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, 1997
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.)
2201 E. El Segundo Blvd, 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 5, 1997: 9,281,177 shares.
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Bell Industries, Inc.
Consolidated Statement of Income
(In thousands, except per share data)
Three months ended Nine months ended
September 30 September 30
-------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $225,448 $164,306 $677,730 $464,065
-------- -------- -------- --------
Costs and expenses
Cost of products sold 178,234 128,594 533,841 360,770
Selling and
administrative expenses 36,874 27,208 115,781 79,499
Integration charge 4,100
Interest expense 3,221 952 8,810 2,796
-------- -------- -------- --------
218,329 156,754 662,532 443,065
-------- -------- -------- --------
Income before income taxes
and extraordinary loss 7,119 7,552 15,198 21,000
Income tax provision 3,311 3,172 7,092 8,820
-------- -------- -------- --------
Income before
extraordinary loss 3,808 4,380 8,106 12,180
Loss on early retirement
of debt, net of tax 675
-------- -------- -------- --------
Net income $ 3,808 $ 4,380 $ 7,431 $ 12,180
======== ======== ======== ========
Share and Per Share Data
Income before
extraordinary loss $ 0.40 $ 0.48 $ 0.86 $ 1.34
Loss on early retirement
of debt, net of tax 0.07
-------- -------- -------- --------
Net income $ 0.40 $ 0.48 $ 0.79 $ 1.34
======== ======== ======== ========
Weighted average common
shares outstanding 9,494 9,051 9,401 9,081
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
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Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
September 30 December 31
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,259 $ 12,097
Accounts receivable,
less allowance for doubtful
accounts of $2,292 and $1,626 132,731 83,155
Inventories 168,942 104,049
Prepaid expenses and other 11,625 5,820
--------- ---------
Total current assets 319,557 205,121
--------- ---------
Properties, net 40,224 22,049
Goodwill 70,329 8,795
Other assets 7,190 5,345
--------- ---------
$437,300 $241,310
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,827 $ 43,839
Accrued liabilities and payroll 34,697 20,350
Current portion of long-term liabilities 7,500 8,076
--------- ---------
Total current liabilities 117,024 72,265
--------- ---------
Long-term liabilities:
Long-term debt 166,218 24,571
Deferred compensation and other 5,727 6,013
--------- ---------
Total long-term liabilities 171,945 30,584
--------- ---------
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding - 9,258,863 and 7,518,277 shares 99,372 75,666
Reinvested earnings 48,959 62,795
--------- ---------
Total shareholders' equity 148,331 138,461
Commitments and contingencies
--------- ---------
$437,300 $241,310
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
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Bell Industries, Inc.
Consolidated Statement of Cash Flows
(In thousands)
Nine months ended
September 30
-------------------------
1997 1996
--------- --------
Cash flows from operating activities:
Net income $ 7,431 $ 12,180
Depreciation and amortization 4,750 4,098
Amortization of intangibles 2,795 497
Provision for losses on accounts receivable 1,541 976
Integration charge 4,100
Loss on early retirement of debt 675
Changes in assets and liabilities,
net of acquisitions (22,302) (3,543)
--------- --------
Net cash (used in) provided by
operating activities (1,010) 14,208
--------- --------
Cash flows from investing activities:
Purchase of business (100,404) (10,737)
Purchases of equipment and improvements (12,970) (6,294)
--------- --------
Net cash used in investing activities (113,374) (17,031)
--------- --------
Cash flows from financing activities:
Payments on Senior Notes (24,700) (6,463)
Bank borrowings, net 130,807 7,244
Employee stock plans and other 2,439 1,416
--------- --------
Net cash provided by financing activities 108,546 2,197
--------- --------
Net decrease in cash and cash equivalents (5,838) (626)
Cash and cash equivalents at beginning of period 12,097 4,819
--------- --------
Cash and cash equivalents at end of period $ 6,259 $ 4,193
========= ========
Changes in assets and liabilities, net of acquisitions:
Accounts receivable $ (12,969) $ (2,182)
Inventories (12,718) 7,983
Accounts payable 4,533 (5,621)
Accrued liabilities (1,737) (1,078)
Other 589 (2,645)
--------- --------
Net change $ (22,302) $ (3,543)
========= ========
Supplemental cash flow information:
Interest paid $ 8,524 $ 3,654
Income taxes paid $ 3,673 $ 9,873
See accompanying Notes to Condensed Consolidated Financial Statements.
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Bell Industries, Inc.
Notes to Condensed 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 filed with the Securities and Exchange Commission for
the year ended December 31, 1996.
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 1997, the Board of Directors declared a 20% stock dividend payable to
shareholders of record on May 30, 1997. Share and per share amounts were
adjusted to give effect to the stock dividend.
Acquisition of Milgray Electronics
In January 1997, Bell completed the acquisition of Milgray Electronics, Inc.
("Milgray") a publicly-traded distributor of electronic components. Under the
terms of the acquisition, shareholders of Milgray received $14.77 per share for
an aggregate purchase price of approximately $100 million.
The acquisition was accounted for under the purchase method of accounting and
operating results of Milgray are included from the acquisition date in the
financial statements of the Company for the first nine months of 1997. The fair
value of non-cash assets acquired, including goodwill, was approximately $167
million and liabilities assumed totaled approximately $65 million. Goodwill of
$64 million will be amortized over 25 years on a straight-line basis.
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Assuming the Milgray acquisition had occurred on January 1, 1996, the combined
pro forma results of operations were as follows (in thousands, except per share
amounts):
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------ ------------------
Net sales $226,714 $671,404
Net income $ 4,688 $ 13,915
Net income per share $ .52 $ 1.53
Non-cash Investing and Financing Activities
During the nine months ended September 30, 1997, non-cash investing and
financing activities included the acquisition of a 265,000 square foot
electronics distribution center in Ontario, California, which was financed
through the assumption of Adjustable Tender Industrial Revenue Bonds due in
2015. The distribution center and related bonds were recorded at estimated fair
market value of $6.2 million.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
In January 1997, Bell completed the acquisition of Milgray Electronics, Inc., a
publicly traded distributor of electronic components. The results of operations
of the Company for the first nine months of 1997 include the results of Milgray.
Results of operations by business segment for the three months and nine months
ended September, 1997 and 1996 were as follows (in thousands):
Three months ended
September 30 Pro forma (1)
----------------------------- -------------
1997 1996 1996
---- ---- ----
Net sales
Electronics $172,355 $116,113 $178,521
Graphics Imaging 39,714 35,087 35,087
Recreational Products 13,379 13,106 13,106
-------- -------- --------
$225,448 $164,306 $226,714
======== ======== ========
Operating income
Electronics $ 11,259 $ 8,694 $ 11,610
Graphics Imaging 1,035 1,017 1,017
Recreational Products 1,031 924 924
-------- -------- --------
13,325 10,635 $ 13,551
========
Corporate costs (2,985) (2,131)
Interest expense (3,221) (952)
Income tax provision (3,311) (3,172)
-------- --------
Net income $ 3,808 $ 4,380 $ 4,688
======== ======== ========
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Nine months ended
September 30 Pro forma (1)
------------------------------- -------------
1997 1996 1996
---------- -------- --------
Net sales
Electronics $523,134 $351,060 $558,399
Graphics Imaging 118,208 79,292 79,292
Recreational Products 36,388 33,713 33,713
---------- -------- --------
$ 677,730 $464,065 $671,404
========== ======== ========
Operating income
Electronics (2) $ 26,857 $ 25,556 $ 35,693
Graphics Imaging 3,279 2,480 2,480
Recreational Products 2,452 2,427 2,427
---------- -------- --------
32,588 30,463 $ 40,600
========
Corporate costs (8,580) (6,667)
Interest expense (8,810) (2,796)
Income tax provision (7,092) (8,820)
---------- --------
Income before
extraordinary loss 8,106 12,180
Loss on early retirement
of debt, net of tax 675
---------- --------
Net income $ 7,431 $ 12,180 $ 13,915
========== ======== ========
Notes
(1) Pro forma operating results are presented as if Bell and Milgray were
combined at January 1, 1996 and include estimates for goodwill
amortization and increased interest expense.
(2) Includes before-tax special charge of $4.1 million (after-tax
$2.2 million or $.24 per share) for costs associated with the
integration of Bell and Milgray.
For the nine months ended September 30, 1997, the Company's net sales increased
46% to $677.7 million from $464.1 million in 1996 and increased 1% when compared
to the prior year on a pro forma basis including Milgray. Operating income
increased 7% to $32.6 million as compared to the prior year period and decreased
20% when compared to the prior year on a pro forma basis.
For the three months ended September 30, 1997, the Company's net sales increased
37% to $225.4 million from $164.3 million in 1996 and decreased 1% when compared
to the prior year on a pro forma basis including Milgray. Operating income
increased 25% to $13.3 million as compared to the prior year quarter and
decreased 2% when compared to the prior year on a pro forma basis.
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For the nine months ended September 30, 1997, pretax income, before special and
extraordinary charges, was $19.3 million as compared to $24.9 million on a pro
forma basis in the prior year. During the first quarter of 1997 the Company
recorded a special before-tax charge of $4.1 million for Milgray integration
costs, and an extraordinary charge of $675,000 ($.07 per share), net of taxes,
relating to early retirement of debt. After the special charge, Bell's income
before extraordinary item was $8.1 million, or $.86 per share, and net income
was $7.4 million, or $.79 per share, as compared to $12.2 million, or $1.34 per
share, for the same period in 1996. On a pro forma basis, Bell and Milgray
combined net income was $13.9 million, or $1.53 per share, in the prior year
period.
Net income for the three months ended September 30, 1997 was $3.8 million, or
$.40 per share, as compared to $4.4 million, or $.48 per share, in the prior
year quarter. On a pro forma basis, Bell-Milgray combined net income was $4.7
million, or $.52 per share in the prior year quarter.
For the nine months, Electronics Group sales increased 49% to $523.1 million as
compared to the same period in 1996. Sales decreased 6% when compared to the pro
forma sales of Bell-Milgray combined for the corresponding nine month period
last year. Operating income for the nine months, before the integration charge,
increased 21% to $31.0 million. When compared to the pro forma combined amounts
for the same nine month period last year, operating income decreased 13%. For
the third quarter, Electronics Group sales increased 48% to $172.4 million as
compared to the same quarter in 1996. Sales decreased 3% when compared to the
pro forma sales of Bell-Milgray combined for the corresponding quarter last
year. Operating income for the third quarter increased 30% to $11.3 million.
When compared to the pro forma combined amounts in the third quarter last year,
operating income decreased 3%. Increased sales and operating income over
historical amounts reflected the Milgray acquisition, partially offset by lower
sales of electronic components. When compared to pro forma amounts, sales and
operating income continued to be affected by industry-wide softness in sales in
certain segments of electronic components, including memory based products, and
transition costs associated with the combination of the Bell-Milgray operations.
Lower sales of electronic components were partially offset by stronger
performance in the Company's microcomputer business.
For the nine months, Graphics Imaging Group sales increased 49% to $118.2
million and operating income increased 32% to $3.3 million. For the three
months, sales increased 13% to $39.7 million and operating income was $1.0
million for both three month periods. Operating results were positively impacted
by the contribution from recently acquired operations, partially offset by
transition costs associated with these acquisitions.
Recreational Products Group sales for the nine months ended September 30, 1997
increased 8% to $36.4 million and operating income increased 1% to $2.5 million.
For the three months, sales and operating income increased 2% to $13.4 million
and 12% to $1.0 million. Growth in sales and operating income continued to
reflect the group's expansion in Michigan.
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Cost of products sold as a percentage of sales for the nine months ended
September 30, 1997 increased to 78.8% from 77.7%, while selling and
administrative expenses as a percent of sales were approximately 17.1% for both
periods. The Company's income tax rate for the first nine months of 1997
increased to 47% compared to 42% in 1996 primarily as a result of increased
non-deductible goodwill for income tax purposes.
Since acquiring Milgray in January 1997, the Company has devoted considerable
effort into integrating the electronics distribution operations to establish a
unified selling organization. In July 1997, the Company successfully completed
the installation of the Bell computer business system for the former Milgray
operations. The Company also plans to consolidate three distribution facilities
at its new distribution center in Southern California, which is scheduled for
occupancy during the first quarter of 1998.
Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
September 30 December 31
1997 1996
------------ -----------
Cash and cash equivalents $ 6,259 $ 12,097
Working capital $202,533 $132,856
Current ratio 2.7:1 2.8:1
Long-term liabilities
to total capitalization 54% 18%
Shareholders' equity per share $ 16.02 $ 15.35
Days' sales in receivables 55 48
Days' sales in inventories 86 76
Net cash used in operating activities was $1.0 million for the nine months ended
September 30, 1997, compared to net cash provided by operating activities of
$14.2 million for the comparable period in 1996. Operating cash flows in 1997
were impacted by reduced earnings and increased investment in working capital to
support revenue growth. Financing cash flows included bank borrowings used to
fund the acquisition of Milgray and the retirement of Bell's outstanding 9.70%
Senior Notes. Investing cash flows included the acquisition of Milgray, property
additions, and investment in information systems.
In the first nine months of 1997, non-cash investing and financing activities
included the acquisition of a 265,000 square foot electronics distribution
center in Ontario, California, which was financed through the assumption of
Adjustable Tender Industrial Revenue Bonds due in 2015. The distribution center
and related bonds were recorded at estimated fair market value of $6.2 million.
The Company believes that sufficient cash resources exist to support short-term
requirements, including debt and lease payments, and longer term objectives,
either through available cash, bank borrowings, or cash generated from
operations.
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PART II - OTHER INFORMATION
Items 1 through 4.
Not applicable
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule.
(b) Reports on Form 8-K:
None
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 11, 1997 /s/ THEODORE WILLIAMS
-------------------------------------
Theodore Williams,
Chairman and
Chief Executive Officer
DATE: November 11, 1997 /s/ GORDON GRAHAM
-------------------------------------
Gordon Graham,
President and
Chief Operating Officer
DATE: November 11, 1997 /s/ TRACY A. EDWARDS
-------------------------------------
Tracy A. Edwards,
Vice President and
Chief Financial Officer