<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, 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.)
11812 San Vicente Blvd., Los Angeles, California 90049-5069
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(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 May 1, 1997: 7,615,189 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
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $218,503 $143,050
-------- --------
Costs and expenses
Cost of products sold 170,820 110,511
Selling and administrative expenses 39,374 26,039
Integration charge 4,100
Interest expense 2,681 959
-------- --------
216,975 137,509
-------- --------
Income before income taxes and
extraordinary loss 1,528 5,541
Income tax provision 699 2,329
-------- --------
Income before extraordinary loss 829 3,212
Loss on early retirement of debt, net of tax 675
-------- --------
Net income $ 154 $ 3,212
======== ========
Share and Per Share Data
Income before extraordinary loss $ 0.11 $ 0.43
Loss on early retirement of debt, net of tax 0.09
-------- --------
Net income $ 0.02 $ 0.43
======== ========
Weighted average common shares outstanding 7,824 7,544
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 3
-2-
Bell Industries, Inc.
Consolidated Condensed Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,607 $ 12,097
Accounts receivable,
less allowance for doubtful accounts
of $2,090 and $1,626 123,036 83,155
Inventories 154,777 104,049
Prepaid expenses and other 11,816 5,820
-------- --------
Total current assets 299,236 205,121
-------- --------
Properties, net 32,627 22,049
Goodwill 72,025 8,795
Other assets 7,971 5,345
-------- --------
$411,859 $241,310
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,478 $ 43,839
Accrued liabilities and payroll 32,059 20,350
Current portion of long-term liabilities 7,971 8,076
-------- --------
Total current liabilities 115,508 72,265
-------- --------
Long-term liabilities:
Long-term debt 151,850 24,571
Deferred compensation and other 5,080 6,013
-------- --------
Total long-term liabilities 156,930 30,584
-------- --------
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding - 7,580,286 and 7,518,277 shares 76,473 75,666
Reinvested earnings 62,948 62,795
-------- --------
Total shareholders' equity 139,421 138,461
Commitments and contingencies
-------- --------
$411,859 $241,310
======== ========
</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
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 154 $ 3,212
Depreciation and amortization 1,647 1,399
Amortization of intangibles 920 160
Provision for losses on accounts receivable 579 521
Integration charge 4,100
Loss on early retirement of debt 675
Changes in assets and liabilities,
net of acquisitions 1,804 3,970
--------- ---------
Net cash provided by operating activities 9,879 9,262
--------- ---------
Cash flows from investing activities:
Purchase of business (100,404) (386)
Purchases of equipment and improvements (2,270) (915)
--------- ---------
Net cash used in investing activities (102,674) (1,301)
--------- ---------
Cash flows from financing activities:
Payments on Senior Notes (24,700) (5,143)
Bank borrowings, net 114,200 2,681
Employee stock plans and other 805 488
--------- ---------
Net cash provided by (used in)
financing activities 90,305 (1,974)
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,490) 5,987
Cash and cash equivalents at beginning of period 12,097 4,819
--------- ---------
Cash and cash equivalents at end of period $ 9,607 $ 10,806
========= =========
Changes in assets and liabilities, net of acquisitions:
Accounts receivable $ (2,311) $ (2,603)
Inventories 1,447 5,863
Accounts payable 5,184 1,115
Accrued liabilities and deferred compensation (2,312) (1,558)
Other (204) 1,153
--------- ---------
Net change $ 1,804 $ 3,970
========= =========
Supplemental cash flow information:
Interest paid $ 2,656 $ 1,874
Income taxes paid $ 539 $ 921
</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 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.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which
revises the computation and disclosure of earnings per share (EPS). SFAS 128
becomes effective for the year ending December 15, 1997 but is not effective
for interim periods. The adoption of this standard will not have a material
effect on the Company's earnings per share.
<PAGE> 6
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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 quarter 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.
On a pro forma basis, assuming the Milgray acquisition had occurred on January
1, 1996, the combined revenues, net income and net income per share for the
three months ended March 31, 1996 were $214.2 million, $3.7 million and $.49
per share.
Non-cash Investing and Financing Activities
- -------------------------------------------
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.
<PAGE> 7
-6-
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. During the first quarter
of 1997 the Company initiated plans to integrate the operations of Milgray into
the Electronics Group of Bell. Accordingly, the results of operations of the
Company for the first quarter of 1997 include the results of Milgray.
Results of operations by business segment for the three months ended March 31,
1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31 Pro forma (1)
------------------------ -------------
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales
Electronics $ 170,770 $ 113,748 $ 184,889
Graphics and
Electronic Imaging 38,334 20,777 20,777
Recreational Products 9,399 8,525 8,525
--------- --------- ---------
$ 218,503 $ 143,050 $ 214,191
========= ========= =========
Operating income
Electronics (2) $ 5,437 $ 7,560 $ 10,801
Graphics and
Electronic Imaging 1,232 928 928
Recreational Products 210 314 314
--------- --------- ---------
6,879 8,802 $ 12,043
=========
Corporate costs (2,670) (2,302)
Interest expense (2,681) (959)
Income tax provision (699) (2,329)
--------- ---------
Income before
extraordinary loss 829 3,212
Loss on early retirement
of debt, net of tax (675)
--------- ---------
Net income $ 154 $ 3,212 $ 3,725
========= ========= =========
</TABLE>
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 $.28 per share) for costs associated with the integration of
Bell and Milgray.
<PAGE> 8
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For the three months ended March 31, 1997, the Company's net sales increased
53% to $218.5 million from $143.1 million in 1996 and increased 2% when
compared to the prior year on a pro forma basis including Milgray. Operating
income decreased 22% to $6.9 million as compared to the prior year quarter and
decreased 43% when compared to the prior year on a pro forma basis.
In the first quarter of 1997, the Company finalized its plans for the
integration of Milgray and recorded a special before-tax charge totaling $4.1
million for costs associated with the integration, including provisions for
employee severance, lease commitments, and costs related to supplier
terminations. In addition, the Company recorded an extraordinary loss of
$675,000, net of tax, as a result of the early retirement of Bell's 9.70%
Senior Notes, which were replaced under Bell's new credit facility.
After the special charge, Bell's income before extraordinary item was $829,000,
or $.11 per share and net income was $154,000, or $.02 per share as compared to
$3.2 million or $.43 per share for the same period in 1996. On a pro forma
basis, Bell and Milgray combined net income was $3.7 million, or $.49 per
share, in the prior year period.
Sales of the Electronics Group increased 50% to $170.8 million as compared to
the first quarter of 1996. Sales decreased 8% when compared to the pro forma
sales of Bell-Milgray combined for the corresponding quarter last year.
Operating income, before the integration charge discussed above, increased 26%
to $9.5 million. When compared to the pro forma combined amounts last year,
operating income decreased 12%. 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, operating
results also reflected reduced shipments of memory products. The trend of
reduced shipments of electronic components, primarily memory and other
semiconductor products, is expected to continue through the second quarter of
1997.
Graphics and Electronic Imaging Group sales increased 85% to $38.3 million and
operating income increased 33% to $1.2 million. Increased sales and operating
income were primarily attributed to the contribution from recently acquired
operations and stronger market conditions in California.
Recreational Products Group sales increased 10% to $9.4 million while operating
income decreased 33% to $.2 million. Operating results were effected by the
group's recent expansion in Michigan and difficult weather conditions in the
northern Midwest.
<PAGE> 9
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Cost of products sold as a percentage of sales increased to 78.2% from 77.3%,
while selling and administrative expenses decreased to 18% of sales from 18.2%.
The Company's income tax rate was approximately 46% for the first quarter of
1997 compared to 42% in 1996 due to the impact of non deductible goodwill for
income tax purposes.
Since acquiring Milgray in January, Bell has devoted considerable effort into
integrating the electronics distribution operations. The objective is to
establish a unified selling organization by the time Bell's computer system is
accessible to all Milgray operations, which is expected in the second half this
year. The Company also plans to consolidate three distribution facilities at
its new distribution center in Southern California, which is scheduled for
occupancy in late 1997.
Selected financial position data is set forth in the following table (dollars
in thousands, except per share amounts):
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- --------
<S> <C> <C>
Cash and cash equivalents $ 9,607 $ 12,097
Working capital $183,728 $132,856
Current ratio 2.6:1 2.8:1
Long-term liabilities
to total capitalization 53% 18%
Shareholders' equity per share $ 18.39 $ 18.42
Days' sales in receivables 53 48
Days' sales in inventories 82 76
</TABLE>
Net cash provided by operating activities was $9.9 million in the first quarter
of 1997, a slight increase over $9.3 million for the comparable period in 1996.
Concurrent with the acquisition of Milgray, the Company entered into a
five-year $250 million secured revolving credit facility with a syndicate of
banks to finance the Milgray purchase, retire all existing debt of both
companies and provide for ongoing working capital requirements. The new
facility, which replaced the Company's $50 million line of credit, includes a
$50 million term loan, payable quarterly over five years, and a revolving
credit line. In connection with the placement of the credit facility in early
1997, the Company redeemed its outstanding 9.70% Senior Notes for $24.7
million, including related make-whole premiums. In addition to the Milgray
acquisition, cash flows were used to fund equipment and improvement purchases,
including continued investment in information systems.
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.
<PAGE> 10
-9-
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 dated January 22 1997, filed in connection with
the acquisition of Milgray Electronics, Inc.
Form 8-K/A dated March 24, 1997, filed in connection
with the acquisition of Milgray Electronics, Inc.
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 12, 1997 /s/ THEODORE WILLIAMS
-------------------------------
Theodore Williams,
Chairman and
Chief Executive Officer
DATE: May 12, 1997 /s/ GORDON M. GRAHAM
-------------------------------
Gordon M. Graham,
President and
Chief Operating Officer
DATE: May 12, 1997 /s/ TRACY A. EDWARDS
-------------------------------
Tracy A. Edwards,
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,607
<SECURITIES> 0
<RECEIVABLES> 127,036
<ALLOWANCES> 4,000
<INVENTORY> 154,777
<CURRENT-ASSETS> 299,236
<PP&E> 61,366
<DEPRECIATION> 28,739
<TOTAL-ASSETS> 411,859
<CURRENT-LIABILITIES> 115,508
<BONDS> 156,930
0
0
<COMMON> 76,473
<OTHER-SE> 62,948
<TOTAL-LIABILITY-AND-EQUITY> 411,859
<SALES> 218,503
<TOTAL-REVENUES> 218,503
<CGS> 170,820
<TOTAL-COSTS> 170,820
<OTHER-EXPENSES> 43,474
<LOSS-PROVISION> 579
<INTEREST-EXPENSE> 2,681
<INCOME-PRETAX> 1,528
<INCOME-TAX> 699
<INCOME-CONTINUING> 829
<DISCONTINUED> 0
<EXTRAORDINARY> 675
<CHANGES> 0
<NET-INCOME> 154
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
