<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, 1998
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 East 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 July 24, 1998: 9,430,854 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
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $210,336 $233,779 $423,751 $452,282
-------- -------- -------- --------
Costs and expenses
Cost of products sold 168,243 184,787 338,058 355,607
Selling and
administrative expenses 32,528 36,940 65,491 73,747
Depreciation and amortization 2,742 2,593 5,345 5,160
Interest expense 3,215 2,908 6,675 5,589
Integration charge 4,100
-------- -------- -------- --------
206,728 227,228 415,569 444,203
-------- -------- -------- --------
Income before income taxes
and extraordinary loss 3,608 6,551 8,182 8,079
Income tax provision 1,697 3,082 3,830 3,781
-------- -------- -------- --------
Income before
extraordinary loss 1,911 3,469 4,352 4,298
Loss on early retirement
of debt, net of tax 675
-------- -------- -------- --------
Net income $ 1,911 $ 3,469 $ 4,352 $ 3,623
======== ======== ======== ========
Share and Per Share Data
BASIC
Income before
extraordinary loss $ 0.20 $ 0.38 $ 0.47 $ 0.47
Loss on early retirement
of debt, net of tax 0.07
-------- -------- -------- --------
Net income $ 0.20 $ 0.38 $ 0.47 $ 0.40
======== ======== ======== ========
Weighted average common
shares 9,383 9,113 9,357 9,091
======== ======== ======== ========
DILUTED
Income before
extraordinary loss $ 0.20 $ 0.37 $ 0.46 $ 0.46
Loss on early retirement
of debt, net of tax 0.07
-------- -------- -------- --------
Net income $ 0.20 $ 0.37 $ 0.46 $ 0.39
======== ======== ======== ========
Weighted average common
shares 9,475 9,321 9,460 9,355
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
-2-
Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,629 $ 5,377
Accounts receivable,
less allowance for doubtful
accounts of $2,199 and $2,673 115,072 120,900
Inventories 157,111 173,801
Prepaid expenses and other 9,015 8,990
-------- --------
Total current assets 291,827 309,068
-------- --------
Properties, net 44,374 42,079
Goodwill 71,248 72,758
Other assets 8,542 7,328
-------- --------
$415,991 $431,233
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,302 $ 67,121
Accrued liabilities and payroll 24,073 26,435
Current portion of long-term liabilities 8,750 7,500
-------- --------
Total current liabilities 104,125 101,056
-------- --------
Long-term debt 147,418 172,330
Deferred compensation and other 7,937 6,495
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding -9,407,300 and 9,326,391 shares 101,217 100,410
Reinvested earnings 55,294 50,942
-------- --------
Total shareholders' equity 156,511 151,352
Commitments and contingencies
-------- --------
$415,991 $431,233
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
-3-
Bell Industries, Inc.
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,352 $ 3,623
Depreciation and amortization 3,422 3,299
Amortization of intangibles 1,923 1,861
Provision for losses on accounts receivable 754 1,137
Integration charge 4,100
Loss on early retirement of debt 675
Changes in assets and liabilities,
net of acquisitions 23,373 (8,003)
--------- ---------
Net cash provided by operating activities 33,824 6,692
--------- ---------
Cash flows from investing activities:
Purchases of properties (5,717) (6,279)
Purchase of business (100,404)
--------- ---------
Net cash used in investing activities (5,717) (106,683)
--------- ---------
Cash flows from financing activities:
Bank borrowings (payments), net (23,662) 118,892
Employee stock plans and other 807 1,282
Payments on Senior Notes (24,700)
--------- ---------
Net cash provided by (used in)
financing activities (22,855) 95,474
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,252 (4,517)
Cash and cash equivalents at beginning of period 5,377 12,097
--------- ---------
Cash and cash equivalents at end of period $ 10,629 $ 7,580
========= =========
Changes in assets and liabilities, net of acquisitions:
Accounts receivable $ 5,074 $ (12,356)
Inventories 16,690 (4,989)
Accounts payable 4,181 13,590
Accrued liabilities (920) (3,955)
Other (1,652) (293)
--------- ---------
Net change $ 23,373 $ (8,003)
========= =========
Supplemental cash flow information:
Interest paid $ 6,157 $ 5,155
Income taxes paid $ $ 2,992
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
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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, 1997.
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
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.
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.
Proposed Sale of Graphics Imaging Group
In July 1998, the Company signed a letter of intent to sell its Graphics Imaging
Group to PrimeSource Corporation, a New Jersey based distributor and systems
integrator serving the printing, publishing and graphic arts industries. The
transaction is subject to customary due diligence and is anticipated to close
during the Company's third quarter ending September 30, 1998. The Company
expects to record a gain on the transaction.
<PAGE> 6
-5-
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of operations by business segment for the three months and six months
ended June 30, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Electronics $ 158,933 $ 180,009 $ 327,424 $ 350,779
Graphics Imaging 36,343 40,160 71,474 78,494
Recreational Products 15,060 13,610 24,853 23,009
--------- --------- --------- ---------
$ 210,336 $ 233,779 $ 423,751 $ 452,282
========= ========= ========= =========
Operating income
Electronics (1) $ 6,773 $ 10,161 $ 16,594 $ 15,598
Graphics Imaging 1,643 1,012 2,654 2,244
Recreational Products 1,504 1,211 1,908 1,421
--------- --------- --------- ---------
9,920 12,384 21,156 19,263
Corporate costs (3,097) (2,925) (6,299) (5,595)
Interest expense (3,215) (2,908) (6,675) (5,589)
Income tax provision (1,697) (3,082) (3,830) (3,781)
--------- --------- --------- ---------
Income before extraordinary loss 1,911 3,469 4,352 4,298
Loss on early retirement
of debt, net of tax 675
--------- --------- --------- ---------
Net income $ 1,911 $ 3,469 $ 4,352 $ 3,623
========= ========= ========= =========
</TABLE>
Note:
(1) Includes before-tax special charge of $4.1 million recorded in first
quarter of 1997.
Net sales for the six months ended June 30, 1998, decreased approximately 6% to
$423.8 million from $452.3 million in 1997, while operating income increased to
$21.2 million as compared to $19.3 million in the comparable 1997 period. For
the three months ended June 30, 1998, the Company's net sales decreased to
$210.3 million from $233.8 million in 1997. Operating income decreased to $9.9
million as compared to $12.4 million in the 1997 period. Operating income for
the six months ended June 30, 1997 included a special charge of $4.1 million
recorded during the first quarter.
The Company's profitability, excluding special and extraordinary charges
incurred in the prior year, was negatively impacted by softness in its core
electronics distribution business, reduced gross profit margins caused by
competitive market conditions and higher interest costs. Partially offsetting
these factors were generally lower operating expenses.
<PAGE> 7
-6-
In the first quarter of 1997 the Company completed the acquisition of Milgray
Electronics, Inc. In connection with the acquisition, the Company recorded a
special before-tax charge of $4.1 million for costs associated with the
integration of Milgray, including provision for severance costs, related exit
costs, and costs related to supplier terminations. In addition, the Company
recorded an extraordinary charge of $675,000 ($.07 per share), net of taxes,
relating to the early retirement of Senior notes, which were replaced under the
Company's new credit facility.
Sales of the Electronics Group for the six months ended June 30, 1998, decreased
to $327.4 million as compared to $350.8 million in the comparable 1997 period
while operating income increased to $16.6 million from $15.6 million in the 1997
period. For the three months ended June 30, 1998, Electronics Group sales
decreased to $158.9 million as compared to $180.0 million in the comparable 1997
period and operating income decreased to $6.8 million from $10.2 million in the
1997 period. Sales for the three and six month periods ended June 30, 1998 were
impacted by softness in shipments of electronic components caused by fundamental
changes in customer buying patterns and worldwide market conditions. Excluding
the special charge noted above, operating income declined for the three and six
month periods reflecting lower gross profit margins caused by industry-wide
competitive pressures.
Graphics Imaging Group sales for the six months ended June 30, 1998 decreased to
$71.5 million from $78.5 million in the comparable 1997 period, while operating
income increased to $2.7 million from $2.2 million in the 1997 period. For the
three months ended June 30, 1998, sales decreased to $36.3 million from $40.2
million for the comparable 1997 period while operating income increased to $1.6
million from $1.0 million in the 1997 period. Increased operating income was
primarily attributable to reduced operating expenses, particularly at more
recently acquired locations.
Recreational Products Group sales for the six months ended June 30, 1998
increased to $24.9 million from $23.0 million in the comparable 1997 period and
operating income increased to $1.9 million from $1.4 million in the 1997 period.
For the three months ended June 30, 1998, sales increased to $15.1 million from
$13.6 million for the comparable 1997 period and operating income increased to
$1.5 million from $1.2 million in the 1997 period. Increased sales and operating
income reflected strong performance from recently expanded operations in
Michigan and favorable weather conditions.
As a percentage of sales, cost of products sold for the six months ended June
30, 1998 increased to 79.8% from 78.6%, while selling and administrative
expenses as a percent of sales decreased to 15.5% from 16.3%. Lower operating
expenses reflected the Company's cost containment efforts. The Company's income
tax rate was 46.8% for both six month periods presented.
<PAGE> 8
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Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- -----------
<S> <C> <C>
Cash and cash equivalents $ 10,629 $ 5,377
Working capital $187,702 $208,012
Current ratio 2.8:1 3.1:1
Long-term liabilities
to total capitalization 50% 54%
Shareholders' equity per share $ 16.64 $ 16.23
Days' sales in receivables 51 53
Days' sales in inventories 85 93
</TABLE>
Net cash provided by operating activities was $33.8 million for the six months
ended June 30, 1998, compared to $6.7 million for the comparable 1997 period.
Increased operating cash flows resulted primarily from working capital
reductions. Operating cash flows were used to reduce borrowings under the
Company's line of credit and to fund property additions, including improvements
to the new electronics distribution center in Ontario, California. In 1997,
financing cash flows included bank borrowings used to fund the acquisition of
Milgray and the retirement of Senior notes.
In July 1998, the Company signed a letter of intent to sell its Graphics Imaging
Group. The transaction is subject to customary due diligence and is anticipated
to close during the Company's third quarter. Anticipated net proceeds from the
sale will be used to reduce borrowings under the Company's line of credit and
for general corporate purposes.
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> 9
-8-
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 5, 1998 to act on the following matters.
1. Election of Directors.
The six incumbent directors - John J. Cost, Anthony L. Craig,
Gordon Graham, Milton Rosenberg, Herbert S. Davidson and Theodore
Williams - were re-elected. Directors 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 Votes
Directors Votes for against withheld
--------- --------- ------- --------
<S> <C> <C> <C>
John J. Cost 8,181,583 -0- 90,273
Anthony L. Craig 8,187,854 -0- 84,002
Herbert S. Davidson 8,175,337 -0- 96,519
Gordon Graham 8,207,282 -0- 64,574
Milton Rosenberg 8,208,157 -0- 63,699
Theodore Williams 8,206,588 -0- 65,268
</TABLE>
<PAGE> 10
-9-
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: August 5, 1998 /s/GORDON GRAHAM
------------------------------
Gordon Graham,
President and
Chief Executive Officer
DATE: August 5, 1998 /s/ TRACY A. EDWARDS
------------------------------
Tracy A. Edwards,
Executive Vice President-Finance
and Operations, and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,629
<SECURITIES> 0
<RECEIVABLES> 117,271
<ALLOWANCES> 2,199
<INVENTORY> 157,111
<CURRENT-ASSETS> 291,827
<PP&E> 70,028
<DEPRECIATION> 25,654
<TOTAL-ASSETS> 415,991
<CURRENT-LIABILITIES> 104,125
<BONDS> 155,355
0
0
<COMMON> 101,217
<OTHER-SE> 55,294
<TOTAL-LIABILITY-AND-EQUITY> 415,991
<SALES> 423,751
<TOTAL-REVENUES> 423,751
<CGS> 338,058
<TOTAL-COSTS> 338,058
<OTHER-EXPENSES> 70,836
<LOSS-PROVISION> 754
<INTEREST-EXPENSE> 6,675
<INCOME-PRETAX> 8,182
<INCOME-TAX> 3,830
<INCOME-CONTINUING> 4,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,352
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
