<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 September 30, 1998
Commission file number 1-11471
BELL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-2039211
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2201 East El Segundo Blvd., El Segundo, California 90245-4608
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(Address of principal executive offices) (Zip Code)
</TABLE>
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 9, 1998: 9,488,306 shares.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Bell Industries, Inc.
Consolidated Statement of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------------- ----------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 168,895 $ 185,734 $ 521,172 $ 559,523
--------------- --------------- ---------------- ---------------
Costs and expenses
Cost of products sold 136,766 144,713 414,982 434,502
Selling and administrative 26,741 29,539 83,745 93,255
Depreciation and amortization 2,141 2,177 6,995 6,937
Interest expense 2,992 3,221 9,667 8,810
Business system and
corporate resizing charges 13,800 13,800
Integration charge 4,100
--------------- --------------- ---------------- ---------------
182,440 179,650 529,189 547,604
--------------- --------------- ---------------- ---------------
Income(loss)from continuing
operations before income taxes
and extraordinary loss (13,545) 6,084 (8,017) 11,919
Income tax provision (benefit) (4,475) 2,876 (1,732) 5,715
--------------- --------------- ---------------- ---------------
Income(loss)from continuing
operations before extraordinary loss (9,070) 3,208 (6,285) 6,204
Income from discontinued
operations, net of tax 330 600 1,897 1,902
Gain on sale of discontinued
operations, net of tax 1,748 1,748
Loss on early retirement
of debt, net of tax (675)
--------------- --------------- ---------------- ---------------
Net income (loss) $ (6,992) $ 3,808 $ (2,640) $ 7,431
=============== =============== ================ ===============
Share and Per Share Data
BASIC
Income (loss) from continuing
operations before
extraordinary loss $ (0.96) $ 0.35 $ (0.67) $ 0.68
Income from discontinued
operations 0.03 0.07 0.20 0.21
Gain on sale of discontinued
operations 0.19 0.19
Loss on early retirement
of debt (0.07)
--------------- --------------- ---------------- ---------------
Net income (loss) $ (0.74) $ 0.42 $ (0.28) $ 0.82
=============== =============== ================ ===============
Weighted average common
shares 9,442 9,171 9,385 9,118
=============== =============== ================ ===============
DILUTED
Income (loss) from continuing
operations before
extraordinary loss $ (0.96) $ 0.34 $ (0.67) $ 0.66
Income from discontinued
operations 0.03 0.06 0.20 0.20
Gain on sale of discontinued
operations 0.19 0.19
Loss on early retirement
of debt (0.07)
--------------- --------------- ---------------- ---------------
Net income (loss) $ (0.74) $ 0.40 $ (0.28) $ 0.79
=============== =============== ================ ===============
Weighted average common
shares 9,442 9,494 9,385 9,401
=============== =============== ================ ===============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
-2-
Bell Industries, Inc.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,957 $ 5,377
Accounts receivable,
less allowance for doubtful
accounts of $2,009 and $2,673 89,033 120,900
Net receivable from sale of Graphics 12,257
Inventories 131,064 173,801
Prepaid expenses and other 11,052 8,990
--------------- ---------------
Total current assets 248,363 309,068
--------------- ---------------
Properties, net 35,215 42,079
Goodwill 67,540 72,758
Other assets 9,411 7,328
--------------- ---------------
$ 360,529 $ 431,233
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51,799 $ 67,121
Accrued liabilities and payroll 27,315 26,435
Current portion of long-term liabilities 9,375 7,500
--------------- ---------------
Total current liabilities 88,489 101,056
--------------- ---------------
Long-term debt 114,710 172,330
Deferred compensation and other 7,105 6,495
Shareholders' equity:
Preferred stock
Authorized - 1,000,000 shares
Outstanding - none
Common stock
Authorized - 35,000,000 shares
Outstanding -9,488,306 and 9,326,391 shares 101,925 100,410
Reinvested earnings 48,300 50,942
--------------- ---------------
Total shareholders' equity 150,225 151,352
--------------- ---------------
Commitments and contingencies
$ 360,529 $ 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>
Nine months ended
September 30
------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,640) $ 7,431
Depreciation and amortization 4,835 4,750
Amortization of intangibles 2,850 2,795
Provision for losses on accounts receivable 1,221 1,541
Gain on sale of discontinued operations (1,748)
Business system charge 8,000
Integration charge 4,100
Loss on early retirement of debt 675
Changes in assets and liabilities,
net of acquisitions and discontinued operations 17,722 (22,302)
------------ -----------
Net cash provided by (used in)
operating activities 30,240 (1,010)
------------ -----------
Cash flows from investing activities:
Proceeds from sale of discontinued operations 30,148
Purchases of properties (6,596) (12,970)
Purchase of business (100,404)
------------ -----------
Net cash provided by (used in)
investing activities 23,552 (113,374)
------------ -----------
Cash flows from financing activities:
Bank borrowings (payments), net (55,745) 130,807
Employee stock plans and other 1,533 2,439
Payments on Senior Notes (24,700)
------------ -----------
Net cash provided by (used in)
financing activities (54,212) 108,546
------------ -----------
Net decrease in cash and cash equivalents (420) (5,838)
Cash and cash equivalents at beginning of period 5,377 12,097
------------ -----------
Cash and cash equivalents at end of period $ 4,957 $ 6,259
============ ===========
Changes in assets and liabilities, net of acquisitions
and discontinued operations:
Accounts receivable $ 6,420 $ (12,969)
Inventories 20,393 (12,718)
Accounts payable (2,975) 4,533
Accrued liabilities and other (6,116) (1,148)
------------ ------------
Net change $ 17,722 $ (22,302)
============ ===========
Supplemental cash flow information:
Interest paid $ 9,834 $ 8,524
Income taxes paid $ -0- $ 3,673
</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 Policies
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. For the three and nine month periods ended September 30, 1998
potentially dilutive securities were not included in the computation of the
weighted average number of shares, as inclusion of such amounts would be
antidilutive.
Proposed Sale of Electronics Distribution Group
On October 1, 1998, the Company agreed to sell its Electronics Distribution
Group ("EDG"). The purchase price is approximately $185 million in cash and the
assumption of substantially all of the liabilities of EDG, subject to post
closing adjustments. The sale requires the approval of the Company's
shareholders, along with customary regulatory review and is expected to close in
early 1999.
Sale of Graphics Imaging Group
On September 14, 1998, the Company sold substantially all of the assets of its
Graphics Imaging Group ("Graphics"). The net purchase price is approximately $40
million, subject to post closing adjustments and results in a $3.0 million
pre-tax gain ($1.7 million net of tax). The results of Graphics have been
classified as discontinued operations in the accompanying financial statements.
For the nine months ended September 30, 1998 and 1997, Graphics had sales of
$99.6 million and $118.2 million, respectively. For 1998, sales are included
through the date of sale.
Non-cash Investing and Financing Activities
For the nine months ended September 30, 1998 and in connection with the sale of
Graphics, non-cash investing activities included the recording of a net
receivable, totaling $12,257 at September 30, 1998, collectible over the 90 day
period following the sale. 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 their estimated fair market values of $6.2 million.
<PAGE> 6
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
In September 1998, Bell completed the disposition of its Graphics Imaging Group
("Graphics"). Accordingly, the results of Graphics have been classified as
discontinued operations in the accompanying financial statements. The
Electronics segment set forth below includes the Company's Electronics
Distribution Group, computer integration business, and electronics manufacturing
business. On October 1, 1998, the Company entered into an agreement to sell its
Electronics Distribution Group ("EDG") to Arrow Electronics, Inc. The sale
requires the approval of the Company's shareholders, along with customary
regulatory review and is expected to close in early 1999.
Results of operations by business segment for the three months and nine months
ended September 30, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------------- ---------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Electronics(1) $ 155,851 $ 172,355 $ 483,275 $ 523,134
Recreational Products 13,044 13,379 37,897 36,389
---------------- --------------- ---------------- ---------------
$ 168,895 $ 185,734 $ 521,172 $ 559,523
================ =============== ================ ===============
Operating income
Electronics (1, 2) $ 649 $ 11,259 $ 17,243 $ 26,857
Recreational Products 809 1,031 2,717 2,452
---------------- --------------- ---------------- ---------------
1,458 12,290 19,960 29,309
Corporate costs (2,111) (2,985) (8,410) (8,580)
Interest expense (2,992) (3,221) (9,667) (8,810)
Business system and corporate
resizing charges (3) (9,900) (9,900)
Income tax provision (benefit) (4,475) 2,876 (1,732) 5,715
---------------- --------------- ---------------- ---------------
Income (loss) from continuing
operations before
extraordinary loss (9,070) 3,208 (6,285) 6,204
Income from discontinued
operations, net of tax 330 600 1,897 1,902
Gain on sale of discontinued
operations, net of tax 1,748 1,748
Loss on early retirement
of debt, net of tax (675)
---------------- --------------- ---------------- ---------------
Net income (loss) $ (6,992) $ 3,808 $ (2,640) $ 7,431
================ =============== ================ ===============
</TABLE>
NOTES:(1) Includes the results of the Company's computer integration and
electronics manufacturing businesses which had net sales and
operating income of $122.9 million and $6.8 million, for the nine
months ended September 30, 1998, and $113.8 million and $7.9
million for the corresponding period in 1997.
(2) Includes $3.9 million of employee separation and related exit
costs in the third quarter 1998 and $4.1 million integration
charge in the first quarter of 1997.
(3) Includes $8.0 million charge for discontinuance of business system
and $1.9 million of employee separation and related exit costs in
the third quarter of 1998.
<PAGE> 7
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For the three months ended September 30, 1998, the Company's net sales decreased
to $168.9 million from $185.7 million in the prior year. Operating income,
excluding a special charge of $3.9 million for employee separation costs in the
electronics group, was $5.4 million, compared with $12.3 million last year.
Excluding special charges, pretax income from continuing operations was
$255,000, compared with $6.1 million last year. Net sales for the nine months
ended September 30, 1998, decreased to $521.2 million from $559.5 million in
1997, while operating income excluding special charges decreased to $23.9
million as compared to $33.4 million in the comparable 1997 period. Excluding
special charges, pretax income from continuing operations was $5.8 million,
compared with $16.0 million for the prior year period.
The Company's operating results from continuing operations, before special and
extraordinary charges, were negatively impacted by continued softness in the
electronics distribution business and reduced gross profit margins caused by
competitive market conditions. Partially offsetting these factors were generally
lower operating expenses.
In the third quarter of 1998, the Company incurred a pretax charge of $8.0
million to write off the investment and provide for related commitments for the
discontinuance of the use and development of the SAP business system. In
addition, the Company recorded a special pretax charge of $5.8 million for
employee separation and related exit costs associated with a resizing program
for electronics ($3.9 million) and corporate ($1.9 million) operations.
Also, in the third quarter of 1998, the Company completed the sale of its
Graphics business for a net purchase price of approximately $40 million,
resulting in a pretax gain of approximately $3.0 million (after-tax $1.7
million, or $.19 per share). The final purchase price is subject to certain post
closing adjustments which are not expected to be material.
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.
<PAGE> 8
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Sales of the Electronics Group for the three months ended September 30, 1998,
decreased to $155.9 million as compared to $172.4 million in the comparable 1997
period and operating income, before the special charges discussed above,
decreased to $4.5 million from $12.3 million in the 1997 period. For the nine
months ended September 30, 1998, sales decreased to $483.3 million as compared
to $523.1 million in the comparable 1997 period while operating income before
the special charges discussed above, decreased to $21.1 million from $31.0
million in the 1997 period. Sales for the three and nine month periods ended
September 30, 1998 were impacted by industry-wide market weakness resulting in
reduced shipments of electronic components. Excluding the special charges noted
above, operating income declined for the three and nine month periods reflecting
lower gross profit margins caused by intensified competitive pricing pressures.
Recreational Products Group sales for the three months ended September 30, 1998
decreased to $13.0 million from $13.4 million for the comparable 1997 period and
operating income decreased to $0.8 million from $1.0 million in the 1997 period.
Operating results in the third quarter of 1998 were negatively impacted by the
effect of warmer weather conditions on winter product shipments. For the nine
months ended September 30, 1998 sales increased to $37.9 million from $36.4
million in the comparable 1997 period and operating income increased to $2.7
million from $2.5 million in the 1997 period. Growth for the nine month period
is primarily attributable to the Company's expansion to Michigan.
As a percentage of sales, cost of products sold for the nine months ended
September 30, 1998 increased to 79.6% from 77.7%, while selling and
administrative expenses, as a percent of sales, decreased to 16.1% from 16.7%.
Lower operating expenses reflected the Company's cost reduction efforts and
resizing programs. In 1998, the Company recorded a 21.6% tax benefit compared to
a 47.9% tax provision for the comparable 1997 period. The effective tax rates
differ from the combined statutory rate of approximately 40% due primarily to
the effect of non-deductible goodwill relative to accounting income or loss for
the period.
Selected financial position data is set forth in the following table (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 4,957 $ 5,377
Working capital $ 159,874 $ 208,012
Current ratio 2.8:1 3.1:1
Long-term liabilities
to total capitalization 45% 54%
Shareholders' equity per share $ 15.83 $ 16.23
Days' sales in receivables 50 53
Days' sales in inventories 88 93
</TABLE>
<PAGE> 9
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Net cash provided by operating activities was $30.2 million for the nine months
ended September 30, 1998, compared to net cash used in operating activities of
$1.0 million for the comparable 1997 period. Increased operating cash flows
resulted from working capital reductions, primarily inventory. Operating cash
flows were used to reduce borrowings under the Company's line of credit and to
fund property additions, including improvements to the Company's electronics
distribution center in Ontario, California. In 1998, investing cash flows
included proceeds from the sale of Graphics which were used to reduce borrowings
under the Company's line of credit. In 1997, financing cash flows included bank
borrowings used to fund the acquisition of Milgray and the retirement of senior
notes.
In October 1998, the Company agreed to sell its Electronics Distribution Group.
The transaction is subject to shareholder approval, along with customary
regulatory review and is anticipated to close early in 1999. The Company will
use a portion of the net proceeds from the sale to pay off its indebtedness
under its credit facility. In addition, the Company intends to make a cash
distribution to shareholders ranging between $50 million to $60 million
approximately 90 days after the closing. The Company expects to record a
significant accounting loss on the transaction of approximately $60 to $65
million before tax effects.
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.
Certain matters discussed herein contain forward looking information that
involves risks and uncertainties that could cause actual results to differ
materially from current trends. These include, but are not limited to,
consummating the sale of the electronics distribution business, the proposed
cash distributions to shareholders, and other risks.
<PAGE> 10
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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:
Form 8-K/A, event date: September 14, 1998, filed in
connection with the sale of the Graphics Imaging Group.
Form 8-K/A, event date: October 1, 1998, filed in
connection with the sale of the Electronics
Distribution Group.
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 13, 1998 /s/GORDON GRAHAM
- ----- ----------------- --------------------
Gordon Graham,
President and
Chief Executive Officer
DATE: November 13, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,957
<SECURITIES> 0
<RECEIVABLES> 91,042
<ALLOWANCES> 2,009
<INVENTORY> 131,064
<CURRENT-ASSETS> 248,363
<PP&E> 55,115
<DEPRECIATION> 19,960
<TOTAL-ASSETS> 360,529
<CURRENT-LIABILITIES> 88,489
<BONDS> 121,815
0
0
<COMMON> 101,925
<OTHER-SE> 48,300
<TOTAL-LIABILITY-AND-EQUITY> 360,529
<SALES> 521,172
<TOTAL-REVENUES> 521,172
<CGS> 414,982
<TOTAL-COSTS> 414,982
<OTHER-EXPENSES> 104,540
<LOSS-PROVISION> 1,221
<INTEREST-EXPENSE> 9,667
<INCOME-PRETAX> (8,017)
<INCOME-TAX> (1,732)
<INCOME-CONTINUING> (6,285)
<DISCONTINUED> 3,645
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,640)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
