UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended March 31, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period from
to
Commission file number 1-11471
Bell Industries, Inc.
(Exact name of Registrant as specified in its charter)
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California
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95- 2039211
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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8888 Keystone Crossing, Suite 1700,
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Indianapolis, Indiana
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46240
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (317) 704-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). Yes
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No
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As of the close of business on May 14, 2010, there were 433,416 outstanding shares of the
Registrants Common Stock.
BELL INDUSTRIES, INC.
MARCH 31, 2010 QUARTERLY REPORT ON FORM 10-Q
INDEX
2
PART I FINANCIAL INFORMATION
Item 1.
Consolidated Financial Results
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (Unaudited)
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Three months ended
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March 31,
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2010
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2009
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Net revenues:
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Products
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$
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13,549
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$
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12,501
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Services
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6,164
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5,826
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Total net revenues
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19,713
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18,327
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Costs and expenses:
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Cost of products sold
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11,013
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10,215
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Cost of services provided
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4,664
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4,397
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Selling, general and administrative expense
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5,262
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5,382
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Gain on sale of assets
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(1
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)
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Operating loss
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(1,225
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(1,667
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Interest expense, net
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244
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208
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Loss from operations before benefit from income taxes
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(1,469
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)
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(1,875
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Benefit from income taxes
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(2
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Net loss
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$
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(1,469
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$
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(1,873
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Share and per share data
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Basic and diluted:
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Net loss
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$
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(3.39
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$
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(4.32
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Weighted average common shares outstanding
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433
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433
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See Accompanying Notes to Consolidated Condensed Financial Statements.
3
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
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March 31,
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December 31,
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2010
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2009
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,233
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$
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2,608
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Accounts receivable, less allowance for doubtful accounts of
$508
and $804, respectively
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11,537
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9,210
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Inventories, net
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8,366
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8,012
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Note receivable
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100
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300
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Prepaid expenses and other current assets
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838
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846
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Total current assets
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22,074
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20,976
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Fixed assets, net of accumulated depreciation of $11,346 and $11,430,
respectively
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691
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802
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Other assets
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840
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775
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Total assets
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$
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23,605
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$
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22,553
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LIABILITIES AND SHAREHOLDERS DEFICIT
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Current liabilities:
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Revolving credit facility
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$
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1,599
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$
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Accounts payable
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6,014
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5,382
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Accrued payroll
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2,389
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1,882
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Other accrued liabilities
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2,242
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2,440
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Total current liabilities
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12,244
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9,704
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Convertible note
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11,468
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11,345
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Other long-term liabilities
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3,438
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3,592
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Total liabilities
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27,150
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24,641
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Commitments and contingencies
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Shareholders deficit:
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Preferred stock:
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Authorized - 1,000,000 shares, outstanding - none
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Common stock:
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Authorized - 10,000,000 shares, outstanding - 433,416 shares
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35,581
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35,569
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Accumulated deficit
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(39,126
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(37,657
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Total shareholders deficit
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(3,545
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(2,088
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Total liabilities and shareholders deficit
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$
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23,605
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$
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22,553
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See Accompanying Notes to Consolidated Condensed Financial Statements.
4
BELL INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
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Three months ended
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March 31,
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2010
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2009
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Cash flows from operating activities:
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Net loss
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$
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(1,469
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$
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(1,873
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Adjustments to reconcile net loss to net cash used in operating activities for
continuing operations:
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Depreciation and amortization expense
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172
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240
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Gain on sale of assets
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(1
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Non-cash interest expense
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178
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162
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Stock-based compensation expense
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7
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12
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Provision for losses on accounts receivable, net
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41
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67
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Provision for losses on inventory
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(25
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Changes in assets and liabilities, net of acquisitions and disposals:
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Accounts receivable
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(2,368
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(3,278
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Inventories
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(329
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36
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Accounts payable
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632
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(109
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Accrued payroll
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507
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655
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Accrued liabilities and other
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(294
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(550
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Net cash used in operating activities for continuing operations
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(2,949
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(4,638
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Net cash used in operating activities for discontinued operations
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(75
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(111
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Net cash used in operating activities
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(3,024
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(4,749
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Cash flows from investing activities:
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Purchase of fixed assets and other
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(32
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(36
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Net cash used in investing activities for continuing operations
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(32
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(36
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Net cash provided by investing activities for discontinued operations
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200
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400
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Net cash provided by investing activities
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168
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364
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Cash flows from financing activities:
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Net borrowings under revolving credit facility
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1,599
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1,615
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Debt acquisition costs
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(113
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(100
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Net payments of floor plan payables
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(291
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)
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Principal payments on capital leases
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(5
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(33
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Net cash provided by financing activities for continuing operations
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1,481
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1,191
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Net decrease in cash and cash equivalents
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(1,375
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)
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(3,194
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Cash and cash equivalents at beginning of period
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2,608
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3,233
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Cash and cash equivalents at end of period
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$
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1,233
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$
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39
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See Accompanying Notes to Consolidated Condensed Financial Statements.
5
BELL INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 General
The accompanying consolidated condensed financial statements of Bell Industries, Inc. (the
Company) have been prepared in accordance with generally accepted accounting principles
(GAAP) and with the instructions to Form 10-Q and Article 8 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, 2009 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. Management believes that the disclosures included in the accompanying
interim financial statements and footnotes are adequate for a fair presentation, but the
disclosures contained herein should be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009.
Note 2 Acquisition and Sale of SkyTel Division
On January 31, 2007, the Company completed the acquisition of substantially all of the
assets and the assumption of certain liabilities of SkyTel Corp. (SkyTel), an indirect
subsidiary of Verizon Communications Inc. (Verizon), for a total purchase price of
$23.0 million, plus a $7.4 million post closing adjustment paid to Verizon in April 2007 and
approximately $4.2 million in deal costs. SkyTel, based in Clinton, Mississippi, is a provider of
wireless data and messaging services including email, interactive two-way messaging, wireless
telemetry services and traditional text and numeric paging to Fortune 1000 and government
customers throughout the United States.
On October 15, 2007, the Company sold its shares of stock (the Shares) in two corporations
that held certain FCC licenses for the operation of broadband radio service channels to Sprint
Nextel Corporation. The aggregate consideration for the Shares was approximately $13.5 million in
cash, with approximately $943,000, plus accrued interest deferred until April 2009 after closing
(April 15, 2009) after certain indemnification obligations were met. The Company received
$1,020,000 in April 2009 representing the deferred consideration plus $77,000 in accrued
interest.
During the fourth quarter of 2007, the Company committed to a plan to sell the SkyTel
division and entered into letters of intent with two parties to sell the SkyTel division in two
separate transactions. On February 14, 2008, the Company completed the sale of the SkyGuard and
FleetHawk product lines to SkyGuard, LLC for $7.0 million in cash. On June 13, 2008, the Company
completed the sale of the remainder of the SkyTel business to Velocita Wireless, LLC (Velocita)
for total consideration of $7.5 million, consisting of $3.0 million in cash at closing, a
$3.0 million secured note payable thirty days after closing and a $1.5 million unsecured note
originally payable on the one year anniversary of the closing. Subsequent to the closing,
Velocita agreed to pay the Company a working capital adjustment of $1.5 million, payable in
installments through June 15, 2009.
On May 12, 2009, the Company entered into a settlement agreement with Velocita and various
of Velocitas affiliated entities, which included an agreement to reduce the amount of the
$1.5 million unsecured note due on June 13, 2009 to $1.35 million, with $250,000 paid on May 12,
2009, and the remaining $1.1 million balance payable in eleven monthly installments of $100,000
beginning on June 1, 2009. In exchange for the reduction in the principal amount of the
unsecured note and the extended payment terms, the Company received corporate guarantees from
Velocitas affiliated entities on the remaining outstanding balance. As of March 31, 2010, the
unpaid balance on the unsecured note was $100,000, which was paid in full on April 1, 2010. In
addition, the unpaid balance of $1.1 million on the working capital adjustment note was paid in
full on May 12, 2009. The proceeds were used to pay down outstanding balances on the Companys
revolving credit facility and to provide working capital for the Companys continuing operations.
Upon the closing of the transactions, the Company no longer has any significant involvement
with, and no longer generates cash flows from, the SkyTel operations. Therefore, the SkyTel
division was reflected as discontinued operations in the Consolidated Condensed Statements of
Cash Flows for the three months ended March 31, 2010 and 2009.
6
Note 3 Fair Value of Financial Instruments
The Company partially adopted Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) on
January 1, 2008, delaying application for non-
financial assets and non-financial liabilities as permitted until January 1, 2009. This
guidance, as amended, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into three levels as follows:
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Level 1 -
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Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access
as of the measurement date. Financial assets and liabilities
utilizing Level 1 inputs include active exchange-traded
securities and exchange-based derivatives.
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Level 2 -
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Inputs other than quoted prices included within Level 1 that are
directly observable for the asset or liability or indirectly
observable through corroboration with observable market data.
Financial assets and liabilities utilizing Level 2 inputs
include fixed income securities, non-exchange-based derivatives,
mutual funds, and fair-value hedges.
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Level 3 -
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Unobservable inputs for the asset or liability only used when
there is little, if any, market activity for the asset or
liability at the measurement date. Financial assets and
liabilities utilizing Level 3 inputs include
infrequently-traded, non-exchange-based derivatives and
commingled investment funds, and are measured using present
value pricing models.
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In accordance with ASC 820, the Company determines the level in the fair value hierarchy
within which each fair value measurement falls, based on the lowest level input that is
significant to the fair value measurement in its entirety.
The following table presents the Companys financial asset (note receivable) and
non-financial liability (environmental liability, see Note 10) that are measured and recorded at
fair value on the Companys Consolidated Condensed Balance Sheets on a recurring basis and their
level within the fair value hierarchy during the three months ended March 31, 2010:
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Fair Value Measurement Using Significant
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Unobservable Inputs (Level 3)
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Environmental
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(In thousands)
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Note Receivable
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Liability
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Fair Value at December 31, 2009
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$
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300
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$
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2,449
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Total realized gains or losses
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Changes in net asset or liability
resulting from collections
or settlements
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(200
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)
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(84
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)
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Transfers in and/or out of Level 3
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Fair Value at March 31, 2010
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$
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100
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$
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2,365
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Gains and losses resulting from changes in the fair value of the liability for environmental
matters are reflected in the period realized in earnings and are reported in selling, general and
administrative expenses.
The carrying amounts for cash and cash equivalents, accounts receivable, inventories,
prepaid expenses and other assets, accounts payable, and other accruals approximate their fair
values because of their nature and respective duration. The fair value of the revolving credit
facility (see Note 5) is equal to its carrying value due to the variable nature of its interest
rate. The fair value of the Companys convertible note (see Note 5) is based on its book value
since the note is not publicly traded and it is not practicable to measure its fair value.
Note 4 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 $388,000 and $540,000 during the three
months ended March 31, 2010 and 2009, respectively. These costs are included within selling,
general and administrative expenses in the Consolidated Condensed Statements of Operations.
7
Note 5 Debt and Financing Obligations
The Company has the following debt and financing obligations:
Revolving Credit Facility
The Company entered into a credit agreement (the Credit Agreement) with Wells Fargo
Foothill, N.A. (now known as Wells Fargo Capital Finance, Inc. (WFCF), as administrative agent,
pursuant to which WFCF provided the Company with a
revolving line of credit with a maximum credit amount of $10 million (the Revolving Credit
Facility). Advances under the Revolving Credit Facility (the Advances) will be available to
the Company, subject to restrictions based on the borrowing base (as such term is defined in the
Credit Agreement). The Advances may be used to finance ongoing working capital, capital
expenditures and general corporate needs of the Company. Advances made under the Credit Agreement
bear interest, in the case of base rate loans, at a rate equal to the base rate, which is the
greater of 3.5% or the rate of interest per annum announced from time to time by WFCF as its
prime rate in effect at its principal office in San Francisco, California, plus a margin. In the
case of LIBOR rate loans, amounts borrowed bear interest at a rate equal to the greater of 3.0%
or the LIBOR Rate (as defined in the Credit Agreement) plus a margin. The Advances made under the
Credit Agreement are repayable in full on March 31, 2011. The Company may prepay the Advances
(unless in connection with the prepayment in full of all of the outstanding Advances) at any time
without premium or penalty. If the Company prepays all of the outstanding Advances and terminates
all commitments under the Credit Agreement, the Company is obligated to pay a prepayment premium
as set forth in the Credit Agreement. The Credit Agreement includes certain covenants related to
profitability and capital expenditures. In connection with the Credit Agreement, the Company
entered into a security agreement with WFCF, pursuant to which the Company granted WFCF a
security interest in and a lien against certain assets of the Company. As of March 31, 2010,
there was $1.6 million outstanding under the Revolving Credit Facility.
On February 11, 2010, the Company entered into Amendment Number Seven to the Credit
Agreement (the Seventh Amendment) with WFCF. The Seventh Amendment extended the expiration
date on the Revolving Credit Facility to March 31, 2011, revised the financial profitability and
capital expenditure covenants for the year ended December 31, 2010, and increased the total size
of the Revolving Credit Facility from $10.0 million to $12.5 million during the period from July
15, 2010 to and including September 14, 2010.
Convertible Note
On January 31, 2007, the Company entered into a purchase agreement with Newcastle Partners,
L.P. (Newcastle) pursuant to which the Company issued and sold in a private placement to
Newcastle a convertible subordinated pay-in-kind promissory note (the Convertible Note) in the
principal amount of $10.0 million. Through June 13, 2008, the outstanding principal balance and
accrued but unpaid interest on the Convertible Note was convertible at any time by Newcastle into
shares of common stock of the Company at a conversion price of $76.20 per share, subject to
adjustment. The Convertible Note accrued interest at 8%, subject to adjustment in certain
circumstances, which interest accreted as principal on the Convertible Note as of each quarterly
interest payment date beginning March 31, 2007. The Company also had the option (subject to the
consent of WFCF) to pay interest on the outstanding principal balance of the Convertible Note in
cash at a higher interest rate following the first anniversary if the weighted average market
price of the Companys common stock was greater than 200% of the conversion price ($152.40 per
share). The Convertible Note matures on January 31, 2017. The Company had the right to prepay the
Convertible Note at an amount equal to 105% of outstanding principal following the third
anniversary of the issuance of the Convertible Note so long as a weighted average market price of
the Companys common stock was greater than 150% of the conversion price ($114.40 per share). In
connection with the purchase of the Convertible Note, the Company and Newcastle also entered into
a registration rights agreement pursuant to which Newcastle was granted demand and piggyback
registration rights in respect of shares of common stock that may be issued under the Convertible
Note. In March 2007, the Company granted Newcastle a second priority lien on certain assets of
the Company in order to secure the obligations under the Convertible Note.
As this debt was convertible at the option of Newcastle at a beneficial conversion rate of
$76.20 per share (closing market price of the Companys common stock as of January 31, 2007 was
$89.80 per share), the embedded beneficial conversion feature was recorded as a debt discount
with the credit charged to shareholders equity, net of tax, and amortized using the effective
interest method over the life of the debt in accordance with ASC Topic 470-20-25, Debt with
Conversion and Other Options (ASC 470-20-25).
On June 13, 2008, the Company and Newcastle entered into the Second Amended and Restated
Convertible Promissory Note (the Amended Convertible Note) with a principal amount of $11.1
million (which represented the original $10.0 million note plus payment-in-kind interest accreted
as additional principal and accrued interest through June 13, 2008). The Amended Convertible Note
reflects a reduction in the conversion price from $76.20 per share down to $4.00 per share
(subject to adjustment) and a reduction in the interest rate from 8% to 4% per annum. On or after
January 31, 2010, the Company has the right to prepay the Amended Convertible Note at an amount
equal to 105% of the outstanding principal so long as a weighted average market price of the
Companys common stock is greater than 200% of the conversion price ($8.00 per share). As a
result of the amendment, the remaining balance of the beneficial conversion feature related to
the original Convertible Note issued on January 31, 2007, net of income taxes, was written off
resulting in a loss on extinguishment of debt of approximately $1.1 million during the three
months ended June 30, 2008. As the Amended Convertible Note is convertible at the option of
Newcastle at a beneficial conversion rate of $4.00 per share (closing market price of the
Companys common stock as of June 13, 2008 was $4.20 per share), the embedded beneficial
conversion feature was recorded as a debt discount with the credit charged to shareholders
equity, net of tax, and amortized using the effective interest method over the life of the debt
in accordance with ASC 470-20-25.
8
On February 11, 2010, the Company entered into Amendment Number Two to the Amended
Convertible Note (the Second Amendment to Note). The Second Amendment to Note revised the
financial profitability covenants for each of the quarters during the year ended December 31,
2010 and increased the limitation on the indebtedness covenant to $13.0 million.
A summary of the Amended Convertible Note activity for the three months ended March 31, 2010
is as follows (in thousands):
|
|
|
|
|
Convertible note at December 31, 2009
|
|
$
|
11,345
|
|
Beneficial conversion feature
|
|
|
(5
|
)
|
Accretion of beneficial conversion feature
|
|
|
11
|
|
Accrued interest
|
|
|
117
|
|
|
|
|
|
Convertible note at March 31, 2010
|
|
$
|
11,468
|
|
|
|
|
|
Total interest expense recorded on the Convertible Note and the Amended Convertible Note,
including accretion of the beneficial conversion feature, totaled approximately $128,000 and
$130,000 during the three months ended March 31, 2010 and 2009, respectively.
Capital Lease
Previously, the Company entered into capital leases related to technology systems and
vehicles, which were recorded as fixed assets in the Companys Consolidated Condensed Balance
Sheets. At March 31, 2010 and December 31, 2009, the leases were recorded in the Companys
Consolidated Condensed Balance Sheets at approximately $263,000, which includes the present value
of interest payments.
Note 6 Stock-Based Compensation
The Companys 2007 Stock Option Plan (the 2007 Plan) provides for the issuance of common
stock to be available for purchase by employees, consultants and non-employee directors of the
Company. Under the 2007 Plan, incentive and nonqualified stock options, stock appreciation rights
and restricted stock may be granted. Options outstanding have terms of between five and ten
years, vest over a period of up to four years and may be issued at a price equal to or greater
than the fair value of the shares on the date of grant.
The Company utilizes the Black-Scholes valuation model in determining the fair value of
stock-based grants. The resulting compensation expense is recognized over the requisite service
period, which is generally the option vesting term of up to four years. The Company recognized
stock-based compensation expense of $7,000 and $12,000 for the three months ended March 31, 2010
and 2009, respectively.
The following summarizes stock option share activity during the three months ended March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Stock Option
|
|
|
Weighted Average
|
|
|
Contractual Term
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
Intrinsic Value
|
|
Outstanding at December 31,
2009
|
|
|
22,500
|
|
|
$
|
91.73
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
(6,250
|
)
|
|
|
102.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
16,250
|
|
|
$
|
87.53
|
|
|
|
2.5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010
|
|
|
16,100
|
|
|
$
|
83.98
|
|
|
|
2.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The following summarizes non-vested stock options as of December 31, 2009 and changes during
the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Stock Option
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
Non-vested at December 31, 2009
|
|
|
3,850
|
|
|
$
|
23.00
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(2,450
|
)
|
|
|
20.03
|
|
Canceled or expired
|
|
|
(1,250
|
)
|
|
|
28.71
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2010
|
|
|
150
|
|
|
$
|
24.12
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the intrinsic value (the
difference between the Company closing stock price on March 31, 2010 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, 2010. No stock options were
exercised during the three months ended March 31, 2010. The total fair value of options vesting
during the three months ended March 31, 2010 was approximately $49,000. As of March 31, 2010,
total unrecognized stock-based compensation expense related to non-vested stock options was
approximately $2,000, which is expected to be recognized over a weighted average period of
approximately 0.4 years. As of March 31, 2010, there were 42,500 shares of common stock available
for issuance of future stock option grants under the 2007 Plan.
Under the Bell Industries Employees Stock Purchase Plan (the ESPP), 37,500 shares were
authorized for issuance to Company employees. Eligible employees may purchase Company stock at
85% of market value through the ESPP at various offering times during the year. During the third
quarter of 2002, the Company suspended the ESPP. At March 31, 2010, 20,973 shares were available
for future issuance under the ESPP.
Note 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 convertible debt. The weighted average number of common shares
outstanding for the three months ended March 31, 2010 and 2009 is set forth in the following
table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Basic weighted average shares outstanding
|
|
|
433
|
|
|
|
433
|
|
Potentially dilutive stock options and convertible debt
|
|
|
2,962
|
|
|
|
2,846
|
|
Anti-dilutive due to net loss in period
|
|
|
(2,962
|
)
|
|
|
(2,846
|
)
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
433
|
|
|
|
433
|
|
|
|
|
|
|
|
|
The number of stock option shares that was not included in the table above because the
impact would have been anti-dilutive based on the exercise price totaled 16,250 and 23,000 for
the three months ended March 31, 2010 and 2009, respectively.
Note 8 Income Taxes
The benefit from income taxes for the three months ended March 31, 2010 and 2009 was $0 and
$2,000, respectively. As of March 31, 2010 and 2009, the Company had no unrecognized tax
benefits.
As of March 31, 2010, the Company continues to record a full valuation allowance against net
deferred tax asset balances. Tax years 2005 through 2009 remain open to examination by the major
taxing jurisdictions where the Company is subject to income tax.
10
Note 9 Shareholders Deficit
The changes to shareholders deficit during the three months ended March 31, 2010 are as
follows (in thousands):
|
|
|
|
|
Shareholders deficit at December 31, 2009
|
|
$
|
(2,088
|
)
|
Net loss
|
|
|
(1,469
|
)
|
Stock based compensation
|
|
|
7
|
|
Beneficial conversion feature, net of tax
|
|
|
5
|
|
|
|
|
|
Shareholders deficit at March 31, 2010
|
|
$
|
(3,545
|
)
|
|
|
|
|
Note 10 Environmental Matters
Reserves for environmental matters primarily relate to the cost of monitoring and
remediation efforts, which commenced in 1993, at the site of a former leased facility of the
Companys Electronic Systems Division (ESD). The ESD operation was closed in late 1992. The
project involves a water table contamination clean up process, including monitoring and
extraction wells. The Company has fully cooperated with the California Regional Water Quality
Control Board (CRWQCB) to remediate groundwater contamination at the site. At this time, there
are no sanctions against the Company and one administrative order received on March 29, 2010.
The order from the CRWQCB is for preparation of a plan for the installation of two additional
exploratory wells. The Company has filed a petition to reverse the order on the basis that our
current network of wells are sufficient for the remediation of any ground water table
contamination the site for which Bell may arguably be responsible.
At March 31, 2010 and December 31, 2009, estimated future remediation and related costs for
this matter totaled approximately $2.4 million and $2.5 million, respectively. At March 31, 2010,
approximately $451,000 (estimated current portion) was included in accrued liabilities and
$1.9 million (estimated non-current portion) was included in other long term liabilities in the
Companys Consolidated Condensed Balance Sheets.
Note 11 Royalty Commitment
In August 2009, the Company entered into a license and distribution agreement with the
developer of a technology product that provides the Company with exclusive distribution rights to
such product in the United States. As part of this agreement, the Company will make royalty
payments based upon the revenue and profitability of the products sold and is committed to make
minimum monthly and annual royalty payments which can be applied against royalties due from
future product sales. The minimum annual royalty in the first year of the agreement is $378,000,
which may be reduced or eliminated under certain circumstances. As of March 31, 2010, the Company
had a prepaid royalty balance of $96,000. The Company has the right to terminate the agreement
with one year advance notice. In the event the developer of this technology does not perform
certain of its obligations under the agreement, the royalty payments may be suspended.
Note 12 Litigation
On June 29, 2009, the Company was named as a defendant in a civil complaint filed by Eon
Corp. IP Holdings, LLC in the United States District Court for the Eastern District of Texas.
The suit alleges that the Company, along with several other providers of paging, messaging,
and/or telemetry services, infringed upon certain patents during its ownership of Skytel. The
Company believes that the complaint against the Company is without merit and continues to defend
its position. However, if the Company receives an unfavorable outcome at trial, it could result
in a liability that has a material adverse effect on the Companys results of operations and
financial position.
The Company is involved in certain other legal proceedings that are incidental to its
current and discontinued businesses. While the ultimate liability pursuant to these actions
cannot currently be determined, the Company believes that the resolution of these actions will
not have a material adverse effect on the Companys results of operations, cash flows or
financial position.
Note 13 Business Segment Information
As of March 31, 2010, the Company operates two reportable business segments: Bell Techlogix,
a provider of integrated technology product and service solutions, and the Recreational Products
Group, a wholesale distributor of aftermarket parts and accessories for recreational vehicles,
boats, snowmobiles, motorcycles and ATVs. The Company also separately records expenses related to
corporate overhead which supports the business lines. The Companys former segment, SkyTel, has
been reflected as a discontinued operation and, therefore, is not presented. Each operating
segment offers unique products and services and has separate management.
11
The following summarizes financial information for the Companys reportable segments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
Bell Techlogix
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
5,075
|
|
|
$
|
5,154
|
|
Services
|
|
|
6,164
|
|
|
|
5,826
|
|
|
|
|
|
|
|
|
Total Bell Techlogix
|
|
|
11,239
|
|
|
|
10,980
|
|
Recreational Products Group
|
|
|
8,474
|
|
|
|
7,347
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
19,713
|
|
|
$
|
18,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Bell Techlogix
|
|
$
|
(407
|
)
|
|
$
|
(589
|
)
|
Recreational Product Group
|
|
|
40
|
|
|
|
(172
|
)
|
Corporate
|
|
|
(859
|
)
|
|
|
(906
|
)
|
Gain on sale of assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
|
(1,225
|
)
|
|
|
(1,667
|
)
|
Interest expense, net
|
|
|
244
|
|
|
|
208
|
|
|
|
|
|
|
|
|
Loss from operations before benefit from income taxes
|
|
$
|
(1,469
|
)
|
|
$
|
(1,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Bell Techlogix
|
|
$
|
111
|
|
|
$
|
165
|
|
Recreational Products Group
|
|
|
22
|
|
|
|
26
|
|
Corporate
|
|
|
39
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
$
|
172
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Bell Techlogix
|
|
$
|
6
|
|
|
$
|
19
|
|
Recreational Products Group
|
|
|
24
|
|
|
|
8
|
|
Corporate
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
$
|
32
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Bell Techlogix
|
|
$
|
7,237
|
|
|
$
|
8,023
|
|
Recreational Products Group
|
|
|
13,374
|
|
|
|
9,825
|
|
Corporate
|
|
|
2,885
|
|
|
|
4,385
|
|
Discontinued operations
|
|
|
109
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
$
|
23,605
|
|
|
$
|
22,553
|
|
|
|
|
|
|
|
|
12
Note 14 Related Party Transactions
Newcastle is a private investment firm and one of the Companys largest shareholders.
Mr. Mark E. Schwarz, the Chairman of the Companys Board of Directors, serves as the General
Partner of Newcastle, through an entity controlled by him. Mr. Clinton J. Coleman, a Vice
President of Newcastle and a member of the Companys Board of Directors, became the Companys
Chief Executive Officer in January 2010 prior to which he served as Interim Chief Executive
Officer of the Company since July 2007.
Under the supervision of the Companys Board of Directors (other than Mr. Schwarz and Mr.
Coleman), members of management, with the assistance of counsel, negotiated the terms of
Newcastles Convertible Note and Amended Convertible Note directly with representatives of
Newcastle (see Note 5). After final negotiations concluded, the Companys Board of Directors,
excluding Mr. Schwarz and Mr. Coleman, approved the Newcastle transactions. Mr. Schwarz and Mr.
Coleman did not participate in any of the Board of Directors discussions regarding the Newcastle
transactions or the votes of the Board of Directors to approve the same.
Note 15 Subsequent Events
On April 29, 2010, Jacqueline S. Cregar submitted her written notice of resignation as Vice
President, Corporate Controller and Assistant Secretary of the Company in order to accept a
position with one of the Companys customers. Ms. Cregars resignation is effective May 14,
2010.
13
Item 2.
Managements 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 the consolidated condensed financial statements and notes
thereto included elsewhere in this Quarterly Report on Form 10-Q and the Companys Annual Report
on Form 10-K for the year ended December 31, 2009. This discussion and analysis includes
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act),
regarding, among other things, the Companys 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 the Company
makes in this Quarterly Report are set forth below, are set forth in the Companys Annual Report
on Form 10-K for the year ended December 31, 2009 and are set forth in other reports or documents
that the Company files from time to time with the Securities and Exchange Commission (SEC). The
Company undertakes no obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by law.
Critical Accounting Policies
In the Companys Annual Report on Form 10-K for the year ended December 31, 2009, 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 July 2009, the FASB established the FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized by the FASB to
be applied by nongovernmental entities in the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP) in the United States. This guidance was
included in the Codification under ASC Topic 105, Generally Accepted Accounting Principles. All
prior accounting standard documents were superseded by the Codification and any accounting
literature not included in the Codification is no longer authoritative. Rules and interpretive
releases of the SEC issued under the authority of federal securities laws will continue to be
sources of authoritative GAAP for SEC registrants. The Codification became effective for the
Company beginning with the third quarter of 2009. Therefore, beginning with the third quarter of
2009, all references made by the Company in its consolidated condensed financial statements use
the new Codification numbering system. The Codification does not change or alter existing GAAP
and, therefore, did not have a material impact on the Companys consolidated condensed financial
statements.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13 Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements a consensus of the FASB
Emerging Issues Task Force. This guidance applies to multiple-deliverable revenue arrangements
that are currently within the scope of ASC Topic 605-25. This guidance also (i) provides
principles and application guidance on whether multiple deliverables exist, how the arrangement
should be separated, and the consideration allocated, (ii) requires an entity to allocate revenue
in an arrangement using estimated selling prices of deliverables if a vendor does not have
vendor-specific objective evidence or third-party evidence of selling price, (iii) eliminates the
use of the residual method and (iv) requires an entity to allocate revenue using the relative
selling price method. The consensus significantly expands the disclosure requirements for
multiple-deliverable revenue arrangements. This guidance should be applied on a prospective basis
for revenue arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with earlier application permitted. Alternatively, an entity can elect to
adopt this guidance on a retrospective basis. The Company has not yet determined the effect of
the adoption of this guidance on the Companys results of operations or financial position.
Results of Operations
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
The Company has provided a summary of its consolidated operating results for the three
months ended March 31, 2010, compared to the three months ended March 31, 2009, followed by an
overview of its business segment performance below:
Net revenues
Net revenues were $19.7 million for the first quarter of 2010 as compared to $18.3 million
for the first quarter of 2009, representing an increase of $1.4 million, or 7.6%. The increase
consisted of a $1.1 million and a $0.3 million increase in net revenues in the Recreational
Products Group (RPG) and Bell Techlogix segments, respectively.
14
Gross profit
Gross profit, which represents net revenues less the cost of products sold and services
provided, was $4.0 million, or 20.5% of net revenues, for the first quarter of 2010 compared to
$3.7 million, or 20.3% of net revenues, for the first quarter of 2009. The increase in gross
profit of $0.3 million was primarily the result of an increase in revenues in the RPG segment
during the first quarter of 2010.
Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses were $5.3 million, or 26.7% of net
revenues, for the first quarter of 2010 compared to $5.4 million, or 29.4% of net revenues, for
the first quarter of 2009. The decrease in SG&A expenses of $0.1 million consisted of a $0.2
million decrease in SG&A expenses in the Techlogix segment offset by a $0.1 million increase in
SG&A expenses in the RPG segment which was primarily the result of increased revenue in the RPG
segment during the first quarter of 2009.
Interest and other, net
Net interest expense was $244,000 for the first quarter of 2010, compared to $208,000 for
the first quarter of 2009. The increase in net interest expense was primarily the result of the
outstanding balances under the Revolving Credit Facility and the Amended Convertible Note during
the first quarter of 2010 and the amortization of related bank fees incurred in connection with
the Seventh Amendment with WFCF entered into on February 11, 2010.
Income taxes
The benefit from income taxes was $0 for the first quarter of 2010 compared to a benefit
from income taxes of $2,000 for the first quarter of 2009. The benefit from income taxes for the
three months ended March 31, 2009 was primarily related to state income tax. As of March 31,
2010, the Company continued to record a full valuation allowance against net deferred tax asset
balances.
Discontinued operations
In late 2007, the Company entered into letters of intent with two companies to sell its
SkyTel division in two separate transactions. The Company completed the sale of the SkyGuard and
FleetHawk product lines in February 2008 and the sale of the remainder of the SkyTel division in
June 2008. Accordingly, the results of the SkyTel division have been classified as discontinued
operations in the accompanying financial statements. For the three months ended March 31, 2010
and 2009, the SkyTel division had no revenue or expense activity.
Business Segment Results
The Company operates two reportable business segments: Bell Techlogix, a provider of
integrated technology product and service solutions, and the Recreational Products Group, a
wholesale distributor of aftermarket parts and accessories for recreational vehicles, boats,
snowmobiles, motorcycles and ATVs. The Company also separately records expenses related to
corporate overhead which supports the business lines. The Companys former segment, SkyTel, has
been reflected as a discontinued operation and, therefore, is not presented in this business
segment results discussion.
Bell Techlogix
Bell Techlogixs revenues of $11.2 million for the first quarter of 2010 represented a 2.4%
increase from the $11.0 million of revenues for the first quarter of 2009. Service revenues of
$6.2 million for the first quarter of 2010 represented a 5.8% increase from the $5.8 million of
service revenues for the first quarter of 2009 due to growth in depot and contact center
engagements partially offset by shortfalls in project revenue. Product revenues of $5.1 million
for the first quarter of 2010 represented a 1.5% decrease from the $5.2 million of product
revenues for the first quarter of 2009, which was primarily the result of the timing of projects
in K-12 and higher education markets.
Bell Techlogixs operating loss of $407,000 for the first quarter of 2010 represented a
$182,000 improvement from the operating loss of $589,000 for the first quarter of 2009. This
improvement was due to a decrease of $178,000 in SG&A expenses due primarily to reductions in
salaries and wages.
Recreational Products Group
RPG revenues of $8.5 million for the first quarter of 2010 represented a 15.3% increase from
the $7.3 million of revenues for the first quarter of 2009. This increase was primarily related
to higher sales in the marine and RV product lines which can be
attributed primarily to increased pre-season RV and marine product orders.
15
RPG operating income of $40,000 for the first quarter of 2010 represented a $212,000
increase from the operating loss of $172,000 for the first quarter of 2009. This increase was
primarily due to the $1.2 million increase in net revenues.
Corporate
Corporate overhead costs of $859,000 for the first quarter of 2010 represented a 5.2%
decrease from $906,000 for the first quarter of 2009. The decrease in costs of $47,000 was
primarily the result of headcount reductions and reductions in related benefits and travel costs.
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):
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|
|
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|
|
|
|
|
|
March 31,
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|
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December 31,
|
|
|
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2010
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|
|
2009
|
|
Cash and cash equivalents
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|
$
|
1,233
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|
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$
|
2,608
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Net working capital
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$
|
9,830
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|
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$
|
11,272
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Current ratio
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|
|
1.80
|
|
|
|
2.16
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|
Long term liabilities to capitalization (1)
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|
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131.2
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%
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|
|
116.3
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%
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Shareholders deficit per share
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$
|
(8.19
|
)
|
|
$
|
(4.82
|
)
|
Days sales in receivables
|
|
|
51
|
|
|
|
45
|
|
|
|
|
(1)
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|
Capitalization represents the sum of long-term liabilities and shareholders equity.
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For the three months ended March 31, 2010, net cash used in operating activities totaled
$3.0 million, consisting of $2.9 million used in operating activities for continuing operations
and $75,000 used in operating activities for discontinued operations (the Companys former SkyTel
division). The net cash used in operating activities for continuing operations consisted of a
loss of $1.5 million, an increase in accounts receivable of $2.4 million, an increase in
inventory of $0.3 million offset by an increase in accounts payable and accrued liabilities of
$0.9 million and non-cash expenses of $0.4 million. Net cash provided by investing activities
totaled $0.2 million, consisting of $0.2 million in cash provided by investing activities for
discontinued operations from proceeds received related to the Skytel note receivable offset by
$32,000 in cash used in investing activities for continuing operations related to purchases of
fixed assets. Net cash provided by financing activities totaled $1.5 million, consisting of
$1.6 million net borrowings on the Revolving Credit Facility, partially offset by $0.1 million in
payments of debt acquisition costs.
For the three months ended March 31, 2009, net cash used in operating activities totaled
$4.7 million, consisting of $4.6 million used in operating activities for continuing operations
and $0.1 million used in operating activities for discontinued operations (the Companys former
SkyTel division). The net cash used in operating activities for continuing operations was
primarily the result of the loss from continuing operations of $1.9 million and an increase in
accounts receivable of $3.3 million related primarily to the Recreational Products Group selling
products with extended payment terms, partially offset by non-cash expenses and other changes
totaling $0.6 million. Net cash provided by investing activities totaled $0.4 million,
consisting of $36,000 in cash used in investing activities for continuing operations related to
purchases of fixed assets and $0.4 million in cash provided by investing activities for
discontinued operations related to payments received during the first quarter of 2009 related to
a note receivable. Cash flows provided by financing activities totaled $1.2 million, consisting
of $1.6 million in borrowings on the Revolving Credit Facility, partially offset by $0.3 million
in payments of floor plan payables and $0.1 million in payments of debt acquisition costs.
Revolving Credit Facility with WFCF
As of March 31, 2010, the Company had $1.6 million in borrowings outstanding under its
Revolving Credit Facility with Wells Fargo Capital Finance, Inc. (WFCF). The Company has
utilized and will continue utilizing the Revolving Credit Facility periodically to fund working
capital needs. The Revolving Credit Facility is secured by a lien on substantially all of the
Companys assets.
16
Additional advances under the Revolving Credit Facility (collectively, the Advances) will
be available to the Company, up
to the aggregate credit limit of $10.0 million, except during the period from July 15, 2010
to and including September 14, 2010 at which time the aggregate credit limit will be $12.5
million, subject to restrictions based on the borrowing base. The Advances may be used to finance
ongoing working capital, capital expenditures and general corporate needs. Advances made under
the Revolving Credit Facility bear interest, in the case of base rate loans, at a rate equal to
the base rate, which is the greater of 3.5% or the rate of interest per annum announced from
time to time by WFCF as its prime rate, plus a margin. In the case of LIBOR rate loans, amounts
borrowed bear interest at a rate equal to the greater of 3.0% or the LIBOR Rate (as defined in
the Credit Agreement) plus a margin. The Advances made under the Credit Agreement are repayable
in full on March 31, 2011. The Company may prepay the Advances (unless in connection with the
prepayment in full of all of the outstanding Advances) at any time without premium or penalty. If
the Company prepays all of the outstanding Advances and terminates all commitments, it is
obligated to pay a prepayment premium.
On February 11, 2010, the Company entered into the Seventh Amendment with WFCF. The Seventh
Amendment extended the expiration date on the Revolving Credit Facility to March 31, 2011,
revised the financial profitability and capital expenditure covenants for the year ended December
31, 2010, and increased the total size of the Revolving Credit Facility from $10.0 million to
$12.5 million during the period from July 15, 2010 to and including September 14, 2010.
Convertible Note Held By Newcastle
On January 31, 2007, the Company issued to Newcastle a Convertible Note with a principal
amount of $10.0 million in order to complete the financing of its acquisition of SkyTel. The
Convertible Note was amended and restated on June 13, 2008. The Amended Convertible Note is
secured by a second priority lien on substantially all of the Companys assets. The outstanding
principal balance and/or accrued but unpaid interest on the Amended Convertible Note is
convertible at any time by Newcastle into shares of the Companys common stock at a conversion
price of $4.00 per share (the Conversion Price), subject to adjustment. The Amended Convertible
Note accrues interest at 4% per annum, subject to adjustment in certain circumstances, which
interest accretes as principal on the Amended Convertible Note as of each quarterly interest
payment date. In connection with the execution of the Amended Convertible Note, and subject to
certain conditions, the Company has agreed to appoint such number of director designees of
Newcastle such that Newcastles designees constitute 50% of the then outstanding current members
of the Companys board of directors (or, if the number of members of the board of directors is an
odd integer, such number of Newcastle designees equal to the lowest integer that is greater than
50% of the then outstanding members). The Company also has the option (subject to the consent of
WFCF) to pay interest on the outstanding principal balance of the Amended Convertible Note in
cash at a higher interest rate (8%) if the weighted average market price of its common stock is
greater than 200% of the Conversion Price ($8.00). The Amended Convertible Note matures on
January 31, 2017. The Company has the right to prepay the Amended Convertible Note at an amount
equal to 105% of outstanding principal after January 31, 2010 so long as a weighted average
market price of its common stock is greater than 200% of the Conversion Price ($8.00). As of
March 31, 2010, the outstanding principal balance and accrued but unpaid interest on the
Convertible Note was $11.5 million.
On February 11, 2010, the Company entered into the Second Amendment to Note, which revised
the financial profitability covenants for each of the quarters during the year ended December 31,
2010 and increased the limitation on the indebtedness covenant to $13.0 million.
The Company believes that sufficient cash resources exist for the foreseeable future to
support its operations and commitments through cash generated by operations, collection of the
final amounts due from the sale of the SkyTel division and advances under the Revolving Credit
Facility with WFCF. Management continues to evaluate its options in regard to the Revolving
Credit Facility and alternative sources of financing.
Off-Balance Sheet Arrangements
The Company does not have any material off-balance sheet arrangements.
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. The Company is exposed to market risk from
changes in interest rates on variable rate debt. Under the Credit Agreement with WFCF, advances
bear interest based on WFCFs prime rate plus a margin or the LIBOR Rate plus a margin. Based on
the Companys average outstanding variable rate debt during the three months ended March 31,
2010, a 1% increase in the variable rate would increase annual interest expense by approximately
$5,000.
17
Item 4.
Controls and Procedures
The Companys management, with the participation of its Chief Executive Officer and its Vice
President of Finance and
Assistant Secretary, evaluated the effectiveness of its disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2010. Based
on this evaluation, the Companys Chief Executive Officer and Vice President of Finance and
Assistant Secretary concluded that, as of March 31, 2010, the Companys disclosure controls and
procedures were effective. The Companys disclosure controls and procedures are (1) designed to
ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to its Chief Executive Officer and Vice President of Finance and
Assistant Secretary by others within those entities, particularly during the period in which this
report was being prepared, and (2) intended to provide reasonable assurance that information
required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms.
No change in the Companys internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2010
that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
18
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
On June 29, 2009, the Company was named as a defendant in a civil complaint filed by Eon
Corp. IP Holdings, LLC in the United States District Court for the Eastern District of Texas.
The suit alleges that the Company, along with several other providers of paging, messaging,
and/or telemetry services, infringed upon certain patents during its ownership of SkyTel. The
Company believes that the complaint against the Company is without merit and continues to defend
its position. However, if the Company receives an unfavorable outcome at trial, it could result
in a liability that has a material adverse effect on its results of operations and financial
condition.
The Company is involved in certain other legal proceedings that are incidental to its
current and discontinued businesses. While the ultimate liability pursuant to these actions
cannot currently be determined, the Company believes that the resolution of these actions will
not have a material adverse effect on the Companys results of operations, cash flows or
financial position.
Item 1A.
Risk Factors
There have been no material changes in the risk factors disclosed in Part I, Item 1A. Risk
Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2009. In
addition to the other information set forth in this report, you should carefully consider the
factors discussed in the Companys Annual Report on Form 10-K, which could materially affect the
Companys business, financial condition or future results. The risks described in the Companys
Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company or that it currently deems to be immaterial also
may materially and adversely affect its business, financial condition and/or operating results.
You should carefully consider the risks described in the Companys Annual Report on Form 10-K
before deciding to invest in the Companys common stock. In assessing these risks, you should
also refer to the other information in this Quarterly Report on Form 10-Q and within the
Companys Annual Report on Form 10-K for the year ended December 31, 2009, including the
Companys financial statements and the related notes. Various statements in this Quarterly Report
on Form 10-Q constitute forward-looking statements.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.
Defaults Upon Senior Securities
None
Item 4.
(Removed and Reserved)
Item 5.
Other Information
None
Item 6.
Exhibits
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10.n.
|
|
Amendment Number Seven to Credit Agreement, dated February 11,
2010, between the Registrant and Wells Fargo Capital Finance, Inc.
(formerly Wells Fargo Foothill, N.A.) (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on Form 8-K dated
February 18, 2010)
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|
|
10.s.
|
|
Amendment Number Two to the Second Amended and Restated Convertible
Promissory Note, dated February 11, 2010, between the Registrant and
BI Holdings, L.P., the successor payee to Newcastle Partners, L.P.
(incorporated by reference to Exhibit 10.2 of the Registrants
Current Report on Form 8-K dated February 18, 2010)
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|
|
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31.1
|
|
Certification of Clinton J. Coleman, 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.
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|
|
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31.2
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|
Certification of Jacqueline S. Cregar, Vice President of Finance and
Assistant Secretary 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.
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32.1
|
|
Certification of Clinton J. Coleman, 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 Jacqueline S. Cregar, Vice President of Finance and
Assistant Secretary of Registrant furnished pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
19
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.
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BELL INDUSTRIES, INC.
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|
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Dated: May 14, 2010
|
|
By:
|
|
/s/
Clinton J. Coleman
Clinton J. Coleman
Chief Executive Officer
(Principal Executive Officer)
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|
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Dated: May 14, 2010
|
|
By:
|
|
/s/
Jacqueline S. Cregar
Jacqueline S. Cregar
Vice President of Finance and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
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|
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20
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
10.n.
|
|
Amendment Number Seven to Credit Agreement, dated
February 11, 2010, between the Registrant and Wells Fargo
Capital Finance, Inc. (formerly Wells Fargo Foothill,
N.A.) (incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K dated February 18,
2010)
|
|
|
|
10.s.
|
|
Amendment Number Two to the Second Amended and Restated
Convertible Promissory Note, dated February 11, 2010,
between the Registrant and BI Holdings, L.P., the
successor payee to Newcastle Partners, L.P. (incorporated
by reference to Exhibit 10.2 of the Registrants Current
Report on Form 8-K dated February 18, 2010)
|
|
|
|
31.1
|
|
Certification of Clinton J. Coleman, 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 Jacqueline S. Cregar, Vice President of
Finance and Assistant Secretary 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 Clinton J. Coleman, 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 Jacqueline S. Cregar, Vice President of
Finance and Assistant Secretary of Registrant furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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21