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 September 30, 1995
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.)
11812 San Vicente Blvd., Los Angeles, California 90049-5069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 826-2355
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 October 27, 1995: 6,878,462 shares.
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Bell Industries, Inc.
Consolidated Statement of Income
(In thousands, except per share data)
Three months ended Nine months ended
September 30 September 30
---------------------------------- ----------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $ 148,639 $ 127,092 $ 417,159 $ 369,286
--------------- --------------- --------------- --------------
Cost and expenses
Cost of products sold 115,548 98,638 322,515 286,313
Selling, general and
administrative expenses 24,838 22,589 72,969 65,193
Interest expense 872 966 2,602 3,133
--------------- --------------- --------------- --------------
141,258 122,193 398,086 354,639
--------------- --------------- --------------- --------------
Income before income taxes 7,381 4,899 19,073 14,647
Income tax provision 3,100 2,058 8,011 6,170
--------------- --------------- --------------- --------------
Income from continuing
operations 4,281 2,841 11,062 8,477
Discontinued operations reserve
recovery, net of taxes 310 310
--------------- --------------- --------------- --------------
Net income $ 4,281 $ 3,151 $ 11,062 $ 8,787
=============== =============== =============== ==============
Share and per share data:
- -------------------------
Income from continuing
operations $ 0.60 $ 0.41 $ 1.56 $ 1.22
Discontinued operations reserve
recovery, net of taxes 0.04 0.04
--------------- --------------- --------------- --------------
Net income $ 0.60 $ 0.45 $ 1.56 $ 1.26
=============== =============== =============== ==============
Weighted average common
shares outstanding 7,130 6,933 7,083 6,922
=============== =============== =============== ==============
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Bell Industries, Inc.
Consolidated Balance Sheet
(Dollars in thousands) September 30 December 31 September 30
1995 1994 1994
---- ---- ----
ASSETS
Current assets
Cash and cash equivalents $ 1,102 $ 3,631 $ 1,880
Accounts receivable, less allowance for
doubtful accounts of $1,337,
$1,041 and $916 79,492 68,914 67,672
Inventories 108,970 95,910 87,596
Prepaid expenses and other 4,277 5,324 6,241
----------------- ----------------- -----------------
Total current assets 193,841 173,779 163,389
----------------- ----------------- -----------------
Properties, at cost
Land 443 443 443
Buildings and improvements 8,595 8,857 8,737
Equipment 31,716 31,362 31,490
----------------- ----------------- -----------------
40,754 40,662 40,670
Less accumulated depreciation (25,795) (25,722) (25,046)
----------------- ----------------- -----------------
Total properties 14,959 14,940 15,624
Other assets 11,469 11,648 11,344
----------------- ----------------- -----------------
$ 220,269 $ 200,367 $ 190,357
================= ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 35,587 $ 34,705 $ 33,041
Accrued payroll and liabilities 15,968 12,123 11,627
Current portion of long-term liabilities 13,134 9,662 6,639
Income taxes payable 1,176 1,171 3,110
----------------- ----------------- -----------------
Total current liabilities 65,865 57,661 54,417
----------------- ----------------- -----------------
Long-term liabilities
Notes payable 33,714 33,857 29,857
Obligations under capital leases 1,260 2,463 2,851
Deferred compensation and other 5,784 4,616 4,202
----------------- ----------------- -----------------
Total long-term liabilities 40,758 40,936 36,910
----------------- ----------------- -----------------
Shareholders' equity
Preferred stock
($1 par value prior to June 30, 1995)
Authorized - 1,000,000 shares
Outstanding - none
Common stock
($.25 par value prior to June 30, 1995)
Authorized - 10,000,000 shares
Outstanding - 6,878,169, 6,497,557
and 6,478,412 shares 63,041 1,624 1,620
Other paid-in capital 54,080 53,810
Reinvested earnings 50,605 46,066 43,600
----------------- ----------------- -----------------
Total shareholders' equity 113,646 101,770 99,030
Commitments and contingencies
----------------- ----------------- -----------------
$ 220,269 $ 200,367 $ 190,357
================= ================= =================
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Bell Industries, Inc.
Consolidated Statement of Cash Flows
(In thousands)
Nine months ended
September 30
--------------------------------------
1995 1994
---- ----
Cash flows from operating activities:
Cash received from customers $ 405,260 $ 354,816
Cash paid to suppliers and employees (395,777) (339,774)
Interest paid (3,464) (4,262)
Income taxes paid (7,816) (1,632)
---------------- ----------------
Net cash provided by (used in)
operating activities (1,797) 9,148
---------------- ----------------
Cash flows from investing activities:
Additions to properties (3,796) (1,874)
Purchase of business (5,864)
Disposal of discontinued operations 2,114
----------------- ----------------
Net cash used in
investing activities (3,796) (5,624)
---------------- ----------------
Cash flows from financing activities:
Bank borrowings (payments), net 7,400 (2,000)
Payments on notes payable (4,143) (5,000)
Employee stock plans 1,046 326
Payments on capitalized lease obligations
and other (1,239) (1,116)
---------------- ----------------
Net cash provided by (used in)
financing activities 3,064 (7,790)
---------------- ----------------
Net decrease in cash and cash equivalents (2,529) (4,266)
Cash and cash equivalents at beginning of period 3,631 6,146
---------------- ----------------
Cash and cash equivalents at end of period $ 1,102 $ 1,880
================ ================
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 11,062 $ 8,787
Discontinued operations reserve recovery (310)
Depreciation and amortization 3,883 3,852
Amortization of intangibles 416 431
Provision for losses on accounts receivable 1,321 432
Changes in assets and liabilities
Accounts receivable (11,899) (14,470)
Inventories (13,060) (2,505)
Accounts payable 882 7,610
Accrued liabilities and
income taxes payable 3,850 3,380
Other 1,748 1,941
---------------- ----------------
$ (1,797) $ 9,148
================ ================
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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
Transition Report on Form 10-K filed with the Securities and Exchange
Commission for the transition period from July 1, 1994 to December 31, 1994.
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
Operating results data per share is based upon the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
represent the net number of shares which would be issued assuming the exercise
of dilutive stock options and stock warrants, reduced by the number of shares
which could be repurchased from the proceeds of such exercises.
Stock Dividend
In May 1995, the Board of Directors declared a 5% stock dividend payable to
shareholders of record on May 26, 1995. Share and per share amounts were
adjusted to give effect to the stock dividend.
Change in State of Incorporation
At the 1995 Annual Meeting, the shareholders approved a plan to change the
Company's state of incorporation from Delaware to California. Effective June
30, 1995, the plan was completed and each share of Bell Delaware common stock
($.25 par value) was converted to one share of Bell California common stock.
This change resulted in the transfer of $60.9 million from other paid-in
capital to common stock on that date.
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Notes Payable
During the quarter ended September 30, 1995, the holders of the Company's
Senior Notes and the bank providing the Company's line of credit released the
security interest in the Company's receivables and inventories pursuant to
underlying agreements as a result of the Company's strong financial
performance.
Subsequent Event
In October 1995, the Company sold the assets of a division which manufactures
switches, push-buttons and electroluminescent panels used in commercial
aircraft. Total cash proceeds were approximately $7 million resulting in a gain
before income taxes of approximately $3 million in the fourth quarter.
Operating results for the division were immaterial to the Company's
consolidated operating results.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of operations by business segment for the three and nine months ended
September 30, 1995 and 1994 were as follows (in thousands):
Three months ended Nine months ended
September 30 September 30
------------------------------------ ------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales
Electronics $ 118,469 $ 101,257 $ 331,424 $ 295,273
Graphic Arts 17,713 15,438 52,575 44,750
Recreational Products 12,457 10,397 33,160 29,263
----------------- ---------------- ----------------- -----------------
$ 148,639 $ 127,092 $ 417,159 $ 369,286
================= ================ ================= =================
Three months ended Nine months ended
September 30 September 30
------------------------------------ ------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Operating income
Electronics $ 9,104 $ 6,876 $ 24,253 $ 19,961
Graphic Arts 355 486 1,341 1,412
Recreational Products 917 760 2,579 2,754
----------------- ---------------- ----------------- -----------------
Operating income 10,376 8,122 28,173 24,127
Corporate costs (2,123) (2,257) (6,498) (6,347)
Interest expense (872) (966) (2,602) (3,133)
Income tax provision (3,100) (2,058) (8,011) (6,170)
----------------- ---------------- ----------------- -----------------
Income from continuing
operations 4,281 2,841 11,062 8,477
Discontinued operations
reserve recovery,
net of taxes 310 310
----------------- ---------------- ----------------- -----------------
Net income $ 4,281 $ 3,151 $ 11,062 $ 8,787
================= ================ ================= =================
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For the nine months ended September 30, 1995, the Company's net sales increased
13% to $417.2 million and operating income increased 17% to $28.2 million over
the comparable period in the prior year. Net income increased 26% to $11.1
million, or $1.56 per share, compared to $8.8 million, or $1.26 per share,
which included a reserve recovery of $310,000, or $0.04 per share, in the prior
year.
For the three months ended September 30, 1995, the Company's net sales
increased 17% to a record $148.6 million and operating income increased 28% to
$10.4 million over the corresponding quarter in the prior year. The Company
recorded net income of $4.3 million, or $.60 per share, compared to $3.2
million, or $.45 per share, (including the reserve recovery) in the prior year
quarter.
Sales of the Electronics Group for the nine months increased 12% to $331.4
million and operating income increased 22% to $24.3 million. Sales for the
quarter increased 17% over the prior year quarter to $118.5 million and
operating income increased 32% to $9.1 million. The improved performance was
attributable to substantially stronger shipments of the group's core electronic
components resulting from the increased effectiveness of the group's marketing
efforts, partially offset by reduced sales of memory and microprocessor
products. The availability of these products, which were provided primarily by
one supplier in the prior year, cannot be predicted due to capacity and
allocation issues at that supplier. In addition, the group recorded increased
revenues from microcomputer systems and services.
Graphic Arts Group sales for the nine months increased 17% to $52.6 million and
operating income decreased 5% to $1.3 million. Group sales for the quarter
increased 15% to $17.7 million while operating income declined 27% to $0.4
million. Sales growth was attributed to a stronger California market for
graphic supplies, increased sales of electronic imaging equipment and
geographic expansion into three new markets throughout the Western U.S. The
decline in operating income was attributed to the group's continued investment
in new geographic markets.
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Recreational Products Group sales for the nine months increased 13% to $33.2
million while operating income decreased 6% to $2.6 million. Sales for the
quarter increased 20% to $12.5 million while operating income increased 21% to
$0.9 million. Operating results for the nine months were impacted by lower
gross margins and increased costs incurred to penetrate new geographic markets
during the first six months of 1995. During the quarter, margin improvement was
attributed to increased sales of higher margin products and reduced expansion
costs.
Cost of products sold as a percentage of sales for the nine months was
relatively unchanged (77.3% from 77.5%), while selling, general and
administrative expenses decreased to 17.5% of sales from 17.7%. Corporate costs
increased over the prior year period primarily as a result of deferred
compensation expenses. The decrease in interest expense was attributed to
reductions in long-term debt. The Company's income tax rate was approximately
42% for all periods presented.
The Company's financial position continued to be strong at September 30, 1995
as set forth in the table below (dollars in thousands, except per share
amounts):
September 30, December 31, September 30,
1995 1994 1994
---- ---- ----
Cash and cash equivalents $ 1,102 $ 3,631 $ 1,880
Working capital $ 127,976 $ 116,118 $ 108,972
Current ratio 2.9:1 3.0:1 3.0:1
Ratio of long-term liabilities
to total capitalization 26.4% 28.7% 27.2%
Shareholders' equity per share $ 16.52 $ 14.91 $ 14.56
Days' sales in receivables 49 50 49
Days' sales in inventories 86 87 81
Cash used in operating activities totaled $1.8 million during the nine months
ended September 30, 1995 compared to cash provided by operating activities of
$9.1 million in the prior year period. The change in operating cash flows was
primarily attributed to increased investment in inventories to support sales
growth and increased utilization of accelerated payment terms offered by
suppliers, offset by increased profits during the current quarter. Cash used in
investing activities in the prior year included the purchase of a business.
Cash flows from financing activities included proceeds from bank borrowings and
payments on notes payable, and capital lease obligations.
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In October 1995, the Company sold the assets of one division which manufactures
switches, push-buttons and electroluminescent panels used in commercial
aircraft. Total cash proceeds were approximately $7 million resulting in a gain
before income taxes of approximately $3 million in the fourth quarter.
Operating results for the division were immaterial to the Company's
consolidated operating results. Cash proceeds from the sale will be used to
reduce borrowings under the Company's line of credit.
The Company believes that sufficient cash resources exist to support short-term
requirements, including debt and lease payments, and longer term objectives,
including acquisitions, either through available cash, bank borrowings, or cash
generated from operations. Bell will continue to seek acquisition opportunities
that enhance growth.
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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:
Current Report on Form 8-K dated August 31, 1995 filed
in connection with the proposal to the Board of
Directors of Sterling Electronics Corporation to merge
the Company and Sterling.
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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: October 30, 1995 /s/ THEODORE WILLIAMS
------------------------------
Theodore Williams,
Chairman and
Chief Executive Officer
DATE: October 30, 1995 /s/ BRUCE M. JAFFE
------------------------------
Bruce M. Jaffe,
President and
Chief Operating Officer
DATE: October 30, 1995 /s/ TRACY A. EDWARDS
------------------------------
Tracy A. Edwards,
Vice President and
Chief Financial Officer