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 September 30, 2001
Commission file number 1-11471
BELL INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
California 95-2039211
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1960 E. Grand Avenue, Suite 560, El Segundo, California 90245-4608
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(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 November 13, 2001: 8,872,141 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 Nine months ended
September 30 September 30
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2001 2000 2001 2000
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Net sales $ 46,212 $ 72,718 $ 151,599 $ 188,709
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Costs and expenses
Cost of sales 37,806 62,985 126,140 161,040
Selling and administrative 8,272 8,995 25,014 25,381
Interest, net (108) (104) (380) (168)
Special items, net 1,495 (437)
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45,970 71,876 152,269 185,816
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Income (loss) before income taxes 242 842 (670) 2,893
Income tax provision (benefit) 96 333 (265) 1,144
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Net income (loss) $ 146 $ 509 $ (405) $ 1,749
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Share and Per Share Data
BASIC
Net income (loss) $ .02 $ .06 $ (.05) $ .19
======== ========= ========= =========
Weighted average common shares 8,867 8,835 8,847 9,075
======== ========= ========= =========
DILUTED
Net income (loss) $ .02 $ .06 $ (.05) $ .19
======== ========= ========= =========
Weighted average common shares 8,867 8,836 8,847 9,109
======== ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
September 30 December 31
2001 2000
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Unaudited
ASSETS
Current assets:
Cash and cash equivalents $ 10,457 $ 14,433
Accounts receivable,
less allowance for doubtful
accounts of $1,528 and $1,222 21,619 31,701
Inventories 11,870 15,065
Prepaid expenses and other 4,389 4,012
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Total current assets 48,335 65,211
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Fixed assets, net 6,846 4,238
Goodwill 2,146 1,540
Other assets 3,041 3,437
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$ 60,368 $ 74,426
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,289 $ 24,492
Accrued liabilities and payroll 13,799 16,041
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Total current liabilities 27,088 40,533
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Deferred compensation and other 2,974 3,411
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding - 8,883,041 and 8,790,936 shares 33,346 33,117
Accumulated deficit (3,040) (2,635)
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Total shareholders' equity 30,306 30,482
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Commitments and contingencies
$ 60,368 $ 74,426
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See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
Bell Industries, Inc.
Consolidated Statement of Cash Flows
(Unaudited, in thousands)
Nine months ended
September 30
----------------------
2001 2000
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Cash flows from operating activities:
Net income (loss) $ (405) $ 1,749
Depreciation and amortization 1,613 1,170
Provision for losses on accounts receivable 99 124
Gain on sale of real estate (2,842)
Changes in assets and liabilities (792) (1,152)
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Net cash provided by (used in)
operating activities 515 (951)
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Cash flows from investing activities:
Payments received on note receivable 137 392
Purchases of fixed assets and other (4,457) (1,380)
Purchase of business (400)
Net proceeds from sale of real estate 2,951
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Net cash provided by (used in)
investing activities (4,720) 1,963
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Cash flows from financing activities:
Employee stock plans and other 229 268
Purchases of common stock (2,946)
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Net cash provided by (used in)
financing activities 229 (2,678)
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Net decrease in cash and cash equivalents (3,976) (1,666)
Cash and cash equivalents at beginning of period 14,433 8,550
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Cash and cash equivalents at end of period $ 10,457 $ 6,884
======== =======
Changes in assets and liabilities:
Accounts receivable $ 9,776 $(5,672)
Inventories 3,195 5,455
Accounts payable (11,203) 858
Accrued liabilities and other (2,560) (1,793)
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Net change $ (792) $(1,152)
======== =======
Supplemental cash flow information:
Interest paid $ 4 $ 26
Income taxes paid 1,925
See Accompanying Notes to Condensed Consolidated Financial Statements.
-4-
Bell Industries, Inc.
Notes to Condensed Consolidated Financial Statements
Accounting Policies
The accompanying consolidated financial statements for the three and nine month
periods ended September 30, 2001 and 2000 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,
2000 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, 2000.
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 second quarter ended June 30, 2001, the Company recorded special
pre-tax charges totaling $1.5 million. The charges consisted of $845,000 of
costs related to the strategic repositioning of the Company's Midwest operations
of its Systems Integration business and $650,000 in settlement costs associated
with an executive change-in-control contract. Components of the repositioning
charge included facilities consolidation costs and asset write-downs in
connection with the opening of a new technology center and separation costs.
During the second 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 associated with a corporate
identity program, which included 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 sale of a real estate asset related to a previously disposed business.
-5-
Stock Repurchase Programs
In July 2001 and February 2000, the Board of Directors authorized stock
repurchase programs (the "2001 Program" and "2000 Program") of up to 1,000,000
shares each of the Company's outstanding common stock. The common stock can be
repurchased in the open market at varying prices depending on market conditions
and other factors.
During the nine months ended September 30, 2000, the Company repurchased 859,900
shares at an average price of $3.43 per share. The 2000 Program expired on
December 31, 2000.
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.
New Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 establishes new standards for accounting and reporting requirements for
business combinations initiated after June 30, 2001 and prohibits the use of
the pooling-of-interests method for combinations initiated after June 30, 2001.
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 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 adoption date for the
Company will be January 1, 2002 and is not expected to have a material effect
on the Company's consolidated financial position, result of operations or cash
flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121 but retains
many of its fundamental provisions. In addition, SFAS No. 144 expands the scope
of discontinued operations to include more disposal transactions. The adoption
date for the Company will be January 1, 2002 and is not expected to have a
material effect on the Company's consolidated financial position, results of
operations or cash flows.
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 nine months
ended September 30, 2001 and 2000 were as follows (in thousands):
Three months ended Nine months ended
September 30 September 30
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2001 2000 2001 2000
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Net sales
Systems Integration $ 31,994 $ 55,320 $ 108,018 $ 139,250
Recreational Products 12,498 13,018 37,650 39,994
Electronics Manufacturing 1,720 4,380 5,931 9,465
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$ 46,212 $ 72,718 $ 151,599 $ 188,709
======== ========= ========= =========
Operating income (loss)
Systems Integration $ 279 $ 451 $ (473) $ (797)
Recreational Products 276 255 1,220 1,528
Electronics Manufacturing 433 1,097 1,367 2,361
Special items (650) 2,242
Corporate costs (854) (1,065) (2,514) (2,609)
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134 738 (1,050) 2,725
Interest, net 108 104 380 168
Income tax benefit (provision) (96) (333) 265 (1,144)
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Net income (loss) $ 146 $ 509 $ (405) $ 1,749
======== ========= ========= =========
-6-
Net sales for the nine months ended September 30, 2001 decreased 19.7% to $151.6
million from $188.7 million in 2000, while net loss totaled $405,000 in 2001
compared to net income of $1.7 million in the prior year period. For the three
months ended September 30, 2001, net sales decreased 36.4% to $46.2 million from
$72.7 million in the 2000 period. Net income for the three months ended
September 30, 2001 declined to $146,000 from $509,000 in the prior year third
quarter.
The operating results for the nine months ended September 30, 2001 include
pre-tax charges totaling $1.5 million. The charges consisted of $845,000 of
costs related to the strategic repositioning of the Company's Midwest operations
of it Systems Integration business and $650,000 of settlement costs associated
with an executive change-in-control contract. Components of the repositioning
charge included facilities consolidation costs and asset write-downs in
connection with the opening of a new technology center and separation costs. The
$845,000 repositioning charge has been included in the operating results of
Systems Integration.
The operating results for the nine months ended September 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 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 three and nine months ended September 30, 2001 decreased
$211,000 and $95,000 from the corresponding prior year periods. The decrease is
primarily attributable to reduced costs associated with the Company's strategic
change initiatives.
Systems Integration sales for the nine months ended September 30, 2001 decreased
22.4% to $108.0 million compared with $139.3 million in 2000. Excluding the
special charge of $845,000 that was allocated to this business unit, operating
income was $372,000 for the 2001 period compared with operating income of
approximately $1.0 million, before the special charge of $1.8 million, in the
prior year period. Including the $845,000 charge, this business unit recorded an
operating loss of $473,000 in the 2001 period. For the three months ended
September 30, 2001, Systems Integration sales decreased 42.2% to $32.0 million
from $55.3 million in the prior year period. Operating income for the three
months ended September 30, 2001 decreased to $279,000 from $451,000 in the prior
year third quarter. During the prior year's third quarter, revenues included
sales for major hardware projects at two large clients for which no similar
sales occurred in the current year's third quarter. Also contributing to the
decline in sales was the continuing industry-wide slow down in IT spending and
the ongoing transition to an agency model for certain sales transactions,
whereby revenues represent fees earned on product sales transacted directly with
clients by manufacturers.
-7-
Recreational Products sales for the nine months ended September 30, 2001
decreased 5.9% to $37.7 million while operating income decreased 20.2% to $1.2
million. For the three months ended September 30, 2001, Recreational Products
sales decreased 4.0% to $12.5 million while operating income increased slightly
to $276,000 from $255,000 in the previous year. Results have been impacted by
high fuel costs and reduced consumer spending in this sector.
Electronics Manufacturing sales for the nine months ended September 30, 2001
decreased 37.3% to $5.9 million while operating income decreased 42.1% to $1.4
million. For the three months ended September 30, 2001, Electronics
Manufacturing sales decreased 60.7% to $1.7 million while operating income
decreased 60.5% to $433,000 from a record third quarter of $1.1 million last
year. Results continued to be impacted by the current environment of sharply
reduced demand for electronic components, particularly in the telecommunications
industry.
As a percentage of sales, cost of sales for the nine months ended September 30,
2001 decreased to 83.2% from 85.3% in 2000. This improvement is primarily
attributable to the change to an agency model for certain Systems Integration
sales transactions and a slight improvement in product gross margins across all
business segments. Although selling and administrative expenses decreased
$367,000 during the period, as a percentage of sales selling and administrative
expenses increased to 16.5% from 13.4% for the nine months ended September 30,
2001. This increase is primarily attributable to the 22.4% decrease in Systems
Integration sales during the nine months ended September 30, 2001 as compared to
the prior year period.
Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
September 30 December 31
2001 2000
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Cash and cash equivalents $10,457 $14,433
Working capital $21,247 $24,678
Current ratio 1.8:1 1.6:1
Shareholders' equity per share $ 3.41 $ 3.47
Days' sales in receivables 51 54
Days' sales in inventories 29 26
Net cash provided by operating activities was $515,000 for the nine months ended
September 30, 2001, compared to cash used in operating activities of $951,000
for the comparable prior year period. Net cash used in investing activities
during 2001, totaling $4.7 million, included expenditures for a new technology
center in the Midwest, a client dedicated technology support center in the
Atlantic region, expenditures on information technology, and the purchase of a
business. Cash flows from investing activities during 2000 included
approximately $3.0 million of net proceeds from the sale of a real estate asset.
During the nine months ended September 30, 2000, cash was utilized to repurchase
stock in the aggregate amount of $2.9 million in connection with the Company's
2000 stock repurchase program.
' -8-
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 $20.0 million to finance its working capital needs o operate
and grow its businesses. Management believes that it has access to additional
financing as required.
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:
99. Bell Industries, Inc. 2001 Stock Option Plan
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: November 13, 2001 /s/TRACY A. EDWARDS
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Tracy A. Edwards,
President and
Chief Executive Officer
DATE: November 13, 2001 /s/ RUSSELL A. DOLL
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Russell A. Doll,
Senior Vice President -
Chief Financial Officer