10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarter ended June 30, 2000 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. YES [X] NO [ ] Indicate the number of shares outstanding of the Registrant's class of common stock, as of August 11, 2000: 8,748,415 shares. 2 Part I - FINANCIAL INFORMATION Item 1. Financial Statements Bell Industries, Inc. Consolidated Statement of Income (Unaudited, in thousands, except per share data)
Three months ended Six months ended June 30 June 30 ------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 61,064 $ 60,781 $ 115,991 $ 114,932 --------- --------- --------- --------- Costs and expenses Cost of sales 51,327 49,460 98,054 94,486 Selling and administrative 8,611 8,179 16,387 16,060 Interest, net (21) (418) (64) (58) Special items, net (437) (437) --------- --------- --------- --------- 59,480 57,221 113,940 110,488 --------- --------- --------- --------- Income before income taxes 1,584 3,560 2,051 4,444 Income tax provision 626 1,423 811 1,777 --------- --------- --------- --------- Net income $ 958 $ 2,137 $ 1,240 $ 2,667 ========= ========= ========= ========= Share and Per Share Data BASIC Net income $ 0.11 $ 0.22 $ 0.13 $ 0.28 ========= ========= ========= ========= Weighted average common shares 8,860 9,608 9,195 9,582 ========= ========= ========= ========= DILUTED Net income $ 0.11 $ 0.22 $ 0.13 $ 0.28 ========= ========= ========= ========= Weighted average common shares 8,860 9,624 9,245 9,600 ========= ========= ========= =========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 -2- Bell Industries, Inc. Consolidated Condensed Balance Sheet (Dollars in thousands)
June 30 December 31 2000 1999 -------- -------- ASSETS Unaudited Current assets: Cash and cash equivalents $ 11,713 $ 8,550 Accounts receivable, less allowance for doubtful accounts of $1,170 and $1,112 32,994 33,980 Inventories 15,168 19,588 Prepaid expenses and other 3,451 4,363 Real estate held for sale 109 -------- -------- Total current assets 63,326 66,590 -------- -------- Fixed assets, net 4,216 4,239 Goodwill 1,573 1,394 Other assets 3,336 3,728 -------- -------- $ 72,451 $ 75,951 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,532 $ 23,444 Accrued liabilities and payroll 15,683 17,660 -------- -------- Total current liabilities 39,215 41,104 -------- -------- Deferred compensation and other 3,811 4,051 Shareholders' equity: Preferred stock Authorized - 1,000,000 shares Outstanding - none Common stock Authorized - 35,000,000 shares Outstanding - 8,798,415 and 9,608,315 shares 33,139 35,750 Accumulated deficit (3,714) (4,954) -------- -------- Total shareholders' equity 29,425 30,796 Commitments and contingencies -------- -------- $ 72,451 $ 75,951 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 4 -3- Bell Industries, Inc. Consolidated Statement of Cash Flows (Unaudited, in thousands)
(In thousands) Six months ended June 30 ------------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 1,240 $ 2,667 Depreciation and amortization 773 771 Provision for losses on accounts receivable 84 110 Gain on sale of real estate (2,842) Changes in assets and liabilities 4,347 (22,297) --------- --------- Net cash provided by (used in) operating activities 3,602 (18,749) --------- --------- Cash flows from investing activities: Net proceeds from sale of business 176,692 Proceeds received on note receivable 307 Net proceeds from sale of real estate 2,951 3,231 Purchases of fixed assets and other (1,087) (995) --------- --------- Net cash provided by investing activities 2,171 178,928 --------- --------- Cash flows from financing activities: Repayment of bank borrowings, net (109,000) Cash distribution to shareholders (54,767) Purchases of common stock (2,826) Employee stock plans and other 216 734 --------- --------- Net cash used in financing activities (2,610) (163,033) --------- --------- Net increase (decrease) in cash and cash equivalents 3,163 (2,854) Cash and cash equivalents at beginning of period 8,550 6,699 --------- --------- Cash and cash equivalents at end of period $ 11,713 $ 3,845 ========= ========= Changes in assets and liabilities: Accounts receivable $ 928 $ (12,382) Inventories 4,420 1,063 Accounts payable 88 (1,145) Accrued liabilities and other (1,089) (9,833) --------- --------- Net change $ 4,347 $ (22,297) ========= ========= Supplemental cash flow information: Interest paid $ 26 $ 1,659 Income taxes paid $ 1,682 $ 431
See accompanying Notes to Condensed Consolidated Financial Statements. 5 -4- Bell Industries, Inc. Notes to Consolidated Financial Statements Accounting Principles The accompanying consolidated financial statements for the three and six month periods ended June 30, 2000 and 1999 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 independent public accountants, but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the 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 balance sheet as of December 31, 1999 has been derived from the audited financial statements, but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted pursuant to guidelines of the Securities and Exchange Commission (the "SEC"). Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but 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, 1999. Per Share Data Basic earnings per share data is based upon the weighted average number of common shares outstanding. Diluted earnings per share data is 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. Special Items During the quarter ended June 30, 2000, the Company recorded special pre-tax charges totaling $2.4 million. The charges consisted of $1.8 million of costs associated with the realignment of the Company's Midwest operations of its Systems Integration business and $600,000 of costs incurred to date associated with a corporate identity program which includes new marketing initiatives for branding and sales development. Components of the Midwest realignment charge included separation costs, asset write-downs and other exit costs related to the consolidation of facilities, logistics, and sales and service operations. Additionally, the Company recorded a pre-tax gain of approximately $2.8 million from the disposition of a real estate asset related to a previously disposed business. This sale represents the final property disposition in connection with a formal plan approved by the Company's Board of Directors in 1998. Under the plan, the Company disposed of six properties with an aggregate book value of $12.0 million. Total net proceeds from these sales were approximately $16.3 million. Stock Repurchase Program In February 2000, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares of the Company's outstanding common stock during 2000. The common stock may be repurchased in the open market at varying prices depending on market conditions and other factors. During the six months ended June 30, 2000, the Company repurchased 809,900 shares at an average price of $3.49 per share. 6 -5- Sale of Electronics Distribution Group On January 29, 1999, the Company sold substantially all of the assets of its Electronics Distribution Group ("EDG") for approximately $177 million in cash and the assumption of substantially all of the liabilities of EDG. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. This analysis contains forward looking comments which are based on current trends. Actual results in the future may differ materially. Results of operations by business segment for the three months and six months ended June 30, 2000 and 1999 were as follows (in thousands):
Three months ended Six months ended June 30 June 30 ------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales Systems Integration $ 43,226 $ 40,535 $ 83,930 $ 79,240 Recreational Products 15,088 15,201 26,976 26,305 Electronics Manufacturing 2,750 5,045 5,085 9,387 --------- --------- --------- --------- $ 61,064 $ 60,781 $ 115,991 $ 114,932 ========= ========= ========= ========= Operating income Systems Integration $ (1,365) $ 1,406 $ (1,248) $ 2,653 Recreational Products 835 1,518 1,273 2,063 Electronic Manufacturing 683 892 1,264 1,268 Special items, net 2,242 2,242 Corporate costs (832) (674) (1,544) (1,598) --------- --------- --------- --------- 1,563 3,142 1,987 4,386 Interest, net 21 418 64 58 Income tax provision (626) (1,423) (811) (1,777) --------- --------- --------- --------- Net income $ 958 $ 2,137 $ 1,240 $ 2,667 ========= ========= ========= =========
Net sales for the six months ended June 30, 2000 increased 0.9% to $116.0 million from $114.9 million in 1999, while operating income decreased to $2.0 million from $4.4 million in the comparable 1999 period. For the three months ended June 30, 2000, the Company's net sales increased slightly to $61.1 million from $60.8 million in 1999. Operating income, for the three months ended June 30, 2000, declined to $1.6 million from $3.1 million in the comparable 1999 period. The operating results for the three and six month periods ended June 30, 2000 include pre-tax charges totaling $2.4 million. The charges consisted of $1.8 million of costs associated with the realignment of the Company's Midwest operations of its Systems Integration business and $600,000 of costs incurred to date for a corporate identity program. The Midwest realignment charge included separation costs, asset write-downs and other exit costs related to the consolidation of facilities, logistics, and sales and service operations. The $1.8 million realignment charge has been included in the operating results of Systems Integration. Additionally, the 2000 operating results include a pre-tax gain of $2.8 million from the disposition of a real estate asset related to a previously disposed business. Corporate costs for the six months ended June 30, 2000 were relatively unchanged from the previous year. However, corporate costs increased to $832,000 for the three months ended June 30, 2000 compared with $674,000 for the comparable 1999 period. This increase is attributable to generally 7 -6- higher payroll and costs attributable to strategic repositioning and marketing programs. Systems Integration sales for the six months ended June 30, 2000 increased 5.9% to $83.9 million compared with $79.2 million in 1999. Excluding the $1.8 million special charge that was allocated to this business unit for facilities consolidation and staff relocation costs, operating income for the group was $557,000 for the 2000 period compared with operating income of $2.7 million in 1999. Including the charge, the Group recorded an operating loss of $1.2 million. For the three months ended June 30, 2000, Systems Integration sales increased 6.6% to $43.2 million from $40.5 million in the prior year period. Operating income for the 2000 period, excluding the $1.8 million special charge, was $440,000 compared with operating income of $1.4 million in 1999. Including the $1.8 million charge, Systems Integration recorded an operating loss of $1.4 million for the three months ended June 30, 2000. In addition to the $1.8 million special charge, Systems Integration operating results for 2000 have been affected by softness in demand for certain technology services, as well as sustained pressure on product margins. Recreational Product Group sales for the six months ended June 30, 2000 increased 2.6% to $27.0 million as operating income decreased 38.2% to $1.3 million. For the three months ended June 30, 2000, Recreational Product Group sales decreased slightly to $15.1 million from $15.2 million in 1999 while operating income declined to $835,000 from $1.5 million in the previous year. The 2000 results have been adversely impacted by warmer winter weather conditions, a shift in the sales mix toward lower margin product lines, and generally higher selling and administrative expenses. The operating results of the Electronics Manufacturing business for the three and six month periods ended June 30, 1999 include the results of a business sold in July 1999. Sales of the sold business for these periods were $2.9 million and $5.4 million while operating income was $430,000 and $300,000, respectively. Excluding the results of the sold business, sales of the Electronics Manufacturing business for the six months ended June 30, 2000 increased to $5.1 million from $4.0 million in 1999, while operating income increased to $1.3 million from $1.0 million in the prior year. For the three months ended June 30, 2000, sales increased to $2.8 million from $2.1 million in 1999. Operating income for the second quarter of 2000 was $683,000 compared with $462,000 in the 1999 period. The Electronics Manufacturing business has been favorably impacted by generally strong demand for electronics components throughout the current year period. As a percentage of sales, cost of sales for the six months ended June 30, 2000 increased to 84.5% from 82.2% in 1999. Higher cost of sales, as a percentage of sales, reflects competitive product pricing pressures particularly within the Company's Systems Integration business, and a shift in the sales mix toward lower margin product lines in the Recreational Product business. Selling and administrative expenses, as a percentage of sales, was 14.1% compared with 14.0% the prior year. In the 2000 period, the Company's income tax rate was 39.5% compared with 40.0% in the prior year. 8 -7- Selected financial data is set forth in the following table (dollars in thousands, except per share amounts):
June 30 December 31 2000 1999 ---- ---- Cash and cash equivalents $ 11,713 $ 8,550 Working capital $ 24,111 $ 25,486 Current ratio 1.6:1 1.6:1 Shareholders' equity per share $ 3.34 $ 3.20 Days' sales in receivables 52 64 Days' sales in inventories 28 30
Net cash provided by operating activities was $3.6 million for the six months ended June 30, 2000, compared to cash used in operating activities of $18.7 million for the comparable period in 1999. Cash flows from investing activities included approximately $3.0 million of net proceeds from the sale of a real estate asset. During the six months ended June 30, 2000, cash was utilized to repurchase $2.8 million of company stock and fund certain capital additions. The improvement in operating cash flows reflects changes in working capital including the reduction in accounts receivable and inventories. Cash flows in 1999 included the net proceeds from the sale of EDG of $176.7 million which were partially utilized to payoff the Company's then outstanding line of credit of $109 million. Also impacting 1999 cash flows were $3.2 million of net proceeds from the sale of real estate. The Company believes that sufficient cash resources exist to support requirements for its operations and commitments through available cash, bank borrowings and cash generated from operations. The Company has a line of credit in the amount of $20 million to finance its working capital needs to operate and grow its businesses. Management believes that it has access to additional financing as required. In 1997, the Company initiated a project to ensure all its business systems as well as non-informational systems, such as HVAC systems, building security, elevators, phone systems and other related systems were Year 2000 compliant. The Year 2000 project encompassed three major phases: Inventory - taking stock of the various applications and systems in use by the Company; Assessment - analyzing the exposure of Year 2000 issues in the various applications and systems; and Renovation - taking action to correct Year 2000 deficiencies noted in the assessment phases. The Company achieved Year 2000 compliance by converting certain of its business systems to Year 2000 hardware and software platforms and by reprogramming other business systems. As a contingency plan, the company completed the reprogramming of significant existing business systems for Year 2000 compliance in the event that new business systems were not operational by 2000. In addition, the Company identified, prioritized and communicated, to the extent practicable, with its material suppliers and third party providers ("Material Third Parties") to determine their Year 2000 status and any probable impact on Bell. Following the Year 2000 transition, the Company has not experienced any known disruption to its business as a result of Year 2000 non-compliance by it or its Material Third Parties. Bell will continue to evaluate the nature of these risks throughout Year 2000. The estimated cost of Bell's Year 2000 programs have not been material to the Company's financial position or results of operations. Although Bell's business systems were Year 2000 compliant by December 31, 1999, the Company makes no assurances regarding the Year 2000 compliance of third party systems. 9 -8- PART II - OTHER INFORMATION Items 1 through 5. Not applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K: None 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. By: DATE: August 11, 2000 /s/Tracy A. Edwards ----- --------------- ------------------- Tracy A. Edwards, President and Chief Executive Officer DATE: August 11, 2000 /s/ Russell A. Doll ----- --------------- ------------------- Russell A. Doll, Senior Vice President and Chief Financial Officer