<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarter ended September 30, 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, Suite 560, El Segundo, California 90245-4608
(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 18, 1999: 9,608,315 shares.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Bell Industries, Inc.
Consolidated Statement of Operations
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 76,586 $ 56,672 $ 191,518 $ 160,835
--------- --------- --------- ---------
Costs and expenses
Cost of products sold 64,730 45,754 159,216 128,021
Selling and administrative 9,210 10,025 25,270 31,683
Interest, net 1 2,992 (57) 9,667
Special items, net (161) 9,900 (161) 9,900
--------- --------- --------- ---------
73,780 68,671 184,268 179,271
--------- --------- --------- ---------
Income(loss)from continuing
operations before income taxes 2,806 (11,999) 7,250 (18,436)
Income tax provision (benefit) 1,122 (3,661) 2,899 (7,216)
--------- --------- --------- ---------
Income(loss)from continuing
operations 1,684 (8,338) 4,351 (11,220)
Income (loss) from discontinued
operations, net of tax (402) 6,832
Gain on sale of discontinued
operations, net of tax 1,748 1,748
--------- --------- --------- ---------
Net income (loss) $ 1,684 $ (6,992) $ 4,351 $ (2,640)
========= ========= ========= =========
Share and Per Share Data
BASIC
Income (loss) from continuing
operations $ .17 $ (.88) $ .45 $ (1.19)
Income (loss) from discontinued
operations (.04) .73
Gain on sale of discontinued
operations .18 .18
--------- --------- --------- ---------
Net income (loss) $ .17 $ (.74) $ .45 $ (.28)
========= ========= ========= =========
Weighted average common
shares 9,608 9,442 9,591 9,385
========= ========= ========= =========
DILUTED
Income (loss) from continuing
operations $ .17 $ (.88) $ .45 $ (1.19)
Income (loss) from discontinued
operations (.04) .73
Gain on sale of discontinued
operations .18 .18
--------- --------- --------- ---------
Net income (loss) $ .17 $ (.74) $ .45 $ (.28)
========= ========= ========= =========
Weighted average common
shares 9,672 9,442 9,624 9,385
========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
-2-
Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------- ------------
Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,109 $ 6,699
Accounts receivable,
less allowance for doubtful
accounts of $826 and $484 46,505 31,340
Inventories 14,562 18,461
Prepaid expenses and other 5,326 8,566
Real estate held for sale 1,918 12,046
Net assets of discontinued operations 179,830
--------- ---------
Total current assets 79,420 256,942
--------- ---------
Properties, net 4,274 5,574
Goodwill 1,416 1,468
Other assets 3,712 6,775
--------- ---------
$ 88,822 $ 270,759
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,886 $ 27,778
Accrued liabilities and payroll 18,172 35,207
Current portion of long-term liabilities 109,000
--------- ---------
Total current liabilities 44,058 171,985
--------- ---------
Deferred compensation and other 3,989 8,319
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding -9,608,315 and 9,530,301 shares 48,243 102,276
Accumulated deficit (7,468) (11,821)
--------- ---------
Total shareholders' equity 40,775 90,455
Commitments and contingencies
--------- ---------
$ 88,822 $ 270,759
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
-3-
Bell Industries, Inc.
Consolidated Statement of Cash Flows
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,351 $ (2,640)
Depreciation and amortization 1,190 7,685
Provision for losses on accounts receivable 377 1,221
Gain on sale of real estate (616)
Loss (gain) on sale of businesses 455 (1,748)
Business system charge 8,000
Changes in assets and liabilities,
net of disposals (25,962) 17,722
--------- ---------
Net cash provided by (used in)
operating activities (20,205) 30,240
--------- ---------
Cash flows from investing activities:
Proceeds from sale of businesses 178,692 30,148
Purchases of properties (1,786) (6,596)
Proceeds from sale of real estate 10,744
--------- ---------
Net cash provided by
investing activities 187,650 23,552
--------- ---------
Cash flows from financing activities:
Repayment of bank borrowings, net (109,000) (55,745)
Cash distribution to shareholders (54,767)
Employee stock plans and other 732 1,533
--------- ---------
Net cash used in financing activities (163,035) (54,212)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,410 (420)
Cash and cash equivalents at beginning of period 6,699 5,377
--------- ---------
Cash and cash equivalents at end of period $ 11,109 $ 4,957
========= =========
Changes in assets and liabilities, net of disposals:
Accounts receivable $ (16,757) $ 6,420
Inventories 3,190 20,393
Accounts payable (1,569) (2,975)
Accrued liabilities and other (10,826) (6,116)
--------- ---------
Net change $ (25,962) $ 17,722
========= =========
Supplemental cash flow information:
Interest paid $ 729 $ 9,316
Income taxes paid 344
Non-cash investing and financing activities:
Note received on sale of business $ 1,000
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
-4-
Bell Industries, Inc.
Notes to Condensed Consolidated Financial Statements
Accounting Policies
The accompanying consolidated financial statements for the three and nine months
ended September 30, 1999 and 1998 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,
1998 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, 1998.
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 and nine month periods ended September 30, 1998
potentially dilutive securities were not included in the computation of the
weighted average number of shares, as inclusion of such securities would be
antidilutive.
Special Items
Operating results for the three and nine month periods ended September 30, 1999
include a pretax loss of $455,000 from the sale of substantially all of the
assets and liabilities of one of its electronics manufacturing businesses in
July 1999. Additionally, the Company recorded a pretax gain of $616,000 on the
disposition of certain real estate assets.
During the third quarter of 1998, the Company recorded special pretax charges
totaling $9.9 million. The charges included $8.0 million to write-off the
investment and provide for related commitments for the discontinuance of the use
and development of a business system. Additionally, the Company provided $1.9
million for employee separation and related exit costs to resize corporate
operations.
<PAGE> 6
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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"). The operating results for Graphics have
been classified as discontinued operations in the accompanying financial
statements.
Cash Distribution to Shareholders
On June 8, 1999, the Company paid a cash distribution of $5.70 per share to
shareholders of record on May 25, 1999. The payment represents the distribution
of the net proceeds from the sale of EDG and the disposition of certain real
estate properties to that date. The aggregate distribution in the amount of
$54.8 million represents a return of capital and has been recorded as a
reduction in common stock.
Other Matters
In October 1999, the Company announced that Steel Partners II, L.P. ("Steel"),
Bell's largest shareholder with approximately 17% of the outstanding stock,
offered to purchase the Company's remaining stock. The Company's Board of
Directors after concluding that the offer did not reflect an optimum value for
the Company, rejected Steel's bid.
On October 20, 1999, two purported class action complaints on behalf of the
shareholders of the Company, were filed in the Superior Court for the State of
California, County of Los Angeles (the "Lawsuits"). The first was entitled
William Steiner vs. Bell Industries, Inc., et al. (Case No. BC218887), and the
second was entitled Charles Miller vs. Bell Industries, Inc., et al. (Case No.
BC218886). The Lawsuits name the Company and certain of its directors as
defendants and allege, among other things, that directors breached their
fiduciary duties by adopting the Company's Rights Agreement in February 1999 and
by entering into severance agreements with certain senior executives in an
alleged effort to entrench themselves in their positions and prevent Steel from
acquiring the Company for $5.30 per share. The Company and the Board of
Directors believe that the Lawsuits are without merit and plan to vigorously
defend against them.
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.
<PAGE> 7
-6-
Results of operations by business segment for the three months and nine months
ended September 30, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Systems Integration $ 60,864 $ 39,779 $ 140,104 $ 110,289
Recreational Products 13,067 13,044 39,372 37,897
Electronics Manufacturing 2,655 3,849 12,042 12,649
--------- --------- --------- ---------
$ 76,586 $ 56,672 $ 191,518 $ 160,835
========= ========= ========= =========
Operating income
Systems Integration $ 2,165 $ 1,885 $ 4,818 $ 5,227
Recreational Products 702 809 2,765 2,717
Electronics Manufacturing(1) 91 310 1,359 1,597
Special items (1) 616 (9,900) 616 (9,900)
Corporate costs (767) (2,111) (2,365) (8,410)
--------- --------- --------- ---------
2,807 (9,007) 7,193 (8,769)
Interest, net (1) (2,992) 57 (9,667)
Income tax (provision) benefit (1,122) 3,661 (2,899) 7,216
--------- --------- --------- ---------
Income (loss) from continuing
operations $ 1,684 $ (8,338) $ 4,351 $ (11,220)
========= ========= ========= =========
</TABLE>
(1) Operating results for the third quarter of 1999 include a pretax loss of
$455,000 on the disposition of an electronics manufacturing business and a
pretax gain of $616,000 on the disposition of certain real estate assets.
For the third quarter of 1998, the Company recorded a special charge of
$9.9 million for business system and corporate resizing.
For the three months ended September 30, 1999, the Company's net sales increased
35% to $76.6 million from $56.7 million in the prior year. Income from
continuing operations was $1.7 million, or $.17 per share, compared with a loss
from continuing operations of $8.3 million, or $.88 per share, in the prior
year. For the nine months ended September 30, 1999, net sales rose to $191.5
million from $160.8 million for the comparable 1998 period. Income from
continuing operations for the 1999 period was $4.4 million, or $.45 per share
compared with a loss of $11.2 million, or $1.19 per share, for the prior year.
Operating results from continuing operations exclude the results of the
discontinued Graphics and EDG businesses which were sold in September 1998 and
January 1999.
The Company's operating results were favorably impacted by strong sales growth
in the Systems Integration Group. However, operating results were negatively
impacted by continued downward pressure on product margins. Corporate costs were
substantially lower in 1999 and reflect the benefits of the Company's resizing
program for its continuing businesses. In addition, the Company recorded net
interest income of $57,000 in the first nine months of 1999 compared with
interest expense of $9.7 million in the comparable prior year period. The
Company retired its outstanding debt in January 1999 with the proceeds from the
sale of EDG.
In the third quarter of 1999 the Company recorded a pretax loss of $455,000 on
the disposition of an electronics manufacturing business, and a pretax gain of
$616,000 on the sale of certain real estate assets.
<PAGE> 8
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In the third quarter of 1998, the Company incurred a pretax charge of $8.0
million to write off the investment and provide for related commitments for the
discontinuance of the use and development of a business system. In addition, the
Company recorded a special pretax charge of $1.9 million for employee separation
and related exit costs associated with a resizing program for corporate
operations.
Also, in the third quarter of 1998, the Company completed the sale of its
Graphics business for a net purchase price of approximately $40 million,
resulting in a pretax gain of approximately $3.0 million (after-tax $1.7
million, or $.18 per share).
For the three months ended September 30, 1999, Systems Integration Group sales
increased 53% to $60.9 million from $39.8 million in the prior year. For the
third quarter of 1999 operating income increased 15% to $2.2 million from $1.9
million in the third quarter of 1998. Systems Integration Group sales for the
nine months ended September 30, 1999 increased 27% to $140.1 million and
operating income decreased 8% to $4.8 million. These results reflect strong
demand for computer products and services. While revenue and operating income
from services continue to grow, overall margin percentages declined as a result
of lower margins on computer product sales.
Recreational Products Group sales were relatively flat for the three months
ended September 30, 1999 compared with the prior year period. Sales for the
third quarter of 1999 were $13.1 million compared with $13.0 for 1998. Operating
income declined 13% to $702,000 in 1999 from $809,000 in the 1998 period,
reflecting generally higher administrative and marketing costs. For the nine
months ended September 30, 1999, sales increased 4% to $39.4 million from $37.9
million in the prior year. Operating income increased slightly to $2.8 million
for the first nine months of 1999 from $2.7 million in the comparable 1998
period.
Sales for the Electronics Manufacturing Group for the three months ended
September 30, 1999 declined to $2.7 million from $3.8 million in the prior year.
Operating income declined to $91,000 in 1999 from $310,000 in 1998. For the nine
month period, sales were $12.0 million in 1999 compared with $12.6 million in
1998. Operating income was $1.4 million in 1999 compared with $1.6 million in
the 1998 period. The three and nine months ended September 30, 1999 results
include a $455,000 loss from the sale of the Company's Precision Metalcraft
Division completed on July 31, 1999. Sales for this division were $6.1 million
and $5.7 million for the 1999 and 1998 nine month periods presented.
As a percentage of sales, cost of products sold for the nine months ended
September 30, 1999 increased to 83.1% from 79.6%, while selling and
administrative expenses, as a percent of sales, decreased to 13.2% from 19.7%.
Lower operating expenses reflected the Company's cost reduction efforts and
resizing programs. In 1999, the Company recorded a 40% tax provision compared
with a 39.1% tax benefit for the comparable 1998 period.
<PAGE> 9
-8-
Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
Cash and cash equivalents $11,109 $ 6,699
Working capital $35,362 $84,957
Current ratio 1.8:1 1.5:1
Shareholders' equity per share $ 4.24 $ 9.49
Days' sales in receivables 55 58
Days' sales in inventories 20 40
</TABLE>
Net cash used in operating activities was $20.2 million for the nine months
ended September 30, 1999, compared to cash provided by operating activities of
$30.2 million for the comparable period in 1998. In 1999, operating cash flows
were utilized to pay certain EDG sale and transition related costs and for
increased working capital investment. Cash flows included the net proceeds from
the sale of certain businesses of $178.7 million which were principally utilized
to payoff the Company's outstanding line of credit of $109 million and to fund a
$5.70 per share distribution to shareholders for an aggregate $54.8 million.
Also contributing to cash flows was $10.7 million of net proceeds from sales 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
equipment additions.
The Company believes that sufficient cash resources exist to support
requirements for its operations and commitments, including the planned
distribution to shareholders of $1.30 per share of the net proceeds from the
sale of certain real estate assets, through available cash, bank borrowings,
sales of remaining real estate assets and cash generated from operations. The
Company has a $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. To date, the Company's Year 2000 project is essentially
complete. 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 compliant, 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.
<PAGE> 10
-9-
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.
Certain matters discussed herein contain forward-looking information that
involves risks and uncertainties that could cause actual results to differ
materially from current trends. These include, but are not limited to, current
trends in its systems integration business, its ability to sell the remaining
real estate assets, its plan with respect to the cash distribution to
shareholders, and other factors described in its public filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 20, 1999, two purported class action complaints on behalf of the
shareholders of the Company were filed in the Superior Court for the State of
California, County of Los Angeles (the "Lawsuits"). The first was entitled
William Steiner vs. Bell Industries, Inc., et al. (Case No. BC218887), and the
second was entitled Charles Miller vs. Bell Industries, Inc., et al. (Case No.
BC218886). The Lawsuits name the Company and certain of its directors as
defendants and allege, among other things, that the Company's directors breached
their fiduciary duties by adopting the Company's Rights Agreement and by
entering into severance agreements with certain senior executives in an alleged
effort to entrench themselves in their positions and prevent Steel from
acquiring the Company for $5.30 per share. The plaintiffs have requested, among
other things, an order that the directors undertake an "appropriate evaluation
of alternatives designed to maximize value for Bell's public stockholders" and
ensure that no conflict of interests prevent directors from carrying out their
fiduciary duties, an accounting to the plaintiffs for alleged unspecified
damages (including costs and attorneys fees), utilization of the Rights
Agreement by the directors only in a way that would maximize shareholder value,
invalidation of the severance agreements and other relief. The Company and the
Board of Directors believe that the Lawsuits are without merit and plan to
vigorously defend against them.
Items 2 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.
<PAGE> 11
-10-
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 19, 1999 /s/ TRACY A. EDWARDS
- ----- ----------------- ------------------------------------
Tracy A. Edwards,
President and
Chief Executive Officer
DATE: November 19, 1999 /s/ RUSSELL A. DOLL
- ----- ----------------- ------------------------------------
Russell A. Doll,
Vice President -
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,109
<SECURITIES> 0
<RECEIVABLES> 47,331
<ALLOWANCES> 826
<INVENTORY> 14,562
<CURRENT-ASSETS> 79,420
<PP&E> 9,912
<DEPRECIATION> 5,638
<TOTAL-ASSETS> 88,822
<CURRENT-LIABILITIES> 44,058
<BONDS> 0
0
0
<COMMON> 48,243
<OTHER-SE> (7,468)
<TOTAL-LIABILITY-AND-EQUITY> 88,822
<SALES> 191,518
<TOTAL-REVENUES> 191,518
<CGS> 159,216
<TOTAL-COSTS> 159,216
<OTHER-EXPENSES> 25,270
<LOSS-PROVISION> 377
<INTEREST-EXPENSE> (57)
<INCOME-PRETAX> 7,250
<INCOME-TAX> 2,899
<INCOME-CONTINUING> 4,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,351
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
