 | ) | | $ | (2,657 | ) |
| | | | | | | |
See Accompanying Notes to Consolidated Condensed Financial Statements.
5
BELL INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Accounting Principles
The accompanying consolidated condensed financial statements of Bell Industries, Inc. (the “Company”) for the three months ended March 31, 2006 and 2005 have been prepared in accordance with generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements have not been audited by an independent registered public accounting firm, but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The accompanying consolidated condensed balance sheet as of December 31, 2005 has been derived from audited financial statements, but does not include all disclosures required by GAAP.
Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to guidelines of the Securities and Exchange Commission (the “SEC”). Management believes that the disclosure included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but the disclosure contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.
Included in cash and cash equivalents are repurchase agreements which are transactions involving the purchase of a security and the simultaneous commitment to return the security to the seller at an agreed upon price on an agreed upon date. These agreements mature the following day and the Company is paid principal plus interest. The U.S. Government Agency securities committed in these agreements are segregated by a third party custodian under the Company’s name and serve as collateral under such agreement. As of March 31, 2006 and December 31, 2005, these transactions amounted to approximately $4.7 million and $7.3 million, respectively. Based on the maturity date of the resell agreements, the Company considers that the amounts presented in the financial statements are reasonable estimates of fair value.
Shipping and Handling Costs
Shipping and handling costs, consisting primarily of freight paid to carriers, Company-owned delivery vehicle expenses and payroll related costs incurred in connection with storing, moving, preparing, and delivering products totaled approximately $750,000 during each of the three month periods ended March 31, 2006 and 2005. These costs are included within selling and administrative expenses in the Consolidated Condensed Statement of Operations.
Floor Plan Arrangements
The Company finances certain inventory purchases in its Technology Solutions business unit through floor plan arrangements with two finance companies. At March 31, 2006 and December 31, 2005, the Company had outstanding floor plan obligations of $31,000 and $68,000, respectively.
Accrued Liabilities
The Company accrues for liabilities associated with disposed businesses, including amounts related to legal, environmental and contractual matters. Accrued liabilities include approximately $4.2 million of amounts attributable to disposed businesses at March 31, 2006 and December 31, 2005.
6
Stock-Based Compensation
The Company maintains certain stock option plans which provide for the issuance of common stock to be available for purchase by employees and by non-employee directors of the Company. Under the stock option plans, both incentive and nonqualified stock options, stock appreciation rights and restricted stock may be granted. Options outstanding under the plans have terms of five or ten years, vest over a period of up to four years and were issued at market value on the date of grant.
The Company from time to time, grants stock options for a fixed number of shares to certain employees and directors with an exercise price equal to or greater than the fair value of the shares at the date of grant. Prior to the January 1, 2006 adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” the Company accounted for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, because the stock option exercise price was equal to or greater than the fair value of the shares at the date of grant, no compensation expense was recognized for Company-issued stock options. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation”, stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements. The following table illustrates the effect on net loss and net loss per share for the three month period ended March 31, 2005 if the Company had applied the fair value method as prescribed by SFAS No. 123, net of taxes (dollars in thousands):
| | | | | |
| | | Three
months ended | |
| | | March 31, 2005 | |
| Net loss, as reported | | $ | (677 | ) |
| Compensation expense as determined under SFAS No. 123 | | | (13 | ) |
| | | | |
| Pro forma net loss | | $ | (690 | ) |
| | | | |
| Net loss per share | | | | |
| Basic and diluted — as reported | | $ | (.08 | ) |
| | | | |
| Basic and diluted — pro forma | | $ | (.08 | ) |
| | | | |
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation expense for the three months ended March 31, 2006 includes compensation expense for all stock options granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. Stock-based compensation expense recognized in the Consolidated Condensed Statement of Operations totaled $5,000 for the three months ended March 31, 2006. No stock options were granted during the three months ended March 31, 2006.
The following summarizes stock option activity during the three months ended March 31, 2006:
| | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | Weighted average | | | | |
| | | | | | | Average | | | remaining | | | | |
| | | | | | | Exercise | | | contractual term | | | Aggregate | |
| | | Shares | | | price | | | (in years) | | | intrinsic value | |
| | | |
| Outstanding at December 31, 2005 | | | 268,000 | | | $ | 2.78 | | | | | | | | | |
| Granted | | | | | | | | | | | | | | | | |
| Exercised | | | (4,000 | ) | | $ | 2.00 | | | | | | | | | |
| Canceled or expired | | | (2,000 | ) | | $ | 2.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Outstanding at March 31, 2006 | | | 262,000 | | | $ | 2.80 | | | | 2.4 | | | $ | 82,000 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Exercisable at March 31, 2006 | | | 244,000 | | | $ | 2.86 | | | | 2.5 | | | $ | 70,000 | |
| | | | | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the intrinsic value (the difference between the Company’s closing stock price on March 31, 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2006. The total intrinsic value of options exercised during the three months ended March 31, 2006 was approximately $2,000. As of March 31, 2006, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $3,000, which is expected to be recognized during the three months ended June 30, 2006. As of March 31, 2006 there were 470,000 shares of common stock available for issuance pursuant to future stock option grants.
7
Per Share Data
Basic earnings per share data are based upon the weighted average number of common shares outstanding. Diluted earnings per share data are based upon the weighted average number of common shares outstanding plus the number of common shares potentially issuable for dilutive securities such as stock options and warrants. The weighted average number of common shares outstanding for each of the three month periods ended March 31, 2006 and 2005 is set forth in the following table (in thousands):
| | | | | | | | | |
| | | Three months ended | |
| | | March 31 | |
| | | 2006 | | | 2005 | |
| Basic weighted average shares outstanding | | | 8,563 | | | | 8,454 | |
| Potentially dilutive stock options | | | 25 | | | | 80 | |
| Anti-dilutive stock options due to net loss in period | | | (25 | ) | | | (80 | ) |
| | | | | | | |
| Diluted weighted average shares outstanding | | | 8,563 | | | | 8,454 | |
| | | | | | | |
Recent Accounting Pronouncements
In November 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. 123(R)-3 (“FSP 123 (R)-3”), Transition Election Relating to Accounting for the Tax Effects of Share-Based Payment Awards, which provides an optional alternative transition election for calculating the pool of excess tax benefits (“APIC pool”) available to absorb tax deficiencies recognized under SFAS No. 123 (revised 2004). Under FSP 123(R)-3, an entity can make a one time election to either use the alternative simplified method or use the guidance in SFAS No. 123 (revised 2004) to calculate the APIC pool. This election must be made by January 1, 2007. The Company is currently evaluating the available transition alternatives.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Company’s consolidated financial position or results of operations.
Environmental Matters
Reserves for environmental matters primarily relate to the cost of monitoring and remediation efforts, which commenced in 1998, at a former leased facility site of the Company’s Electronics circuit board manufacturer (“ESD”). The ESD business was closed in the early 1990s. At March 31, 2006 and December 31, 2005, ESD estimated future remediation and related costs totaled approximately $3.6 million and $3.7 million, respectively. At March 31, 2006, approximately $1.7 million (estimated current portion) is included in accrued liabilities and $1.9 million (estimated non-current portion) is included in deferred compensation, environmental matters and other in the Consolidated Condensed Balance Sheet. At March 31, 2006 and December 31, 2005, the estimated future amounts to be recovered from insurance totaled $2.6 million and $2.9 million, respectively. At March 31, 2006, approximately $1.8 million (estimated current portion) is included in prepaid expenses and other and approximately $800,000 (estimated non-current portion) is included in other assets in the Consolidated Condensed Balance Sheet.
Litigation
Williams Electronic Games litigation:In May 1997, Williams Electronics Games, Inc. (“Williams”) filed a complaint in the United States District Court for the Northern District of Illinois (“US District Court”) against a former Williams employee and several other defendants alleging common law fraud and several other infractions related to Williams’ purchase of electronic components at purportedly inflated prices from various electronics distributors under purported kickback arrangements during the period from 1991 to 1996. In May 1998, Williams filed an amended complaint adding several new defendants, including Milgray Electronics, Inc., a publicly traded New York corporation (“Milgray”), which was acquired by Bell in a stock purchase completed in January 1997. The complaint sought an accounting and restitution representing alleged damages as a result of the infractions. Bell has not been named in any complaint and was not a party to the alleged infractions. Bell, as the successor company to Milgray, has vigorously defended the case on several grounds and continues to assert that Milgray did not defraud Williams, and that Williams suffered no damages as electronic components were purchased by Williams at prevailing market prices.
8
The case proceeded to trial, which commenced and ended in March 2002, with a jury verdict resulting in Milgray having no liability to Williams. In July 2002, Williams appealed the jury verdict and, in April 2004, the United States Court of Appeals for the 7th Circuit (“US Appellate Court”) rendered its decision. The US Appellate Court concluded that jury instructions issued by the US District Court were in error and the case was ordered for retrial of Williams’ fraud and restitution claims. The case was remanded to the US District Court and a new judge was assigned. In September 2005, the US District Court entered its order declining to exercise supplemental jurisdiction over Williams’ claims and dismissing Williams’ case without prejudice. The US District Court noted in its order that Williams could pursue its claims in Illinois State Courts. In October 2005, Williams filed a Notice of Appeal to the US Appellate Court from the judgment of dismissal entered by the US District Court. Williams’ claim for compensatory damages is approximately $8.7 million, not including an additional claim for pre-judgment interest. While the Company cannot predict the outcome of this litigation, a final judgment favorable to Williams could have a material adverse effect on the Company’s results of operations, cash flows or financial position. Management intends to continue a vigorous defense.
Other litigation:The Company is involved in other litigation, which is incidental to its current and discontinued businesses. The resolution of the other litigation is not expected to have a material adverse effect on the Company’s results of operations, cash flows or financial position.
Business Segment Information
The Company has three reportable business segments: Technology Solutions, a provider of integrated technology solutions: Recreational Products, a distributor of replacement parts and accessories for recreational and other leisure-time vehicles; and Electronic Components, a specialty supplier and distributor of standard and custom magnetic products.
The following summarizes financial information for the Company’s reportable segments (in thousands):
| | | | | | | | | |
| | | Three months ended | |
| | | March 31 | |
| | | 2006 | | | 2005 | |
| Net revenues | | | | | | | | |
| Technology Solutions | | | | | | | | |
| Products | | $ | 6,436 | | | $ | 8,228 | |
| Services | | | 7,870 | | | | 7,204 | |
| | | | | | | |
| | | | 14,306 | | | | 15,432 | |
| Recreational Products | | | 10,657 | | | | 11,391 | |
| Electronic Components | | | 2,194 | | | | 1,865 | |
| | | | | | | |
| | | $ | 27,157 | | | $ | 28,688 | |
| | | | | | | |
| Operating income (loss) | | | | | | | | |
| Technology Solutions | | $ | (1,244 | ) | | $ | (767 | ) |
| Recreational Products | | | 190 | | | | 218 | |
| Electronic Components | | | 538 | | | | 425 | |
| Corporate costs | | | (864 | ) | | | (590 | ) |
| | | | | | | |
| | | | (1,380 | ) | | | (714 | ) |
| Interest, net | | | 75 | | | | 52 | |
| Income tax expense | | | (15 | ) | | | (15 | ) |
| | | | | | | |
| Net loss | | $ | (1,320 | ) | | $ | (677 | ) |
| | | | | | | |
Subsequent Event
Sale of J.W. Miller division:On April 28, 2006, the Company, as seller, entered into an Asset Purchase Agreement (the “Agreement”) with Bourns, Inc., as buyer, and simultaneously closed the asset purchase and sale transaction contemplated by the Agreement, thereby completing the sale of substantially all of the assets, excluding real estate, of the Company’s J.W. Miller division. Pursuant to the Agreement, the Company received $8.5 million in cash, subject to post closing adjustments and indemnification obligations. The sale generated an estimated after-tax gain of approximately $5.8 million, which will be recognized in the second quarter of 2006.
The J.W. Miller division constitutes the Company’s entire electronic components business segment. As of March 31, 2006, the Company was in discussion with Bourns, Inc. regarding the aforementioned transaction, however, management had limited authorization from the Company’s Board of Directors regarding the sale of the division and significant contingencies remained such that completion of the sale was not probable. The J.W. Miller division will be presented as a discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” as of the effective date of this transaction.
9
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of financial condition and results of operations of the Company should be read in conjunction with, and is qualified in its entirety by, the consolidated condensed financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, within the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and within other filings with the SEC. This discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward looking statements contained in this Quarterly Report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” and “estimated,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements that we make in this Quarterly Report are set forth below, are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and are set forth in other reports or documents that we file from time to time with the SEC. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Critical Accounting Policies
In the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, the critical accounting policies were identified which affect the more significant estimates and assumptions used in preparing the consolidated financial statements. These policies have not changed from those previously disclosed.
Recent Accounting Pronouncements
In November 2005, the FASB issued FSP 123 (R)-3, Transition Election Relating to Accounting for the Tax Effects of Share-Based Payment Awards, which provides an optional alternative transition election for calculating the APIC pool available to absorb tax deficiencies recognized under SFAS No. 123 (revised 2004). Under FSP 123(R)-3, an entity can make a one time election to either use the alternative simplified method or use the guidance in SFAS No. 123 (revised 2004) to calculate the APIC pool. This election must be made by January 1, 2007. The Company is currently evaluating the available transition alternatives.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Company’s consolidated financial position or results of operations.
Results of Operations
The Note to Consolidated Condensed Financial Statements under the heading titled “Business Segment Information” includes a tabular summary of results of operations by business segment for the three months ended March 31, 2006 and 2005.
Net revenues
Net revenues for the three months ended March 31, 2006 decreased 5.3% to $27.2 million from $28.7 million in 2005. Net revenues are further discussed in “Technology Solutions,” “Recreational Products,” and “Electronic Components,” below.
Operating income (loss)
Operating loss for the three months ended March 31, 2006 increased to $1.4 million from $714,000 in 2005. Operating results are further discussed in “Technology Solutions,” “Recreational Products,” and “Electronic Components,” below.
10
Corporate costs
Corporate costs for the three months ended March 31, 2006 increased 46.4% to $864,000 from $590,000 in 2005. The increase is attributable to approximately $125,000 in costs incurred for accounting, legal and reprographics costs in connection with the restatement of the Company’s 2004 and 2003 annual consolidated financial statements and the interim periods in 2005 and 2004, approximately $80,000 in higher payroll costs, and approximately $60,000 in increased travel related expenses.
Interest, net
Net interest income for the three months ended March 31, 2006 increased 44.2% to $75,000 from $52,000 in 2005. The increase is primarily attributable to an increase in interest rates during the 2006 period as compared to the prior year.
Technology Solutions
Technology Solutions revenues for the three months ended March 31, 2006 decreased 7.3% to $14.3 million from $15.4 million in 2005. Product revenues for the three months ended March 31, 2006 decreased 21.8% to $6.4 million from $8.2 million in 2005. The decrease in product revenues is primarily attributable to approximately $1.8 million related to the loss of two large product accounts during 2005, offset by approximately $400,000 in net increases in sales to education accounts, and the continued market pressure due to intense price competition and extended purchasing cycles. Services revenues for the three months ended March 31, 2006 increased 9.2% to $7.8 million from $7.2 million in 2005. The increase in services revenues is attributable to continued strength in reverse logistics and depot repair business and related increases in revenues at three clients totaling approximately $1.6 million, offset by net decreases in services revenues from other clients totaling approximately $1.0 million. The operating loss for the three months ended March 31, 2006 increased 62.2% to $1.2 million from $767,000 in 2005. The increase in operating loss is primarily attributable to approximately $600,000 in losses from continuing higher start up and related costs associated with a new depot services contract with a large printer manufacturer that commenced in the fourth quarter of 2005. Additionally, the lower product revenues during the first quarter of 2006 resulted in an increase in operating loss of approximately $200,000. These increases totaling approximately $800,000 were offset by cost containment efforts and related reductions in business development expenses totaling approximately $200,000.
During July 2005, Philip Morris USA indicated its intention to transition certain outsourcing services and product sales provided by the Company to a new vendor on or before the contract termination date of April 2006. For the three months ended March 31, 2006, services revenue from this portion of the engagement totaled approximately $2.2 million and product revenue amounted to approximately $600,000 compared to approximately $2.6 million and $700,000 for the corresponding period in 2005. For the year ended December 31, 2005, services revenue from this portion of the engagement totaled approximately $7.5 million and product revenue amounted to approximately $3.7 million. During September 2005, written notification was received that terminates the enterprise service desk services portion of the engagement, effective April 1, 2006. Extensions through August 2006 have been finalized on the other contractual portions of the engagement with an April 2006 termination date. Decreases in services revenue and product revenue totaling approximately $4.0 million and $2.0 million, respectively, during 2006 as compared to 2005 are anticipated on these contractual portions of the engagement.
Recreational Products
Recreational Products revenues for the three months ended March 31, 2006 decreased 6.4% to $10.7 million from $11.4 million in 2005, and operating income decreased 12.8% to $190,000 from $218,000. The decrease in revenues and operating income is attributable to decreases in sales of recreational vehicle, marine and snowmobile products totaling approximately $600,000. The decline in sales is attributable to adverse economic conditions and higher fuel costs and the associated impact on the recreation vehicle and boating markets. Gross margin percentage improvement related to price increases and product mix partially offset the reduction in operating income related to the lower sales levels.
Electronic Components
Electronic Components revenues for the three months ended March 31, 2006 increased 17.6% to $2.2 million from $1.9 million in 2005, and operating income increased 26.6% to $538,000 from $425,000. An increase in demand for magnetic components from certain large customers contributed to the overall increase in sales and operating income.
On April 28, 2006, The Company sold substantially all of the assets of this division to Bourns, Inc. for $8.5 million in cash, subject to post closing adjustments and indemnification obligations. The sale generated an after-tax gain of approximately $5.8 million, which will be recognized in the second quarter of 2006. The sale of the Company’s smallest division provides additional cash resources to focus on the Company’s core business units.
Cost of products sold
As a percentage of product revenues, cost of products sold for the three months ended March 31, 2006 decreased to 77.1% from 78.5% in 2005. The decrease is primarily attributable to the gross margin percentage improvement at the Recreational Products business unit.
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Cost of services provided
As a percentage of services revenues, cost of services provided for the three months ended March 31, 2006 increased to 84.6% from 83.5% in 2005 at the Technology Solutions business unit. The increase is primarily attributable to the continuing higher direct labor costs associated with the new depot services contract at the Technology Solutions business unit.
Selling and administrative expenses
As a percentage of sales, selling and administrative expenses for the three months ended March 31, 2006 increased to 25.8% from 22.7% in 2005. This increase is primarily attributable to the costs associated with the restatement of prior year’s financial statements, higher corporate payroll and travel costs, the higher administrative costs associated with the new depot services contract, and the overall decrease in revenues at the Technology Solutions business unit during the first quarter of 2006 as compared to 2005.
Income tax
For each of the three months ended March 31, 2006 and 2005, the Company recorded a provision for income taxes totaling $15,000. These amounts are primarily related to state taxes. As of March 31, 2006, the Company continues to record a full valuation allowance against net deferred tax asset balances.
Net loss
The net loss totaled $1.3 million for the three months ended March 31, 2006, an increase of $643,000 from the net loss in the prior year. The increase in net loss resulted from the factors described above.
Changes in Financial Condition
Liquidity and Capital Resources
Selected financial data are set forth in the following tables (dollars in thousands, except per share amounts):
| | | | | | | | | |
| | | March 31 | | December 31 |
| | | 2006 | | 2005 |
| Cash and cash equivalents | | $ | 5,111 | | | $ | 7,331 | |
| Working capital | | $ | 17,760 | | | $ | 18,571 | |
| Current ratio | | | 1.8:1 | | | | 2.0:1 | |
| Long-term liabilities to total capitalization | | | 18.8 | % | | | 18.2 | % |
| Shareholders’ equity per share | | $ | 2.22 | | | $ | 2.37 | |
| | | | | | | | | |
| | | Three months ended |
| | | March 31 |
| | | 2006 | | 2005 |
| Days’ sales in receivables | | | 57 | | | | 49 | |
| Days’ sales in inventories | | | 54 | | | | 54 | |
Net cash used in operating activities was $2.0 million for the three months ended March 31, 2006 compared to $3.0 million in 2005. The net cash used in operating activities during 2006 reflects increased accounts receivable partially offset by increased accounts payable. The increase in accounts receivable was primarily due to increased Recreational Products business unit sales during the first quarter of 2006 as compared to the fourth quarter of 2005 and the timing of receivables collections. Additionally, extended sales terms are provided on certain product sales to Recreational Product business unit customers. Extended terms are also provided by vendors on these products and have contributed to the increase in accounts payable. The net cash used in operating activities in 2005 reflects increased accounts receivable partially offset by increased accounts payable at the Recreational Products business unit.
Net cash used in investing activities totaled $2,000 for the three months ended March 31, 2006 compared to $199,000 in 2005 related to purchases of technology related products and other fixed assets.
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Net cash used in financing activities totaled $171,000 for the three months ended March 31, 2006 compared to $572,000 in 2005. The cash used in financing activities for 2006 represents $143,000 in payments on capital lease obligations and net payments of $37,000 on floor plan arrangements partially offset by the proceeds from the exercise of employee stock options. The cash used in financing activities in 2005 represents net payments of $627,000 on floor plan arrangements partially offset by the proceeds from the exercise of employee stock options.
The Company believes that sufficient cash resources exist for the foreseeable future to support requirements for its operations and commitments through available cash, cash generated by operations and the cash from the sale of the J.W. Miller division in April 2006. However, management is evaluating its options in regard to obtaining financing, as additional cash resources may be needed to support future growth.
Off-Balance Sheet Arrangements
The Company does not have any material off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
During April 2006, the Company entered into a new lease for its Technology Solutions business in Indianapolis, Indiana. This lease on the new headquarters facility, which is effective July 1, 2006, will replace the existing facility lease that expires on June 30, 2006. The total contractual obligation related to this new lease, which expires on October, 31 2012, is approximately $2.9 million. Other than this new lease, there have been no material changes to the Company’s contractual obligations and commercial commitments as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Company has no investments in market risk-sensitive investments for either trading purposes or purposes other than trading purposes.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2006. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2006, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Remediation of Previously Disclosed Material Weakness
Management previously concluded that as of December 31, 2005, the Company did not maintain effective controls over the preparation, review, presentation and disclosure of amounts included in our Consolidated Balance Sheet and Consolidated Statement of Cash Flows. Specifically, cash flows from the Company’s floor plan arrangements were not appropriately classified as cash flows from financing activities in the Consolidated Statement of Cash flows in accordance with generally accepted accounting principles. Further, these floor plan liabilities were not properly segregated from accounts payable in the Consolidated Balance Sheet as required under generally accepted accounting principles. This control deficiency resulted in the restatement of the Company’s 2004 and 2003 annual consolidated financial statements, the interim consolidated condensed financial statements for all interim periods in 2004, the first three interim periods in 2005 and audit adjustments to the 2005 year-end financial statements. Additionally, this control deficiency could result in a misstatement of the Company’s accounts that would result in a material misstatement to the Company’s presentation and disclosure of floor plan arrangements that would not be prevented or detected. Accordingly, management concluded that this control deficiency constituted a material weakness.
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During the quarter ended March 31, 2006, the Company implemented controls and enhanced procedures which include improved training and review processes to ensure proper preparation, review, presentation, and disclosure of amounts included in its balance sheet and statement of cash flows. We tested the operating effectiveness of these newly implemented controls and found them to be effective and have concluded that, as of March 31, 2006, this material weakness has been remediated.
Changes in Internal Control over Financial Reporting
Other than noted above, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2006 that has materially affected, or is likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
The Note to Consolidated Condensed Financial Statements under the heading titled “Litigation”, included in Part I of this report, is incorporated herein by reference.
Item 1A.Risk Factors
In addition to other information contained in this report, we are subject to the following risks, which could materially adversely affect our business, financial condition and/or results of operations in the future.
We have a history of operating losses.
We have incurred net losses in each of the past five fiscal years. As of March 31, 2006 we had an accumulated deficit of approximately $13.8 million. If our future revenues in each of our business units do not meet our expectations, or if operating expenses exceed what we anticipate, our business, financial condition and results of operations could be materially and adversely affected.
We face certain significant risks related to the currently pending Williams litigation and from other potential litigation that could materially adversely affect our financial condition and results of operations.
We have been engaged in ongoing litigation in connection with our 1997 purchase of Milgray Electronics, Inc., a publicly traded New York corporation, which was named as a defendant by the plaintiff, Williams Electronics Games, Inc. (“Williams”), in an action alleging common law fraud and other infractions related to Williams’ purchase of electronic components at allegedly inflated prices from 1991 to 1996. Although the outcome of this litigation cannot be predicted, an adverse verdict could have a materially adverse effect on us. The defense of this lawsuit has required a significant amount of our management’s time and attention and, even if we prevail in defending this lawsuit, we will incur additional legal and related expenses. The disruptive effect and expense of this litigation could adversely affect our business, financial condition, results of operations and/or cash flows. We also may become subject to other litigation in the future.
Our previously owned businesses subject us to potential environmental liabilities, which could adversely affect our results of operations.
We are subject to various federal, state and local environmental statutes, ordinances and regulations relating to disposal of certain toxic, volatile or otherwise hazardous substances and wastes used or generated in connection with previously owned businesses. Such laws may impose liability without regard to whether we knew of, or caused, the release of such hazardous substances. Although we establish reserves for specifically identified potential environmental liabilities, which reserves we believe to be adequate, there may be potential undisclosed environmental liabilities or liability in excess of the amounts reserved. Compliance with these environmental laws could require us to incur substantial expenses.
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We rely on a limited number of hardware and software vendors to supply us with products in our technology solutions business and the loss of our ability to rely upon any of those vendors, or to obtain their products in the future would adversely affect our results of operations.
Our technology solutions business is heavily dependent on our relationships with leading hardware and software vendors and on our status as an authorized service provider. Although we are currently authorized to service the products of many industry-leading hardware and software vendors, we may not be able to maintain our relationships, or attract new relationships, with the computer hardware and software vendors that may be necessary for our technology solutions business. Since we rely upon our vendor relationships as a marketing tool, any change in these relationships could adversely affect our results of operations while we seek to establish alternative relationships with other vendors. In general, our authorization agreements with vendors include termination provisions, some of which are immediate, and we cannot predict whether vendors will continue to authorize us as an approved service provider. In addition, we cannot predict whether those vendors will authorize us as an approved service provider for new products, which they may introduce. Any impairment of these vendor relationships, or the loss of authorization as an approved service provider, could adversely affect our ability to provide the products and services which our technology solutions business requires and harm our competitive position. In addition, significant product supply shortages have resulted from time to time because manufacturers have been unable to produce sufficient quantities of certain products to meet demand. We expect to experience difficulty from time to time in obtaining an adequate supply of products from our major vendors, which may result in delays in completing sales.
We may not be able to compete effectively with other companies in our business segments, which will cause our net sales and market share to decline and adversely affect our business, financial condition and results of operations.
Our businesses are highly competitive and we face strong competition from competitors that are substantially larger and have considerably greater financial, technical and marketing resources than us. We believe that our prices and delivery terms are competitive; however, our competitors may offer more aggressive pricing than we do. We have experienced and expect to continue to experience intense competitive pricing pressures in our businesses, which could require us to reduce prices, with a corresponding adverse impact on our operating results. Additionally, as competition in the technology industry has intensified, certain of our key technology suppliers have heightened their direct marketing initiatives. These initiatives have resulted in some of our clients electing to purchase technology products directly from the manufacturer, rather than through us. While we expect these initiatives to continue, there could be a material adverse impact on our business if the shift of clients to purchase directly from manufacturers occurs more quickly than anticipated.
Our technology solutions business is dependent on a limited number of major clients and the loss of any of these major clients would materially and adversely affect our business, financial condition and results of operations.
Sales of our products and services in our technology solutions business has been and will likely continue to be concentrated in a small number of clients. Two of our clients accounted for approximately 33% of our total revenues for 2005 in our technology solutions business, with one client, Philip Morris USA, accounting for approximately 10% of our total consolidated net revenues for the year. In the event that any of these major clients should cease to purchase products or services from us, or purchase significantly fewer products and services in the future, we could experience materially adverse effects on our business, financial condition and results of operations.
During July 2005, Philip Morris USA indicated its intention to transition certain outsourcing services and product sales provided by the Company to a new vendor on or before the contract termination date of April 2006. For the three months ended March 31, 2006, services revenue from this portion of the engagement totaled approximately $2.2 million and product revenue amounted to approximately $600,000 compared to approximately $2.6 million and $700,000 for the corresponding period in 2005. For the year ended December 31, 2005, services revenue from this portion of the engagement totaled approximately $7.5 million and product revenue amounted to approximately $3.7 million. During September 2005, written notification was received that terminates the enterprise service desk services portion of the engagement, effective April 1, 2006. Extensions through August 2006 have been finalized on the other contractual portions of the engagement with an April 2006 termination date. We anticipate a decrease in services revenue and product revenue totaling approximately $4.0 million and $2.0 million, respectively, during 2006 as compared to 2005 on these contractual portions of the engagement. We are currently discussing other service and product opportunities with Philip Morris USA, but there is no guarantee that these new opportunities will offset any of the decreases in revenues in 2006 or in future years.
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Our recreational products business is seasonal and is subject to fluctuations, based upon various economic and climatic conditions that could harm us.
Sales of our recreational products are affected directly by the usage levels and purchases of recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products. The purchase and, in particular, the usage of these types of vehicles, are affected by weather conditions. As a result, sales of our recreational products business are highly susceptible to unpredictable events, and ordinarily decline in the winter months resulting in losses during these periods of the year. Additionally, unusual weather conditions in a particular season, such as unusually cold weather in the spring or summer months, can cause period-to-period fluctuations in our sales of recreational products. The usage and purchases of recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products are also affected by consumers’ level of discretionary income and their confidence about economic conditions and changes in interest rates and in the availability and cost of gasoline. As a result, sales of our recreational products can fluctuate based upon unpredictable circumstances that are outside of our control.
Our recreational products business relies heavily upon vendors with which we have no long-term relationships.
We do not have long term supply contracts with our recreational products suppliers, which may adversely affect the terms on which we purchase products for resale or result in our inability to purchase products from one or more of such vendors in the future. These vendors may choose to distribute their products directly to aftermarket dealers or establish exclusive supply relationships with other distributors. Additionally, manufacturers of new recreational vehicles, snowmobiles, motorcycles and ATVs, and marine products may choose to incorporate optional equipment as standard equipment on their vehicles at the time of manufacture that are similar to products available for sale to dealers by distributors such as us. In addition to decreased sales, we would encounter increased competition in our markets, or may be unable to offer certain products to our customers, upon any such changes in our relationships with our recreational products vendors.
If we are unable to recruit and retain key personnel necessary to operate our businesses, our ability to compete successfully will be adversely affected.
We are heavily dependent on our current executive officers, management and technical personnel. The loss of any key employee or the inability to attract and retain qualified personnel could adversely affect our ability to execute our current business plans and successfully develop commercially viable products and services. Competition for qualified personnel is intense, and we might not be able to retain our existing key employees or attract and retain any additional personnel. In addition, our recent financial operating results may make it more difficult for us to attract and retain qualified personnel.
Our technology solutions business could be adversely impacted by conditions affecting the information technology market.
The demand for our technology products and services depends substantially upon the general demand for business-related computer hardware and software, which fluctuates based on numerous factors, including capital spending levels, the spending levels and growth of our current and prospective customers and general economic conditions. Fluctuations in the demand for our products and services could have a material adverse effect on our business, results of operations and financial condition. In the past, adverse economic conditions decreased demand for our products and negatively impacted our financial results. Future economic projections for the information technology sector are uncertain. If an uncertain information technology spending environment persists, it could negatively impact our business, results of operations and financial condition.
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If we fail to maintain effective internal controls over financial reporting and disclosure controls and procedures in the future, we may not be able to accurately report our financial results or prevent fraud, which would have an adverse affect on our business.
Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial information and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, it could have an adverse affect on our business. We have in the past discovered and may in the future discover areas of our internal control over financial reporting that need improvement.
We are in the process of beginning a review and analysis of our internal control over financial reporting for Sarbanes-Oxley compliance. As part of that process we may discover additional control deficiencies in our internal control over financial reporting or our disclosure controls and procedures that we believe require remediation. If we discover additional deficiencies, we will make efforts to remediate these deficiencies; however, there is no assurance that we will be successful either in identifying deficiencies or in their remediation. Any failure to maintain effective controls in the future could adversely affect our business or cause us to fail to meet our reporting obligations.
We may need to implement additional finance and accounting systems, procedures and controls to satisfy new reporting requirements.
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act in 2007. Compliance with Section 404 of the Sarbanes-Oxley Act and other requirements may significantly increase our costs and require additional management time and resources.
Changes in stock option accounting rules may adversely impact our reported operating results.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment.” SFAS No. 123 (revised 2004) revises SFAS No. 123 and APB No. 25 and related interpretations. Effective January 1, 2006, SFAS No. 123 (revised 2004) required compensation cost relating to all share-based payments to employees to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. Based on the outstanding stock options not vested as of December 31, 2005, the adoption of SFAS No. 123 (revised 2004) did not have a material impact on the Company’s consolidated financial position or results of operations. Although the adoption of this statement did not have a material impact, the impact in future periods may be significant based on the number of stock options granted as we will be required to expense the fair value of our stock options rather than disclosing the impact on our consolidated results of operations within our footnotes.
Future changes in financial accounting standards or practices affect our reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations or accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) None
Item 3.Defaults Upon Senior Securities
None
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Item 4.Submission of Matters to a Vote of Security Holders
None
Item 5.Other Information
None
Item 6.Exhibits
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| 31.1 | | Certification of John A. Fellows, Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 31.2 | | Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.1 | | Certification of John A. Fellows, Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | | Certification of Mitchell I. Rosen, Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | |
| | | | | BELL INDUSTRIES, INC. | | |
| | | | | | | |
| Dated: May 15, 2006 | | By: | | /s/John A. Fellows | | |
| | | | | | | |
| | | | | John A. Fellows | | |
| | | | | President and Chief Executive Officer | | |
| | | | | (authorized officer of registrant) | | |
| | | | | | | |
| Dated: May 15, 2006 | | By: | | /s/Mitchell I. Rosen | | |
| | | | | | | |
| | | | | Mitchell I. Rosen | | |
| | | | | Vice President and Chief Financial Officer | | |
| | | | | (principal financial and accounting officer) | | |
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