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 March 31, 2002
Commission file number 1-11471
BELL INDUSTRIES, INC.
| California | 95-2039211 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer 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 May 10, 2002: 8,904,349 shares.
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Bell Industries, Inc.
Consolidated Statement of Operations
(Unaudited, in thousands, except per share data)
| Three months ended | |||||||||
| March 31 | |||||||||
| 2002 | 2001 | ||||||||
| Net sales | $ | 32,117 | $ | 52,986 | |||||
| Costs and expenses | |||||||||
| Cost of sales | 26,357 | 44,885 | |||||||
| Selling and administrative | 7,352 | 8,087 | |||||||
| Interest, net | (56 | ) | (164 | ) | |||||
| 33,653 | 52,808 | ||||||||
| Income (loss) before income taxes | (1,536 | ) | 178 | ||||||
| Income tax provision (benefit) | (606 | ) | 70 | ||||||
| Net income (loss) | $ | (930 | ) | $ | 108 | ||||
| Share and Per Share Data | |||||||||
| BASIC | |||||||||
| Net income (loss) | $ | (0.10 | ) | $ | 0.01 | ||||
| Weighted average common shares | 8,890 | 8,823 | |||||||
| DILUTED | |||||||||
| Net income (loss) | $ | (0.10 | ) | $ | 0.01 | ||||
| Weighted average common shares | 8,890 | 8,879 | |||||||
See Accompanying Notes to Consolidated Condensed Financial Statements.
Bell Industries, Inc.
Consolidated Condensed Balance Sheet
(Dollars in thousands)
| March 31 | December 31 | |||||||||
| 2002 | 2001 | |||||||||
| Unaudited | ||||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 8,008 | $ | 10,418 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $1,218 and $1,525 | 20,182 | 17,827 | ||||||||
| Inventories | 13,610 | 13,608 | ||||||||
| Prepaid expenses and other | 3,907 | 3,879 | ||||||||
| Total current assets | 45,707 | 45,732 | ||||||||
| Fixed assets, net | 5,785 | 6,319 | ||||||||
| Goodwill | 2,116 | 2,116 | ||||||||
| Other assets | 2,716 | 2,739 | ||||||||
| $ | 56,324 | $ | 56,906 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 14,118 | $ | 11,833 | ||||||
| Accrued liabilities and payroll | 10,646 | 12,585 | ||||||||
| Total current liabilities | 24,764 | 24,418 | ||||||||
| Deferred compensation and other | 2,812 | 2,810 | ||||||||
| Shareholders’ equity: | ||||||||||
| Preferred stock Authorized — 1,000,000 shares Outstanding — none | ||||||||||
| Common stock Authorized — 35,000,000 shares Outstanding — 8,889,708 shares | 33,354 | 33,354 | ||||||||
| Accumulated deficit | (4,606 | ) | (3,676 | ) | ||||||
| Total shareholders’ equity | 28,748 | 29,678 | ||||||||
| Commitments and contingencies | ||||||||||
| $ | 56,324 | $ | 56,906 | |||||||
See Accompanying Notes to Consolidated Condensed Financial Statements.
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Bell Industries, Inc.
Consolidated Statement of Cash Flows
(Unaudited, in thousands)
| Three months ended | ||||||||||
| March 31 | ||||||||||
| 2002 | 2001 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income (loss) | $ | (930 | ) | $ | 108 | |||||
| Depreciation and amortization | 608 | 449 | ||||||||
| Provision for losses on accounts receivable | 84 | 42 | ||||||||
| Changes in assets and liabilities | (2,111 | ) | (3,820 | ) | ||||||
| Net cash used in operating activities | (2,349 | ) | (3,221 | ) | ||||||
| Cash flows from investing activities: | ||||||||||
| Purchases of fixed assets and other | (61 | ) | (1,593 | ) | ||||||
| Purchase of business | (400 | ) | ||||||||
| Net cash used in investing activities | (61 | ) | (1,993 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Exercise of warrants | 146 | |||||||||
| Net decrease in cash and cash equivalents | (2,410 | ) | (5,068 | ) | ||||||
| Cash and cash equivalents at beginning of period | 10,418 | 14,433 | ||||||||
| Cash and cash equivalents at end of period | $ | 8,008 | $ | 9,365 | ||||||
| Changes in assets and liabilities: | ||||||||||
| Accounts receivable | $ | (2,048 | ) | $ | 2,297 | |||||
| Inventories | (2 | ) | (440 | ) | ||||||
| Accounts payable | 2,285 | (3,378 | ) | |||||||
| Accrued liabilities and other | (2,346 | ) | (2,299 | ) | ||||||
| Net change | $ | (2,111 | ) | $ | (3,820 | ) | ||||
| Supplemental cash flow information: | ||||||||||
| Interest paid | $ | — | $ | 2 | ||||||
| Income taxes paid | $ | 2 | $ | — | ||||||
See Accompanying Notes to Consolidated Condensed Financial Statements.
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Bell Industries, Inc.
Notes to Consolidated Financial Statements
Accounting Principles
The accompanying consolidated financial statements for the three months ended March 31, 2002 and 2001 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, 2001 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 requirements 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, 2001.
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.
Warrants
At December 31, 2000, warrants to purchase 526,556 shares at an exercise price of $3.06 per share were outstanding. On February 1, 2001, 47,870 warrants were exercised, and the remaining 478,686 of unexercised warrants expired.
Goodwill and Other Intangible Assets
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Upon adoption of SFAS No. 142, goodwill will be tested at least annually and whenever events or circumstances occur indicating that goodwill might be impaired. Amortization of goodwill, including goodwill recorded in past business combinations, will cease. The Company adopted SFAS No. 142 on January 1, 2002 and is currently assessing the impact, if any, on recorded goodwill in the amount of $2.1 million. The initial assessment, under SFAS No. 142, will be completed prior to June 30, 2002.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In addition to historical information, the following discussion and analysis contains forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements.
Results of operations by business segment were as follows (in thousands):
| Three months ended | |||||||||
| March 31 | |||||||||
| 2002 | 2001 | ||||||||
| Net sales | |||||||||
| Systems Integration | $ | 21,106 | $ | 39,628 | |||||
| Recreational Products | 9,784 | 10,925 | |||||||
| Electronics Manufacturing | 1,227 | 2,433 | |||||||
| $ | 32,117 | $ | 52,986 | ||||||
| Operating income (loss) | |||||||||
| Systems Integration | $ | (1,019 | ) | $ | 101 | ||||
| Recreational Products | 75 | 142 | |||||||
| Electronics Manufacturing | 76 | 559 | |||||||
| Corporate costs | (724 | ) | (788 | ) | |||||
| (1,592 | ) | 14 | |||||||
| Interest, net | 56 | 164 | |||||||
| Income tax benefit (provision) | 606 | (70 | ) | ||||||
| Net income (loss) | $ | (930 | ) | $ | 108 | ||||
Net sales for the first quarter of 2002 decreased 39% to $32.1 million from $53.0 million in 2001. The operating loss for the first quarter of 2002 totaled $1.6 million compared to operating income of $14,000 in the prior year period. The challenging economic environment resulting in decreased customer spending in the Company’s core business markets impacted operating results for 2002. Specifically, overall results were primarily impacted by a shift in Systems Integration sales to a direct purchase model for the sourcing and delivery of computer hardware from manufacturers, as well as sharply curtailed information technology spending by business enterprises.
System Integration sales for the first quarter decreased 47% to $21.1 million from $39.6 million in the prior year. A substantial portion (45%) of the decrease was attributed to the shift to a direct purchase model, under which clients purchase technology products directly from manufacturers, and, in turn, the manufacturers compensate the Company with agency fees in certain circumstances for generating and supporting the sale. It is anticipated that this trend toward the direct model will continue. The Company is adapting tools and methodologies that support product offerings to clients in view of the current trend. The operating loss totaled $1.0 million, compared to operating income of $101,000 in 2001, primarily a result of reduced product sales and lower gross profit contribution.
Recreational Product sales decreased 10% to $9.8 million from $10.9 million in the prior year, and operating income decreased to $75,000 from $142,000. Results were impacted by lower snow product sales attributed to one of the warmest winter seasons in the past decade.
Electronics Manufacturing sales decreased 50% to $1.2 million from $2.4 million in the prior year, and operating income decreased to $76,000 from $559,000. Operating results were impacted by decreased demand for electronic components in the computer and telecommunications sectors.
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As a percentage of sales, cost of sales decreased to 82.1% from 84.7% in the comparable quarter of 2001. The decrease is primarily attributable to the change to the direct model in which the Company receives agency fees on certain technology product transactions, and no cost of sales is recognized. Selling and administrative expenses, as a percentage of sales, increased to 22.9% from 15.3% in the prior year due primarily to the overall reduction in sales in the 2002 period compared to 2001 and the existence of certain fixed costs. The Company’s effective tax rate was 39.5% for both years.
Selected financial data is set forth in the following table (dollars in thousands, except per share amounts):
| March 31 | December 31 | |||||||
| 2002 | 2001 | |||||||
| Cash and cash equivalents | $ | 8,008 | $ | 10,418 | ||||
| Working capital | $ | 20,943 | $ | 21,314 | ||||
| Current ratio | 1.8:1 | 1.9:1 | ||||||
| Shareholders’ equity per share | $ | 3.23 | $ | 3.34 | ||||
| Days’ sales in receivables | 57 | 51 | ||||||
| Days’ sales in inventories | 45 | 32 | ||||||
Net cash used in operating activities was $2.3 million in the first quarter of 2002 compared with net cash used in operating activities of $3.2 million in 2001. Cash used in investing activities in the first quarter of 2002 totaled $61,000 compared to $2.0 million in the comparable 2001 period. In the first quarter of 2001, cash used in investing activities included expenditures for a new technology center in the Midwest, a client dedicated technology center in the Atlantic region, expenditures on information technology, and the purchase of a business.
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 $10 million, expiring in 2004, and believes that it has access to additional financing as necessary.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
| Not applicable |
PART II — OTHER INFORMATION
Items 1 through 5.
| Not applicable |
Item 6. Exhibits and Reports on Form 8-K.
| (a) | Exhibits: | ||
| None | |||
| (b) | Reports on Form 8-K: | ||
| None |
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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: May 15, 2002 | /s/ Tracy A. Edwards |
Tracy A. Edwards, President and Chief Executive Officer |
| DATE: May 15, 2002 | /s/ Russell A. Doll |
Russell A. Doll, Senior Vice President and Chief Financial Officer |
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