<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 June 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.)
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 July 28, 1997: 9,166,596 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 Six months ended
June 30 June 30
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $233,779 $156,709 $452,282 $299,759
-------- -------- -------- --------
Costs and expenses
Cost of products sold 184,787 121,665 355,607 232,176
Selling and
administrative expenses 39,533 26,252 78,907 52,291
Integration charge 4,100
Interest expense 2,908 885 5,589 1,844
-------- -------- -------- --------
227,228 148,802 444,203 286,311
-------- -------- -------- --------
Income before income taxes
and extraordinary loss 6,551 7,907 8,079 13,448
Income tax provision 3,082 3,319 3,781 5,648
-------- -------- -------- --------
Income before
extraordinary loss 3,469 4,588 4,298 7,800
Loss on early retirement
of debt, net of tax 675
-------- -------- -------- --------
Net income $ 3,469 $ 4,588 $ 3,623 $ 7,800
======== ======== ======= ========
Share and Per Share Data
Income before
extraordinary loss $ 0.37 $ 0.50 $ 0.46 $ 0.86
Loss on early retirement
of debt, net of tax 0.07
-------- -------- -------- --------
Net income $ 0.37 $ 0.50 $ 0.39 $ 0.86
======== ======== ======= ========
Weighted average common
shares outstanding 9,321 9,138 9,355 9,096
======== ======== ======= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE> 3
Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,580 $ 12,097
Accounts receivable,
less allowance for doubtful
accounts of $2,132 and $1,626 132,523 83,155
Inventories 161,213 104,049
Prepaid expenses and other 12,431 5,820
-------- --------
Total current assets 313,747 205,121
-------- --------
Properties, net 34,984 22,049
Goodwill 71,107 8,795
Other assets 7,422 5,345
-------- --------
$427,260 $241,310
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 83,884 $ 43,839
Accrued liabilities and payroll 30,070 20,350
Current portion of long-term liabilities 7,500 8,076
-------- --------
Total current liabilities 121,454 72,265
-------- --------
Long-term liabilities:
Long-term debt 157,015 24,571
Deferred compensation and other 5,425 6,013
-------- --------
Total long-term liabilities 162,440 30,584
-------- --------
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding - 9,139,672 and 7,518,277 shares 98,216 75,666
Reinvested earnings 45,150 62,795
-------- --------
Total shareholders' equity 143,366 138,461
Commitments and contingencies -------- --------
$427,260 $241,310
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
Bell Industries, Inc.
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
---------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,623 $ 7,800
Depreciation and amortization 3,299 2,727
Amortization of intangibles 1,861 318
Provision for losses on accounts receivable 1,137 706
Integration charge 4,100
Loss on early retirement of debt 675
Changes in assets and liabilities,
net of acquisitions (8,003) (727)
--------- -------
Net cash provided by operating activities 6,692 10,824
--------- -------
Cash flows from investing activities:
Purchase of business (100,404) (1,090)
Purchases of equipment and improvements (6,279) (5,669)
--------- -------
Net cash used in investing activities (106,683) (6,759)
--------- -------
Cash flows from financing activities:
Payments on Senior Notes (24,700) (6,076)
Bank borrowings, net 118,892 (387)
Employee stock plans and other 1,282 972
--------- -------
Net cash provided by (used in)
financing activities 95,474 (5,491)
--------- -------
Net decrease in cash and cash equivalents (4,517) (1,426)
Cash and cash equivalents at beginning of period 12,097 4,819
--------- -------
Cash and cash equivalents at end of period $ 7,580 $ 3,393
========= =======
Changes in assets and liabilities, net of acquisitions:
Accounts receivable $ (12,356) $(6,496)
Inventories (4,989) (1,050)
Accounts payable 13,590 10,486
Accrued liabilities (3,955) (2,326)
Other (293) (1,341)
--------- -------
Net change $ (8,003) $ (727)
========= =======
Supplemental cash flow information:
Interest paid $ 5,155 $ 2,085
Income taxes paid $ 2,992 $ 6,305
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 5
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 six 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.
-5-
<PAGE> 6
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):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net sales $230,499 $444,690
Net income $ 5,502 $ 9,227
Net income per share $ .60 $ 1.01
</TABLE>
Non-cash Investing and Financing Activities
During the six months ended June 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.
-6-
<PAGE> 7
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 six months of 1997 include the results of Milgray.
Results of operations by business segment for the three months and six months
ended June 30, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
June 30 Pro forma (1)
-------------------- -------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Net sales
Electronics $180,009 $121,199 $194,989
Graphics Imaging 40,160 23,428 23,428
Recreational Products 13,610 12,082 12,082
-------- -------- --------
$233,779 $156,709 $230,499
======== ======== ========
Operating income
Electronics $ 10,161 $ 9,302 $ 13,282
Graphics Imaging 1,012 535 535
Recreational Products 1,211 1,189 1,189
-------- -------- --------
12,384 11,026 $ 15,006
========
Corporate costs (2,925) (2,234)
Interest expense (2,908) (885)
Income tax provision (3,082) (3,319)
-------- --------
Net income $ 3,469 $ 4,588 $ 5,502
======== ======== ========
</TABLE>
-7-
<PAGE> 8
<TABLE>
<CAPTION>
Six months ended
June 30 Pro forma (1)
----------------------- -------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Net sales
Electronics $350,779 $234,947 $379,878
Graphics Imaging 78,494 44,205 44,205
Recreational Products 23,009 20,607 20,607
-------- -------- --------
$452,282 $299,759 $444,690
======== ======== ========
Operating income
Electronics (2) $ 15,598 $ 16,862 $ 24,083
Graphics Imaging 2,244 1,463 1,463
Recreational Products 1,421 1,503 1,503
-------- -------- --------
19,263 19,828 $ 27,049
========
Corporate costs (5,595) (4,536)
Interest expense (5,589) (1,844)
Income tax provision (3,781) (5,648)
-------- --------
Income before
extraordinary loss 4,298 7,800
Loss on early retirement
of debt, net of tax (675)
-------- --------
Net income $ 3,623 $ 7,800 $ 9,227
======== ======== ========
</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 $.24 per share) for costs associated with the integration of Bell and
Milgray.
For the six months ended June 30, 1997, the Company's net sales increased 51% to
$452.3 million from $299.8 million in 1996 and increased 2% when compared to the
prior year on a pro forma basis including Milgray. Operating income decreased 3%
to $19.3 million as compared to the prior year period and decreased 29% when
compared to the prior year on a pro forma basis.
For the three months ended June 30, 1997, the Company's net sales increased 49%
to $233.8 million from $156.7 million in 1996 and increased 1% when compared to
the prior year on a pro forma basis including Milgray. Operating income
increased 12% to $12.4 million as compared to the prior year quarter and
decreased 17% when compared to the prior year on a pro forma basis.
-8-
<PAGE> 9
For the six months ended June 30, 1997, pretax income, before special and
extraordinary charges, was $12.2 million as compared to $16.5 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 $4.3 million, or $.46 per share, and net income
was $3.6 million, or $.39 per share, as compared to $7.8 million, or $.86 per
share, for the same period in 1996. On a pro forma basis, Bell and Milgray
combined net income was $9.2 million, or $1.01 per share, in the prior year
period.
Net income for the three months ended June 30, 1997 was $3.5 million, or $.37
per share, as compared to $4.6 million, or $.50 per share, in the prior year
quarter. On a pro forma basis, Bell-Milgray combined net income was $5.5
million, or $.60 per share in the prior year quarter.
For the six months, Electronics Group sales increased 49% to $350.8 million as
compared to the same period in 1996. Sales decreased 8% when compared to the pro
forma sales of Bell-Milgray combined for the corresponding six month period last
year. Operating income for the six months, before the integration charge,
increased 17% to $19.7 million. When compared to the pro forma combined amounts
for the same six month period last year, operating income decreased 18%. For the
second quarter, Electronics Group sales increased 49% to $180.0 million as
compared to the same quarter in 1996. Sales decreased 8% when compared to the
pro forma sales of Bell-Milgray combined for the corresponding quarter last
year. Operating income for the second quarter increased 9% to $10.2 million.
When compared to the pro forma combined amounts in the second quarter last year,
operating income decreased 23%. 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 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 six months, Graphics Imaging Group sales increased 78% to $78.5 million
and operating income increased 53% to $2.2 million. For the three months, sales
increased 71% to $40.2 million and operating income increased 89% to $1.0
million. Enhanced operating results were primarily attributed to the
contribution from recently acquired operations and stronger market conditions in
California.
Recreational Products Group sales for the six months ended June 30, 1997
increased 12% to $23.0 million while operating income decreased 5% to $1.4
million. For the three months, sales and operating income increased 13% to $13.6
million and 2% to $1.2 million. Operating results continued to reflect the
group's expansion in Michigan and difficult weather conditions in the northern
Midwest.
-9-
<PAGE> 10
Cost of products sold as a percentage of sales for the six months ended June 30,
1997 increased to 78.6% from 77.5%, while selling and administrative expenses as
a percent of sales were approximately 17.5% for both periods. The Company's
income tax rate for the first six 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 in late 1997.
Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
-------- ----------
<S> <C> <C>
Cash and cash equivalents $ 7,580 $ 12,097
Working capital $192,293 $132,856
Current ratio 2.6:1 2.8:1
Long-term liabilities
to total capitalization 53% 18%
Shareholders' equity per share $ 15.69 $ 15.35
Days' sales in receivables 53 48
Days' sales in inventories 79 76
</TABLE>
Net cash provided by operating activities was $6.7 million for the six months
ended June 30, 1997, compared to $10.8 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 higher revenues. Financing
and investing cash flows included bank borrowings used to fund the acquisition
of Milgray and the retirement of Bell's outstanding 9.70% Senior Notes. In
addition, investing cash flows included equipment and improvement additions and
continued investment in information systems.
In the first six 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.
-10-
<PAGE> 11
PART II - OTHER INFORMATION
Items 1 through 3.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of Bell Industries was held
on May 13, 1997 to act on the following matters.
1. Election of Directors.
The six incumbent directors - John J. Cost, Anthony L. Craig,
Gordon Graham, Charles S. Troy, Milton Rosenberg and Theodore
Williams - were re-elected and Herbert S. Davidson was elected
for his first term. Directors elected will serve until the
next Annual Meeting of Shareholders and until their successors
are elected and have qualified. The vote was as follows:
<TABLE>
<CAPTION>
Votes Withhold
Directors Votes for against authority
--------- --------- ------- ---------
<S> <C> <C> <C>
John J. Cost 6,324,122 -0- 479,554
Anthony L. Craig 6,319,897 -0- 483,779
Herbert S. Davidson 6,351,092 -0- 452,584
Gordon Graham 6,351,908 -0- 451,768
Charles S. Troy 6,319,897 -0- 483,779
Milton Rosenberg 6,353,323 -0- 450,353
Theodore Williams 6,353,290 -0- 450,386
</TABLE>
2. Proposal to Amend the 1994 Stock Option Plan.
The proposal to increase the number of shares from 500,000 to
1,000,000 was approved. The vote was as follows:
<TABLE>
<CAPTION>
Votes Withhold
Votes for against authority
--------- ------- ---------
<S> <C> <C>
4,146,781 968,387 56,422
</TABLE>
-11-
<PAGE> 12
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule.
99. Amendment to the 1994 Stock Option Plan.
(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: August 5, 1997 /s/ THEODORE WILLIAMS
-------------- -----------------------------------
Theodore Williams,
Chairman and
Chief Executive Officer
DATE: August 5, 1997 /s/ GORDON GRAHAM
-------------- -----------------------------------
Gordon Graham,
President and
Chief Operating Officer
DATE: August 5, 1997 /s/ TRACY A. EDWARDS
-------------- -----------------------------------
Tracy A. Edwards,
Vice President and
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,580
<SECURITIES> 0
<RECEIVABLES> 134,434
<ALLOWANCES> 2,132
<INVENTORY> 161,213
<CURRENT-ASSETS> 313,747
<PP&E> 62,232
<DEPRECIATION> 27,248
<TOTAL-ASSETS> 427,260
<CURRENT-LIABILITIES> 121,454
<BONDS> 162,440
0
0
<COMMON> 98,216
<OTHER-SE> 45,150
<TOTAL-LIABILITY-AND-EQUITY> 427,260
<SALES> 452,282
<TOTAL-REVENUES> 452,282
<CGS> 355,607
<TOTAL-COSTS> 355,607
<OTHER-EXPENSES> 83,007
<LOSS-PROVISION> 1,137
<INTEREST-EXPENSE> 5,589
<INCOME-PRETAX> 8,079
<INCOME-TAX> 3,781
<INCOME-CONTINUING> 4,298
<DISCONTINUED> 0
<EXTRAORDINARY> 675
<CHANGES> 0
<NET-INCOME> 3,623
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
<PAGE> 1
Exhibit 99
AMENDMENT NO. 1
1994 STOCK OPTION PLAN
Section 3 of Bell Industries, Inc.'s 1994 Stock Option Plan is hereby
amended to provide that the number of shares of Common Stock which may be issued
pursuant to options granted under said Plan be increased from 500,000 to One
Million subject to further adjustment under the anti-dilution provisions of
Section 16 of the Plan. This amendment was approved by the Company's
Shareholders at the Company's Annual Meeting of Shareholders held May 13, 1997.
Dated: May 13, 1997 BELL INDUSTRIES, INC.
By /s/ JOHN J. COST
----------------------------------
John J. Cost, Secretary
