<PAGE> 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 March 31, 1999
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, 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 5, 1999: 9,556,280 shares.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Bell Industries, Inc.
Consolidated Statement of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 54,151 $ 44,857
-------- --------
Costs and expenses
Cost of products sold 45,026 35,006
Selling and administrative 7,881 10,694
Interest, net 360 3,460
-------- --------
53,267 49,160
-------- --------
Income (loss) from continuing operations
before income taxes 884 (4,303)
Income tax provision (benefit) 354 (2,421)
-------- --------
Income (loss) from continuing operations 530 (1,882)
Income from discontinued operations, net of tax 4,323
-------- --------
Net income $ 530 $ 2,441
======== ========
Share and Per Share Data
BASIC
Income (loss) from continuing operations $ 0.06 $ (0.20)
Income from discontinued operations 0.46
-------- --------
Net income $ 0.06 $ 0.26
======== ========
Weighted average common shares 9,556 9,330
======== ========
DILUTED
Income (loss) from continuing operations $ 0.06 $ (0.20)
Income from discontinued operations 0.46
-------- --------
Net income $ 0.06 $ 0.26
======== ========
Weighted average common shares 9,576 9,330
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 3
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Bell Industries, Inc.
Consolidated Condensed Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 51,862 $ 6,699
Accounts receivable,
less allowance for doubtful accounts
of $533 and $484 35,623 31,340
Inventories 17,172 18,461
Prepaid expenses and other 7,813 8,566
Net assets of discontinued operations 15,177 179,830
Real estate held for sale 9,826 12,046
--------- ---------
Total current assets 137,473 256,942
--------- ---------
Properties, net 5,705 5,574
Goodwill 1,450 1,468
Other assets 3,589 6,775
--------- ---------
$ 148,217 $ 270,759
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,912 $ 27,778
Accrued liabilities and payroll 24,701 35,207
Current portion of long-term liabilities 109,000
--------- ---------
Total current liabilities 51,613 171,985
--------- ---------
Deferred compensation and other 4,883 8,319
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding - 9,556,280 and 9,530,301 shares 103,010 102,276
Accumulated deficit (11,289) (11,821)
--------- ---------
Total shareholders' equity 91,721 90,455
Commitments and contingencies
$ 148,217 $ 270,759
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 4
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Bell Industries, Inc.
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 530 $ 2,441
Depreciation and amortization 371 2,603
Provision for losses on accounts receivable 49 396
Changes in assets and liabilities (11,058) 19,104
--------- ---------
Net cash provided by (used in)
operating activities (10,108) 24,544
--------- ---------
Cash flows from investing activities:
Net proceeds from sale of business 161,799
Net proceeds from sale of properties 2,220
Purchase of properties (484) (3,526)
--------- ---------
Net cash provided by (used in)
investing activities 163,535 (3,526)
--------- ---------
Cash flows from financing activities:
Repayment of bank borrowings, net (109,000) (13,725)
Employee stock plans and other 736 125
--------- ---------
Net cash used in financing activities (108,264) (13,600)
--------- ---------
Net increase in cash and cash equivalents 45,163 7,418
Cash and cash equivalents at beginning of period 6,699 5,377
--------- ---------
Cash and cash equivalents at end of period $ 51,862 $ 12,795
========= =========
Changes in assets and liabilities:
Accounts receivable $ (4,332) $ (182)
Inventories 1,289 8,868
Accounts payable (866) 8,777
Accrued liabilities and other (7,149) 1,641
--------- ---------
Net change $ (11,058) $ 19,104
========= =========
Supplemental cash flow information:
Interest paid $ 1,652 $ 2,806
Income taxes paid $ 128 $ 68
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 5
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Bell Industries, Inc.
Notes to Consolidated Financial Statements
Accounting Principles
The financial information included herein has been prepared in conformity with
the accounting principles reflected in the financial statements included in the
Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
Commission for the year ended December 31, 1998.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation, have been included.
The operating results for the interim periods presented are not necessarily
indicative of results for the full year.
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. For the three month period ended March 31, 1998 potentially dilutive
securities were not included in the computation of the weighted average number
of shares, as inclusion of such amounts would be antidulutive.
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. The results
of operations for EDG have been classified as discontinued operations in the
accompanying financial statements.
Sale of Graphics Imaging Group
On September 14, 1998, the Company sold substantially all of the assets of its
Graphics Imaging Group ("Graphics")for a net purchase price of approximately $41
million. The 1998 results of Graphics have been classified as discontinued
operations in the accompanying financial statements.
<PAGE> 6
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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 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Net sales
Systems Integration $38,705 $30,703
Recreational Products 11,104 9,793
Electronics Manufacturing 4,342 4,361
------- -------
$54,151 $44,857
======= =======
Operating income
Systems Integration $ 1,247 $ 1,302
Recreational Products 545 404
Electronics Manufacturing 376 653
Corporate costs (924) (3,202)
------- -------
1,244 (843)
Interest expense, net (360) (3,460)
Income tax (provision) benefit (354) 2,421
------- -------
Income (loss) from continuing operations $ 530 $(1,882)
======= =======
</TABLE>
Net sales for the first quarter increased 21% to $54.2 million from $44.9
million in 1998 as operating income increased to $1.2 million from an operating
loss of $843,000 in 1998. Operating results from continuing operations exclude
the results of the discontinued Graphics and EDG businesses which were sold in
September 1998 and January 1999. Operating results in 1998 included
substantially higher corporate costs required to support Bell's former
businesses. Results in 1999 reflect the initial effects of the Company's
resizing program for the continuing businesses. In addition, net interest
expense was $360,000 compared to $3.5 million in the first quarter last year as
the Company retired its outstanding debt during January 1999 with the proceeds
from the sale of its electronics distribution business.
Sales of the Systems Integration Group increased 26% to $38.7 million as
operating income decreased 4% to $1.2 million. These changes principally reflect
continued margin pressures for computer products offset by positive growth in
the group's services business.
Recreational Product Group sales for the first quarter increased 13% to $11.1
million as operating income increased 35% to $545,000. Higher sales reflected
the positive impact of warmer weather conditions early in the quarter on
motorcycle parts shipments and snows late in the first quarter on snowmobile
product sales. Increased operating income resulted from higher overall sales and
improved profitability in Wisconsin and Michigan.
Sales of the Electronics Manufacturing Group were consistent with the prior year
at $4.3 million as operating income decreased 42% to $376,000. Reduced operating
income reflected the end of the product life cycle for a significant customer
product line and the impact of competitive pricing pressures on electronic
components manufactured by the group.
<PAGE> 7
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As a percentage of sales, cost of products sold for 1999 increased to 83.1% from
78.0% in the comparable quarter of 1998. Higher cost of products sold, as a
percentage of sales, reflects competitive product pricing pressures particularly
within the Company's Systems Integration and Electronics Manufacturing Groups.
Selling and administrative expenses, as a percentage of sales, decreased to
14.6% from 23.8% in the prior year reflecting the Company's corporate resizing
program associated with the disposal of EDG and Graphics. In 1999, the Company's
income tax rate was 40.0% compared with an income tax benefit of 56.3% in the
prior year period.
Selected financial data is set forth in the following table (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 51,862 $ 6,699
Working capital $ 85,860 $ 84,957
Current ratio 2.7:1 1.5:1
Shareholders' equity per share $ 9.60 $ 9.49
Days' sales in receivables 60 58
Days' sales in inventories 35 40
</TABLE>
Net cash used in operating activities was $10.1 million in the first quarter of
1999, compared to cash provided by operating activities of $24.5 million for the
comparable period in 1998. In 1999, operating cash flows were utilized to pay
certain EDG sale and transition related costs and to provide for increased
working capital investment arising from higher sales from continuing operations.
Cash flows included the net proceeds from the sale of EDG of $161.8 million
which were partially utilized to payoff the Company's outstanding line of credit
of $109 million. Also impacting cash flows were $2.2 million of net proceeds
from the sale of real estate. Cash flows in 1998 were augmented by working
capital reductions and were used to reduce borrowings under the Company's line
of credit and to fund property additions.
The Company expects to use the balance of the cash proceeds from the sale of EDG
and certain real estate assets for distribution to shareholders. On May 13, 1999
the Company declared an initial distribution of $5.70 per share payable June 8,
1999 to shareholders of record as of May 25, 1999.
The Company believes that sufficient cash resources exist to support
requirements for its operations and commitments through available cash, bank
borrowings and cash generated form operations. In April 1999, the Company
obtained a new $20 million line of credit to finance working capital needs for
the continuing 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 are Year 2000 compliant. The
Year 2000 project encompasses 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 anticipates achieving Year 2000 compliance
during 1999 by finalizing the
<PAGE> 8
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conversion of certain of its business systems to Year 2000 hardware and software
platforms and by reprogramming other business systems. To date, the Inventory
and Assessment phases of critical systems and support functions are complete and
renovation is underway. Implementation of Year 2000 compliant business systems
has begun and is anticipated to be completed by the end of the second quarter of
1999. As a contingency plan, the Company has completed the reprogramming of
significant existing business systems for Year 2000 compliance in the event that
new business systems are not operational by 2000. The Company does not have any
other contingency plans at this time. In addition, the Company has identified
and prioritized and is communicating with its material suppliers and third party
providers ("Material Third Parties") to determine their Year 2000 status and any
probable impact on Bell. Bell will continue to track and evaluate its long-term
relationship with Material Third Parties based on the responses it receives and
on information learned from other sources. If any of Bell's Material Third
Parties are not Year 2000 ready and their non-compliance causes a material
disruption to any of their respective businesses, Bell's business could be
materially adversely affected. Bell will continue to evaluate the nature of
these risks, but at this time Bell is unable to determine the probability that
any such risk will occur, or if it does occur, what the nature, length or other
effects, if any, it may have on Bell. If a significant number of Material Third
Parties experience failures in their computer systems or operations due to not
being Year 2000 complaint, it could affect Bell's ability to process
transactions or otherwise engage in similar normal business activities. While
this risk is outside of Bell's control, Bell has instituted the program
mentioned above to identify Material Third Parties and to address any
non-compliance issues. The estimated cost of the Year 2000 has not been and is
not expected to be material to the Company's financial position or results of
operations. Although Bell believes its business systems will be Year 2000
compliant on or before December 31, 1999, the Company makes no assurances
regarding the success of this program, or that third party systems will be Year
2000 compliant. The Company cannot be assured that failure to achieve Year 2000
compliance will not have a material impact on the Company's business.
<PAGE> 9
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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:
Form 8-K, event date: January 29, 1999, filed in
Connection with the sale of the Electronics
Distribution Group.
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 14, 1999 /s/Tracy A. Edwards
- ----- ------------ -------------------
Tracy A. Edwards,
President and
Chief Executive Officer
DATE: May 14, 1999 /s/ Russell A. Doll
- ----- ------------ -------------------
Russell A. Doll,
Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 51,862
<SECURITIES> 0
<RECEIVABLES> 36,156
<ALLOWANCES> 533
<INVENTORY> 17,172
<CURRENT-ASSETS> 137,473
<PP&E> 16,015
<DEPRECIATION> 10,310
<TOTAL-ASSETS> 148,217
<CURRENT-LIABILITIES> 51,613
<BONDS> 0
0
0
<COMMON> 103,010
<OTHER-SE> (11,289)
<TOTAL-LIABILITY-AND-EQUITY> 148,217
<SALES> 54,151
<TOTAL-REVENUES> 54,151
<CGS> 45,026
<TOTAL-COSTS> 45,026
<OTHER-EXPENSES> 7,881
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 360
<INCOME-PRETAX> 884
<INCOME-TAX> 354
<INCOME-CONTINUING> 530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 530
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
