-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzaCMdUj6G7+nuVu5QfeBYJV8QlwfUoK/xWfLnZYLtHsalLLW2nbCszV8mC8yFIt GvUcmS55mbGrhKo4iqkzeg== 0000950150-97-000378.txt : 19970325 0000950150-97-000378.hdr.sgml : 19970325 ACCESSION NUMBER: 0000950150-97-000378 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL INDUSTRIES INC CENTRAL INDEX KEY: 0000945489 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 954530889 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11471 FILM NUMBER: 97561521 BUSINESS ADDRESS: STREET 1: 11812 SAN VICENTE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90049-5069 BUSINESS PHONE: 3108262355 MAIL ADDRESS: STREET 1: 11812 SAN VICENTE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90049-5069 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA BELL INDUSTRIES INC DATE OF NAME CHANGE: 19950519 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-11471 BELL INDUSTRIES, INC. ------------------------- (Exact Name of Registrant as specified in charter) CALIFORNIA 95-2039211 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER 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 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------------------------------------------------------- Common stock New York Stock Exchange Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE. 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, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein. NOT APPLICABLE X As of March 12, 1997, the aggregate market value of the voting stock held by non-affiliates of the Registrant was: $158,939,000. As of March 12, 1997, the number of shares outstanding of the Registrant's class of common stock was: 7,579,684. DOCUMENT INCORPORATED BY REFERENCE Proxy Statement for the 1997 Annual Meeting of Shareholders, May 13, 1997. PART III ================================================================================ 2 PART I ITEM 1. BUSINESS Bell Industries, Inc. ("Bell" or "the Company") is primarily a national distributor of electronic components. In addition, Bell also distributes graphics and electronic imaging and recreational-related products. At December 31, 1996 Bell employed approximately 1,600 people. ELECTRONICS The Electronics Group (74% of 1996 sales) includes one of the nation's largest electronic components distributors. The Electronics Group sells the following products to over 15,000 customers nationally: semiconductors (Analog Devices, Cyrix, IBM Microelectronics, Maxim, Microchip, Samsung, SGS-Thomson); passive components (Aromat, Bourns, Kemet, Vishay); connectors (Berg); microcomputers and related products (Apple, Compaq, Hewlett-Packard, IBM); power supplies (Power-One) and board-level products. The group provides value-added services including: kitting; turnkey; SMART (automated replenishment system); assembly of custom cables; harnesses and connectors; contract purchasing; and direct programming of chips. Group manufacturing operations produce precision stampings used in the personal computer industry and electronic components including coils, filters and chokes marketed under the J.W. Miller name. The group's microcomputer distribution and services business specializes in the sale and support of computer hardware, software and peripherals, as well as in-house and on-site training, help desk and application development to business and educational markets. The Electronics Group's distribution business is based in Los Angeles, California and markets electronic components from more than 25 sales facilities located throughout the United States. The group's microcomputer distribution and services business is based in Indianapolis, Indiana and provides sales and services through six facilities located in Indiana, Ohio, Kentucky, Maryland, Virginia and Wisconsin. Electronic manufacturing facilities are located in Mountain View and Gardena, California. The group's electronics distribution business markets electronic components supplied by over 70 manufacturers and stocks over 50,000 items at a primary distribution center located in Southern California. During 1996, the group's ten largest electronic component suppliers accounted for approximately 50% of group sales. In January 1997, the Company completed the acquisition of Milgray Electronics, Inc. ("Milgray"), a publicly-traded distributor of electronic components. The purchase price for the stock of Milgray was approximately $100 million. Fiscal 1996 revenues for Milgray were $272 million. The Company and Milgray, while operating in many of the same markets, have different customer bases and complementary product lines. Milgray's major suppliers of electronic components and computer products include Dallas Semiconductor, NEC, SGS-Thomson, and Sharp. Milgray markets products from facilities located throughout the United States and in Canada. At December 31, 1996, Milgray employed approximately 500 people. GRAPHICS AND ELECTRONIC IMAGING The Graphics and Electronic Imaging Group (19% of 1996 sales) distributes graphics and electronic imaging supplies and equipment throughout the upper Midwest and Western United States to the advertising and printing industries. The group is based in Los Angeles, California and markets its products through fifteen sales locations. Major product lines distributed by the group include film, plates, chemicals and other printing supplies from Agfa, DuPont, Eastman Kodak, Konica, and Imation, as well as prepress and related electronic imaging equipment from Agfa, Apple, Creo, Intergraph, Silicon Graphics, and Screen. RECREATIONAL PRODUCTS The Recreational Products Group (7% of 1996 sales) distributes after-market products for the recreational vehicle, mobile home, motorcycle, snowmobile, and marine industries from facilities in St. Paul, Minnesota, Grand Rapids, Michigan and Milwaukee, Wisconsin. The group supplies more than 9,000 recreational vehicle-related products, as well as over 8,500 marine items, 11,000 motorcycle items, and 4,000 1 3 snowmobile items. Major product lines distributed by the group include Bieffe Helmets, Dunlop, Nordyne, NGK, and Whirlpool. DISTRIBUTION Bell has distribution agreements with its suppliers that typically are renewable annually, specify geographic coverage and provide for inventory pricing, rotation and return privileges. Distribution agreements are nonexclusive and are generally cancelable by either party at any time or on short notice. The loss of a major supplier would likely adversely impact the operating results of the Company for some period. The Company believes that alternative sources for most, if not all, products would be available through other suppliers. In June 1996, the Company announced it had been awarded an all-location franchise to distribute a broad variety of semiconductors manufactured by Samsung Semiconductor, Inc. Management believes that the addition of the Samsung line broadens the Company's product portfolio and complements existing product lines, thereby increasing the Company's customer base and creating additional opportunities for growth. In July 1996, National Semiconductor ("National"), the Company's largest supplier of electronic components, terminated, without notice or explanation, the Company's franchise to distribute National products (sales of National products totaled approximately 8% of consolidated net sales in 1995). In early 1997, subsequent to the acquisition of Milgray, the Company was notified that franchises to distribute products from two of Milgray's suppliers would be terminated as a result of marketing conflicts with the Samsung line. Shipments of products from these two suppliers represented approximately 13% of Milgray's 1996 revenues (or 4% of the pro forma revenues of Bell and Milgray combined). While the loss of the National franchise negatively impacted sales and profit levels in 1996 and that loss, coupled with the loss of the two Milgray suppliers, may adversely impact 1997 when compared to the pro forma results for 1996, management believes that the loss of these product sales will be mitigated in the longer-term through the substitution of existing competing product lines and from sales of Samsung products, once fully integrated. Moreover, the Company is currently implementing plans to bring Bell and Milgray to market on a combined basis to more fully realize the product marketing benefits resulting from the merger. ITEM 2. PROPERTIES At December 31, 1996, the Company leased 70 facilities containing approximately 736,000 square feet and owned seven facilities containing an aggregate of approximately 228,000 square feet. The facilities utilized by each of the Company's business segments are set forth in the following table:
AREA IN SQUARE FEET (NUMBER OF LOCATIONS) ----------------------------------- OWNED LEASED --------------- --------------- Electronics Group................................... 47,000 (3) 304,000 (45) Graphics and Electronic Imaging Group............... 62,000 (2) 155,000 (15) Recreational Products Group......................... 67,000 (1) 160,000 (4) Corporate........................................... 52,000 (1) 36,000 (3) Discontinued operations............................. 81,000 (3) ------- -- ------- --- 228,000 (7) 736,000 (70) ======= == ======= ===
For the most part, the Company's facilities are fully utilized, although excess capacity exists from time to time, based on product mix and demand. Management believes that these properties are in good condition and suitable for their present use. The Company has subleased all facilities related to discontinued operations. In 1996, the Company acquired a 52,000 square foot building in El Segundo, California to consolidate national service center and computer operations to a larger facility. When renovations are complete, the Company expects to occupy the new facility and sublease the current Corporate office later in 1997. 2 4 In February 1997, the Company acquired a 265,000 square foot distribution center in Ontario, California to increase shipping capacity in view of the Milgray acquisition and the Electronics Group's anticipated growth. The Company plans to renovate the facility before consolidating Bell and Milgray logistical operations later in 1997. Initially, a portion of the warehouse will be subleased. In connection with the acquisition of Milgray, the Company acquired 33 facilities containing 80,000 square feet in owned space and 125,000 square feet in leased space. These facilities are located in the United States and Canada and include warehouse, assembly and office space. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any litigation of a material nature which might affect its financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The Executive Officers of the Registrant, all of whom hold office until the meeting of the Board of Directors following the next annual meeting of shareholders and until their successors have been elected or appointed, are as follows:
YEAR FIRST NAMED NAME AGE POSITION OFFICER - ------------------- --- --------------------------------------- ---------- Paul F. Doucette 50 Senior Vice President(1) 1981 Tracy A. Edwards 40 Vice President and Chief Financial 1991 Officer Gordon M. Graham 62 President and Chief Operating 1986 Officer(2,4) D. J. Hough 60 Vice President and Chief Information 1984 Officer Stephen A. Weeks 47 Treasurer(3) 1994 Theodore Williams 76 Chief Executive Officer(2) 1969
- --------------- (1) Mr. Doucette's wife is the niece of Mr. Williams. (2) Also serves as a member of the Board of Directors. (3) Mr. Weeks was employed in several accounting management positions for the five years prior to his appointment as Treasurer. (4) Mr. Graham, for the five years prior to his appointment as President and Chief Operating Officer served as Senior Vice President. Upon the acquisition of Milgray, Mr. Richard Hyman (53), formerly Executive Vice President and Chief Operating Officer of Milgray, was named Executive Vice President of Bell's Electronics Distribution Group with overall responsibility for sales and marketing. 3 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Bell's common stock (ticker symbol BI) is listed on the New York and Pacific Stock Exchanges. The following table shows the high, low and closing market prices for the Company's common stock during the eight most recent quarters.
QUARTER ENDED ----------------------------------------------- MAR. 31 JUN. 30 SEP. 30 DEC. 31 -------- -------- -------- -------- Year ended December 31, 1996 High................................. $22.14 $ 22.00 $ 18.50 $21.75 Low.................................. 19.28 16.50 15.00 15.25 Close................................ 20.36 16.75 15.50 21.38 Year ended December 31, 1995 High................................. $20.97 $ 20.83 $ 24.41 $22.38 Low.................................. 17.58 16.89 20.00 18.92 Close................................ 19.28 20.36 20.83 21.42
In May 1995, the Company declared a 5% stock dividend payable to shareholders of record on May 26, 1995. In May 1996, the Company declared a 5% stock dividend payable to shareholders of record on May 24, 1996. Per share prices in the table above were adjusted for periods prior to the declaration of each stock dividend. Approximate number of record holders of common stock as of March 12, 1997: 1,500. 4 6 ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
SIX MONTHS YEAR ENDED DECEMBER 31 ENDED YEAR ENDED JUNE 30 ------------------------------ DEC. 31 ------------------------------ 1996 1995 1994(3) 1994(3) 1994 1993 1992 -------- -------- -------- ---------- -------- -------- -------- OPERATING RESULTS Net sales.............................. $623,193 $564,325 $497,566 $255,372 $451,153 $365,323 $353,347 Income from continuing operations, net of taxes(1).......................... $ 15,927 $ 14,971 $ 10,945 $ 5,309 $ 9,075 $ 5,005 $ 919 Net income (loss)...................... $ 15,927 $ 14,971 $ 11,255 $ 5,619 $ 9,075 $ (5,025) $ 417 Capital expenditures................... $ 9,573 $ 5,019 $ 2,481 $ 1,375 $ 2,562 $ 5,744 $ 8,669 Depreciation and amortization.......... $ 6,228 $ 5,940 $ 5,734 $ 2,891 $ 5,574 $ 5,735 $ 4,935 FINANCIAL POSITION Working capital........................ $132,856 $136,227 $116,118 $116,118 $107,455 $ 97,710 $114,715 Total assets........................... $241,310 $233,882 $200,367 $200,367 $184,713 $175,272 $191,557 Long-term liabilities.................. $ 30,584 $ 43,490 $ 40,936 $ 40,936 $ 39,972 $ 47,569 $ 52,592 Shareholders' equity................... $138,461 $117,569 $101,770 $101,770 $ 95,553 $ 86,288 $ 92,338 SHARE AND PER SHARE DATA(2) Income from continuing operations, net of taxes............................. $ 2.10 $ 2.01 $ 1.50 $ .73 $ 1.25 $ .70 $ .13 Net income (loss)...................... $ 2.10 $ 2.01 $ 1.54 $ .77 $ 1.25 $ (.70) $ .06 Cash dividends declared................ $ .20 $ .40 Shareholders' equity................... $ 18.42 $ 16.23 $ 14.20 $ 14.20 $ 13.43 $ 11.63 $ 12.53 Market price -- high................... $ 22.14 $ 24.41 $ 20.75 $ 20.75 $ 17.06 $ 12.21 $ 11.45 Market price -- low.................... $ 15.00 $ 16.89 $ 13.15 $ 14.29 $ 11.56 $ 7.68 $ 7.85 Weighted average common shares outstanding (000's).................. 7,591 7,450 7,293 7,325 7,250 7,160 7,135 FINANCIAL RATIOS Current ratio.......................... 2.8 2.9 3.0 3.0 3.2 3.4 3.5 Return on average shareholders' equity............................... 12.4% 13.7% 11.7% 11.3% 10.0% (5.6)% 0.4% Long-term liabilities to total capitalization....................... 18.1% 27.0% 28.7% 28.7% 29.5% 35.5% 36.3%
- --------------- (1) Includes before-tax gain on sale of division ($3,050) in 1995, and before-tax provisions for lease commitment ($2,800) in 1995 and computer write-down ($4,400) in 1992. (2) Adjusted to give effect to 5% stock dividends declared in May 1996 and 1995, and October 1994, and 4% stock dividend declared in July 1993 (excluding cash dividend data). (3) During the six months ended December 31, 1994, the Company changed its year end from June 30 to December 31. Information derived from unaudited financial statements for the year ended December 31, 1994 is presented for comparative purposes. 5 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION During the six months ended December 31, 1994, the Company changed its year end from June 30 to December 31. This resulted in the six month reporting period included in this Annual Report on Form 10-K. Financial information for the six months ended December 31, 1993 and the year ended December 31, 1994 is unaudited. This analysis contains forward looking comments which are based on current trends. Actual results may differ materially. RESULTS OF OPERATIONS Results of operations by business segment were as follows (in thousands):
YEAR ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 ------------------------------ ------------------- 1996 1995 1994 1994 1993 -------- -------- -------- -------- -------- Net sales Electronics............................... $462,358 $448,390 $399,227 $205,211 $163,952 Graphics and Electronic Imaging........... 117,131 73,359 59,743 30,431 29,452 Recreational Products..................... 43,704 42,576 38,596 19,730 15,555 -------- -------- -------- -------- -------- $623,193 $564,325 $497,566 $255,372 $208,959 ======== ======== ======== ======== ======== Operating income Electronics (1)........................... $ 33,045 $ 35,450 $ 26,261 $ 13,176 $ 10,656 Graphics and Electronic Imaging........... 3,608 1,994 1,836 910 479 Recreational Products..................... 3,380 3,536 3,580 1,586 1,056 -------- -------- -------- -------- -------- 40,033 40,980 31,677 15,672 12,191 Corporate costs............................. (8,899) (8,756) (8,722) (4,632) (3,885) Interest expense............................ (3,673) (3,612) (4,053) (1,886) (2,325) Lease commitment provision.................. (2,800) Income tax provision........................ (11,534) (10,841) (7,957) (3,845) (2,542) -------- -------- -------- -------- -------- Income from continuing operations........... 15,927 14,971 10,945 5,309 3,439 Discontinued operations..................... 310 310 -------- -------- -------- -------- -------- Net income.................................. $ 15,927 $ 14,971 $ 11,255 $ 5,619 $ 3,439 ======== ======== ======== ======== ========
A summary of comparative operating results data follows: Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of products sold..................... (77.9) (77.4) (77.7) (77.8) (77.5) Selling, general and administrative expenses............................... (17.1) (17.5) (17.7) (17.9) (18.6) Interest expense.......................... (0.6) (0.6) (0.8) (0.7) (1.1) Lease commitment provision................ (0.5) Gain on sale of division.................. 0.5 -------- -------- -------- -------- -------- Income from continuing operations before income taxes.............................. 4.4 4.5 3.8 3.6 2.8 Income tax provision........................ (1.9) (1.9) (1.6) (1.5) (1.2) -------- -------- -------- -------- -------- Income from continuing operations........... 2.5% 2.6% 2.2% 2.1% 1.6% ======== ======== ======== ======== ========
- --------------- (1) Includes gain on sale of division of $3,050 in 1995. 6 8 RECENT DEVELOPMENTS In January 1997, Bell completed the acquisition of Milgray Electronics, Inc. a publicly-traded distributor of electronic components. The purchase price for the stock of Milgray was approximately $100 million. Milgray's revenues for the twelve months ended December 31, 1996 were $272 million. On a pro forma basis, assuming the Milgray acquisition had occurred on January 1, 1995, the combined revenues of Bell were $895 million for 1996 compared to $820 million for the prior year. Pro forma net income decreased slightly to $17.1 million, or $2.25 per share, from $17.5 million, or $2.35 per share, in 1995. The decline in operating results was attributed to weakness in the electronics market during 1996, particularly during the third and fourth quarters, which negatively impacted sales of electronic components, and specifically in Milgray's case, sales of memory related products. The trend of reduced shipments of electronic components, particularly memory and related semiconductor products, is expected to continue during the first half of 1997. While the Company is experiencing softer sales in early 1997, bookings and backlog have strengthened when compared to the last few months of 1996. In the first quarter of 1997, the Company expects to finalize integration plans, including lease and employee terminations and combination of distribution centers, resulting from the acquisition of Milgray. In addition, the Company is assessing the impact of supplier terminations resulting from the combination of Bell and Milgray product lines. The Company expects to record a special before-tax charge during the first quarter for costs associated with the integration of Milgray. CALENDAR 1996 COMPARED WITH CALENDAR 1995 For the year ended December 31, 1996, the Company's net sales increased 10% to $623.2 million and operating income decreased 2% to $40 million compared with the prior year. Operating income in 1995 totaled $41 million and included a before-tax gain on sale of division of $3.1 million. Net income increased 6% to $15.9 million, or $2.10 per share, compared to $15 million, or $2.01 per share in 1995. Net income for 1995 included the gain on division sale and a before-tax charge of $2.8 million relating to a lease commitment provision. Sales of the Electronics Group increased 3% to $462.4 million and operating income decreased 7% to $33 million. Excluding the $3.1 million gain on division sale in 1995, operating income increased 2% in 1996. Sales and income performance reflected increased sales of microcomputer systems and services, partially offset by reduced shipments of electronic components. Protracted weakness in the electronics market and the termination of the Company's National Semiconductor franchise impacted shipments of components, particularly during the second half of 1996. Graphics and Electronic Imaging Group sales increased 60% to $117.1 million and operating income increased 81% to $3.6 million. Sales and operating income growth resulted from the group's planned expansion program through strategic business acquisitions and new sales facilities as well as improved market conditions, particularly in California. Recreational Products Group sales for the year increased 3% to $43.7 million while operating income decreased 4% to $3.4 million. Operating results were affected by severe winter weather conditions in the upper Midwest which continued throughout the first half of the year, as well as costs related to expanding into Michigan. Cost of products sold as a percentage of sales increased slightly (77.9% from 77.4%) as a result of product mix changes. Selling, general and administrative expenses as a percentage of sales decreased to 17.1% from 17.5% due to ongoing cost control efforts. The Company's income tax rate was approximately 42% for all periods presented. 7 9 CALENDAR 1995 COMPARED WITH CALENDAR 1994 For the year ended December 31, 1995, the Company's net sales increased 13% to $564.3 million and operating income increased 29% to $41 million over the prior year. Operating income in 1995 included a before-tax gain of $3.1 million on the sale of a division. Net income increased 33% to $15 million, or $2.01 per share, compared to $11.3 million, or $1.54 per share. Net income for 1995 included the gain on division sale and a before-tax charge of $2.8 million relating to a lease commitment provision. Net income for 1994 included a reserve recovery of $0.3 million, or $.04 per share. Sales of the Electronics Group increased 12% to $448.4 million and operating income increased 35% to $35.5 million including the gain on sale of division. The improved sales performance was attributed to substantially stronger shipments of the group's core electronic components resulting from the increased effectiveness of the group's marketing efforts, partially offset by reduced sales of memory and microprocessor products. In addition, the group recorded increased revenues from microcomputer systems and services. Excluding the gain on sale of division, operating income improvement was primarily attributed to stronger sales and increased gross margins arising from product mix changes, primarily decreased sales of lower margin memory and microprocessor products. Graphics and Electronic Imaging Group sales increased 23% to $73.4 million and operating income increased 9% to $2 million. Sales growth was attributed to a stronger California market for graphic supplies, increased sales of electronic imaging equipment and geographic expansion into new markets in the western United States. Operating income margins declined as a result of the group's investment and expansion into new geographic markets. Recreational Products Group sales for the year increased 10% to $42.6 million while operating income was unchanged at approximately $3.5 million. Operating results were impacted by lower gross margins and costs incurred to penetrate new geographic markets during the year. In October 1995, the Company sold the assets of one division which manufactures switches, push-buttons and electroluminescent panels used in commercial aircraft. Total cash proceeds were approximately $7.7 million resulting in a gain before income taxes of approximately $3.1 million in the fourth quarter. Operating results for the division were not material to the Company's consolidated results of operations. During the fourth quarter of 1995, the Board of Directors approved a plan to purchase a building to consolidate the national service and computer center operations at a larger facility. The Company purchased a facility in El Segundo, California and planned to sublease the present corporate offices for the remaining lease term. This resulted in the lease commitment provision of $2.8 million. 8 10 SIX MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 1993 For the six months ended December 31, 1994, the Company's net sales increased 22% to $255.4 million and operating income increased 29% to $15.7 million over the comparable period in the prior year. The Company recorded income from continuing operations of $5.3 million, or $.73 per share, compared to $3.4 million, or $.48 per share, in the prior year six months. After including an after-tax gain from discontinued operations of $0.3 million, net income for the current six months totaled $5.6 million, or $.77 per share. Sales of the Electronics Group increased 25% to $205.2 million and operating income increased 24% to $13.2 million. The improved performance was attributed to stronger shipments of electronic components, primarily semiconductors. In addition, the group recorded increased sales of microcomputer systems and services. Operating income improvement was primarily attributed to stronger sales offset slightly by reductions in gross margins arising from product mix changes, primarily increased sales of lower margin memory and microprocessor products. Graphics and Electronic Imaging Group sales increased 3% to $30.4 million and operating income increased 90% to $0.9 million. The operating income improvement was primarily attributed to programs to reduce operating expenses implemented in early calendar year 1994. Recreational Products Group sales increased 27% to $19.7 million and operating income increased 50% to $1.6 million as a result of continued efforts to penetrate the recreational vehicle, snowmobile and marine markets served by this group. During 1993, the Company recorded an after-tax charge of $8.1 million in connection with a plan to dispose of its Building Products Group. Income tax benefits of approximately $5.9 million were recorded in connection with the disposal charge. In 1994, the Company completed the disposition of the discontinued operations and recorded a gain of $0.3 million (net of taxes totaling $0.2 million) which represented residual reserves no longer considered necessary. Remaining assets and liabilities attributed to discontinued operations were not material. FISCAL 1994 COMPARED WITH FISCAL 1993 For the year ended June 30, 1994 (fiscal 1994), net sales increased 23% to $451.2 million and operating income increased 27% to $28.2 million. Income from continuing operations, as well as net income, was $9.1 million, or $1.25 per share, compared to income from continuing operations of $5 million, or $.70 per share, in fiscal 1993. After providing for the effects of an accounting change and losses on discontinued operations, the Company recorded a net loss of $5 million, or $.70 per share, in fiscal 1993. Electronics Group sales increased 27% to $358 million and operating income increased 35% to $23.7 million. The improved performance was primarily attributed to strong electronic component shipments, including the first significant sales of memory and microprocessor products. Operating income improvement was attributed to stronger sales, while operating expenses remained unchanged due to the Company's restructuring and cost control programs. These improvements were partially offset by reductions in gross margins in electronic components sales due to product mix changes primarily arising from increased sales of lower margin memory and microprocessor products. Graphics and Electronic Imaging Group sales increased 6% to $58.8 million while operating income decreased 34% to $1.4 million. Margin pressures resulting from adverse economic conditions in California contributed to the overall decrease in operating performance for the group. Results during the last half of fiscal 1994 improved over the first six months as a result of programs to increase gross margins and reduce operating expenses. Sales and operating income for the Recreational Products Group increased 24% to $34.4 million and 20% to $3.1 million, respectively. Sales and income growth resulted from enhanced efforts to penetrate winter product markets and the expansion of certain product lines. 9 11 FINANCIAL CONDITION Selected financial position data is set forth in the following table (dollars in thousands except per share amounts):
DECEMBER 31 --------------------- 1996 1995 -------- -------- Cash and cash equivalents.............................. $ 12,097 $ 4,819 Working capital........................................ $132,856 $136,227 Current ratio.......................................... 2.8:1 2.9:1 Long-term liabilities to total capitalization.......... 18.1% 27.0% Shareholders' equity per share......................... $ 18.42 $ 16.23 Days' sales in receivables............................. 48 50 Days' sales in inventories............................. 76 96
Net cash provided by operating activities was $37.5 million for 1996 compared to $2.9 million for 1995. Increased operating cash flows primarily resulted from reduction in inventory levels to match softer market conditions. Operating cash flows in 1995 were impacted by increased investment in inventories and receivables supporting growth in the Company's business. Cash flows were utilized for scheduled payments on the Company's Senior Notes and capital lease obligations, for payments on bank borrowings, and to fund property acquisitions. Property acquisitions included investment in the Company's information systems as well as the acquisition of a new national service center in El Segundo, California. Additionally, during 1996, the Company acquired five Graphics and Electronic Imaging businesses for cash and the issuance of approximately 153,000 shares of Bell common stock. 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 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 approximately $1 million in make-whole premiums. The Company's initial borrowings under the new facility were approximately $155 million. On a pro forma basis, assuming the Milgray acquisition and new financing were in place on December 31, 1996, the combined assets of the two Companies were approximately $408 million; working capital totaled approximately $200 million; the current ratio was 3.0:1; and the ratio of long-term liabilities to total capitalization was approximately 55%. Bell will continue to seek strategic acquisition opportunities that enhance growth. The Company believes that sufficient cash resources exist to support short-term requirements, including debt and lease payments, and longer term objectives, through available cash, bank borrowings and cash generated from operations. 10 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Report of Independent Accountants................................................... 12 Consolidated Statement of Income for the two years ended December 31, 1996, the six months ended December 31, 1994 and the year ended June 30, 1994.................. 13 Consolidated Balance Sheet at December 31, 1996 and December 31, 1995............... 14 Consolidated Statement of Shareholders' Equity for the two years ended December 31, 1996, the six months ended December 31, 1994 and the year ended June 30, 1994.... 15 Consolidated Statement of Cash Flows for the two years ended December 31, 1996, the six months ended December 31, 1994 and the year ended June 30, 1994.............. 16 Notes to Consolidated Financial Statements.......................................... 17 Financial Statement Schedule: For the two years ended December 31, 1996, the six months ended December 31, 1994 and the year ended June 30, 1994 II -- Valuation and Qualifying Accounts.......................................... 27
The financial data included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. The individual financial statements of the Company have been omitted since the Company is primarily an operating company and the subsidiaries included in the consolidated financial statements are considered wholly owned and deemed to be totally held and do not have indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed five percent of total consolidated assets as of December 31, 1996. 11 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Bell Industries, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Bell Industries, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, for the six months ended December 31, 1994 and for the year ended June 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Los Angeles, California February 4, 1997 12 14 CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SIX MONTHS DECEMBER 31 ENDED YEAR ENDED ------------------------------ DEC. 31 JUNE 30 1996 1995 1994 1994 1994 -------- -------- -------- ---------- ---------- (UNAUDITED) Net sales................................... $623,193 $564,325 $497,566 $255,372 $451,153 -------- -------- -------- -------- -------- Costs and expenses Cost of products sold..................... 485,634 436,568 386,406 198,731 349,573 Selling, general and administrative expenses............................... 106,425 98,583 88,205 45,601 81,359 Interest expense.......................... 3,673 3,612 4,053 1,886 4,492 Lease commitment provision................ 2,800 Gain on sale of division.................. (3,050) -------- -------- -------- -------- -------- 595,732 538,513 478,664 246,218 435,424 -------- -------- -------- -------- -------- Income from continuing operations before income taxes.............................. 27,461 25,812 18,902 9,154 15,729 Income tax provision........................ 11,534 10,841 7,957 3,845 6,654 -------- -------- -------- -------- -------- Income from continuing operations........... 15,927 14,971 10,945 5,309 9,075 Discontinued operations..................... 310 310 -------- -------- -------- -------- -------- Net income.................................. $ 15,927 $ 14,971 $ 11,255 $ 5,619 $ 9,075 ======== ======== ======== ======== ======== SHARE AND PER SHARE DATA Income from continuing operations........... $ 2.10 $ 2.01 $ 1.50 $ .73 $ 1.25 Discontinued operations..................... .04 .04 -------- -------- -------- -------- -------- Net income.................................. $ 2.10 $ 2.01 $ 1.54 $ .77 $ 1.25 ======== ======== ======== ======== ======== Weighted average common shares outstanding............................... 7,591 7,450 7,293 7,325 7,250 ======== ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 13 15 CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31 --------------------- 1996 1995 -------- -------- Current assets Cash and cash equivalents............................................ $ 12,097 $ 4,819 Accounts receivable, less allowance for doubtful accounts of $1,626 and $1,472........................................................ 83,155 78,651 Inventories.......................................................... 104,049 120,153 Prepaid expenses and other........................................... 5,820 5,427 -------- -------- Total current assets......................................... 205,121 209,050 -------- -------- Properties, at cost Land................................................................. 1,397 265 Buildings and improvements........................................... 11,049 6,866 Equipment............................................................ 34,361 28,415 -------- -------- 46,807 35,546 Less accumulated depreciation........................................ (24,758) (22,398) -------- -------- Total properties............................................. 22,049 13,148 -------- -------- Other assets Goodwill, less accumulated amortization of $6,199 and $5,512......... 8,795 6,232 Other................................................................ 5,345 5,452 -------- -------- Total other assets........................................... 14,140 11,684 -------- -------- $241,310 $233,882 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable..................................................... $ 43,839 $ 42,957 Accrued payroll...................................................... 7,663 7,943 Accrued liabilities.................................................. 12,643 12,750 Current portion of long-term liabilities............................. 8,076 6,918 Income taxes payable................................................. 44 2,255 -------- -------- Total current liabilities.................................... 72,265 72,823 -------- -------- Long-term liabilities Notes payable........................................................ 24,571 36,514 Deferred compensation and other...................................... 6,013 6,976 -------- -------- Total long-term liabilities.................................. 30,584 43,490 -------- -------- Shareholders' equity Preferred stock Authorized -- 1,000,000 shares Outstanding -- none Common stock Authorized -- 35,000,000 shares Outstanding -- 7,518,277 and 6,898,094 shares..................... 75,666 63,056 Reinvested earnings.................................................. 62,795 54,513 -------- -------- Total shareholders' equity................................... 138,461 117,569 Commitments and contingencies -------- -------- $241,310 $233,882 ======== ========
See accompanying Notes to Consolidated Financial Statements. 14 16 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK OTHER --------------------- PAID-IN REINVESTED SHARES AMOUNT CAPITAL EARNINGS --------- ------- -------- ---------- Balance at June 30, 1993........................ 6,130,422 $ 1,533 $ 46,981 $ 37,774 Employee stock plans.......................... 15,685 4 186 Net income.................................... 9,075 --------- ------- -------- ------- Balance at June 30, 1994........................ 6,146,107 1,537 47,167 46,849 Employee stock plans.......................... 42,874 10 588 Net income.................................... 5,619 5% stock dividend............................. 308,576 77 6,325 (6,402) --------- ------- -------- ------- Balance at December 31, 1994.................... 6,497,557 1,624 54,080 46,066 Employee stock plans.......................... 74,415 441 388 Net income.................................... 14,971 5% stock dividend............................. 326,122 82 6,441 (6,524) Change in par value of common stock........... 60,909 (60,909) --------- ------- -------- ------- Balance at December 31, 1995.................... 6,898,094 63,056 -- 54,513 Employee stock plans.......................... 115,525 1,933 Net income.................................... 15,927 5% stock dividend............................. 351,510 7,645 (7,645) Purchases of businesses....................... 153,148 3,032 --------- ------- -------- ------- Balance at December 31, 1996.................... 7,518,277 $75,666 $ -- $ 62,795 ========= ======= ======== =======
See accompanying Notes to Consolidated Financial Statements. 15 17 CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS YEAR ENDED DECEMBER 31 ENDED YEAR ENDED ------------------------------ DEC. 31 JUNE 30 1996 1995 1994 1994 1994 -------- -------- -------- ---------- ---------- (UNAUDITED) Cash flows from operating activities: Net income................................ $ 15,927 $ 14,971 $ 11,255 $ 5,619 $ 9,075 Depreciation and amortization............. 5,541 5,342 5,165 2,615 5,011 Amortization of intangibles............... 687 598 569 276 563 Provision for losses on accounts receivable............................. 1,235 1,716 744 606 755 Gain on sale of division.................. (3,050) Lease commitment provision................ 2,800 Discontinued operations................... (310) (310) Changes in assets and liabilities net of acquisitions and discontinued operations............................. 14,061 (19,459) (12,815) (13,561) (8,853) -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities............ 37,451 2,918 4,608 (4,755) 6,551 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of businesses................... (10,815) (3,419) (5,864) (5,864) Purchases of properties................... (9,573) (5,019) (2,481) (1,375) (2,562) Disposal of discontinued operations....... 2,114 2,490 7,369 Proceeds from sale of division............ 7,754 Other..................................... 37 121 -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities............ (20,388) (684) (6,231) 1,152 (936) -------- -------- -------- -------- -------- Cash flows from financing activities: Payments on Senior Notes and capital leases................................. (6,918) (5,675) (10,481) (6,725) (13,962) Bank borrowings (payments), net........... (4,800) 3,800 9,000 9,000 2,000 Employee stock plans and other............ 1,933 829 589 589 -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities............ (9,785) (1,046) (892) 2,864 (11,962) -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents............................... 7,278 1,188 (2,515) (739) (6,347) Cash and cash equivalents at beginning of period.................................... 4,819 3,631 6,146 4,370 10,717 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period.................................... $ 12,097 $ 4,819 $ 3,631 $ 3,631 $ 4,370 ======== ======== ======== ======== ======== Changes in assets and liabilities net of acquisitions and discontinued operations: Accounts receivable.................... $ 2,634 $ (9,288) $(16,023) $ (3,683) $(14,010) Inventories............................ 22,917 (24,341) (10,819) (15,731) (6,384) Accounts payable....................... (5,259) 7,011 9,274 5,820 8,168 Other liabilities and deferred compensation......................... (2,942) 3,617 49 34 (389) Accrued payroll........................ (280) 2,211 1,019 (227) 1,246 Income taxes payable................... (2,211) 1,084 1,089 (148) 583 Other.................................. (798) 247 2,596 374 1,933 -------- -------- -------- -------- -------- Net change........................ $ 14,061 $(19,459) $(12,815) $(13,561) $ (8,853) ======== ======== ======== ======== ======== Supplemental cash flow information: Interest paid............................. $ 3,863 $ 3,759 $ 4,411 $ 2,045 $ 4,979 Income taxes paid......................... $ 12,624 $ 11,190 $ 5,151 $ 3,786 $ 4,561
See accompanying Notes to Consolidated Financial Statements. 16 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF ACCOUNTING POLICIES Principles of consolidation -- The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated. Change in year end -- During the six months ended December 31, 1994, the Company changed its year end from June 30 to December 31, resulting in a six month reporting period. Unaudited information for the year ended December 31, 1994 is presented for comparative purposes. Statement of cash flows -- The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Revenue recognition and receivables -- The Company is primarily a national distributor of electronic components. In addition, the Company distributes graphics and electronic imaging products throughout the western and north central United States and recreational-related products in the north central United States. Sales are recognized and trade receivables are recorded when products are shipped. Concentrations of credit risk with respect to trade receivables are limited due to the large number and general dispersion of trade accounts which constitute the Company's customer base. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company estimates reserves for potential credit losses and such losses have been within these estimates. Inventories -- Inventories are stated at the lower of cost (determined using weighted average and first-in, first-out methods) or market (net realizable value). Properties, depreciation and amortization -- All properties are depreciated using the straight-line method based upon estimated useful lives which range from 15 to 40 years for buildings and 2 to 10 years for machinery and equipment. Leasehold improvements and assets recorded under capital leases are amortized over the shorter of their estimated service lives or the term of the lease. Goodwill -- Cost in excess of the fair value of net assets of purchased businesses (goodwill) is amortized using the straight-line method over 25 years. Income taxes -- Provision is made for the tax effects of temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. In estimating deferred tax balances, the Company considers all expected future events other than enactments of changes in the tax law or rates. Stock option plans -- The Company measures and records compensation expense relating to stock options as the excess, if any, between the market value of shares on the date of option grant and the expected proceeds upon exercise. Such expense is accrued ratably over the period to be benefited. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") to disclose the impact of compensation cost on earnings if determined under the fair value method prescribed by SFAS No. 123. Per share data -- Operating results per share data is based upon the weighted average number of common and common equivalent shares outstanding, after adjustment to reflect stock dividends declared. Common equivalent shares represent the net number of shares which would be issued assuming the exercise of dilutive stock options and warrants, reduced by the number of shares which could be repurchased from the proceeds of such exercises. Use of estimates -- Certain amounts and disclosures included in the consolidated financial statements required the use of management estimates which could differ from actual results. 17 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACQUISITION OF MILGRAY ELECTRONICS In January 1997, the Company completed the acquisition of Milgray Electronics, Inc. ("Milgray"), a publicly-traded distributor of electronics components throughout the United States and Canada. Under the terms of the acquisition, shareholders of Milgray received $14.77 per share for an aggregate purchase price of approximately $100 million. Concurrent with the acquisition, the Company entered into a five-year $250 million secured revolving credit facility with a syndicate of banks to finance the purchase of Milgray, retire all existing debt of both companies and provide for ongoing working capital requirements. Borrowings under the facility are secured by the Company's receivables and inventories. The new facility, which replaced the Company's $50 million line of credit, provides for interest at either the bank's reference rate or LIBOR plus 1.25%. The facility includes a $50 million term loan, payable quarterly over five years, and a revolving credit line. The facility is subject to an annual commitment fee of .375% on the unused line of credit. The agreement underlying the facility contains provisions for asset acquisition limits, the maintenance of financial ratios, prohibitions of dividends, and other restrictions. In connection with the placement of the credit facility, the Company redeemed its outstanding 9.70% Senior Notes for $24.7 million, including $1 million in make-whole premiums. The Company's initial borrowings under the new facility were approximately $155 million and aggregate maturities are as follows (in thousands): 1997...................................... $ 7,500 1998...................................... 7,500 1999...................................... 10,000 2000...................................... 12,500 2001...................................... 117,500
The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and Milgray as if the acquisition had occurred January 1, 1995. The unaudited pro forma results include estimates for goodwill amortization and increased interest expense (in thousands except per share data):
1996 1995 -------- -------- Net sales.............................................. $895,300 $820,000 Net income............................................. $ 17,100 $ 17,500 Net income per share................................... $ 2.25 $ 2.35
18 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTES PAYABLE Notes payable consisted of the following (in thousands):
DECEMBER 31 ------------------- 1996 1995 ------- ------- Bank borrowings.......................................... $ 8,000 $12,800 9.70% Senior Notes....................................... 23,714 28,857 ------- ------- 31,714 41,657 Less current portion..................................... 7,143 5,143 ------- ------- $24,571 $36,514 ======= =======
The Company's bank loan agreement provided for a $50 million unsecured revolving line of credit through May 1999. Borrowings against the line accrued interest at either the bank's reference rate (8.25% at December 31, 1996) or LIBOR plus .625% (6.07% at December 31, 1996). The fair value of the Senior Notes at December 31, 1996 was approximately $24.7 million ($29.4 million at December 31, 1995). The fair value was based on the redemption value of the Senior Notes as settled in January 1997. In connection with certain amendments to the Senior Note agreement, the noteholders received warrants in 1993 to purchase 216,710 shares of the Company's common stock. The warrants may be exercised at any time prior to February 1, 2001 at $11.28 per share. COMMON STOCK At the 1996 Annual Meeting, shareholders approved a proposal to increase the number of authorized shares of common stock from 10 million to 35 million. In May 1996, the Board of Directors declared a 5% stock dividend payable to shareholders of record on May 24, 1996. In May 1995, the Board of Directors declared a 5% stock dividend payable to shareholders of record on May 26, 1995. In October 1994, the Board of Directors declared a 5% stock dividend payable to shareholders of record on October 28, 1994. Share and per share amounts were adjusted to give effect to the dividends. At the 1995 Annual Meeting, shareholders approved a plan to change the Company's state of incorporation from Delaware to California. Effective June 30, 1995, the plan was completed and each share of Bell Delaware common stock ($.25 par value) was converted to one share of Bell California common stock. This change resulted in the transfer of $60.9 million from other paid-in capital to common stock on that date. STOCK PLANS The Company's 1990 Stock Option and Incentive Plan authorized 500,000 shares of common stock to be available for purchase by employees. At the 1994 Annual Meeting, the shareholders approved the 1994 Stock Option Plan (the "1994 Plan") which authorized an additional 500,000 shares of common stock. At the 1996 Annual Meeting the shareholders approved the Non-Employee Director Stock Option Plan (the "1996 Plan"), which authorized an additional 150,000 shares of common stock. Under the stock option plans, both incentive and nonqualified stock options, stock appreciation rights and restricted stock may be granted. Options outstanding under the plans generally have a maximum term of five years, vest over four years and were issued at market value. 19 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of activity under the plans follows:
WEIGHTED SHARES AVERAGE FAIR VALUE AVAILABLE FOR UNDER EXERCISE PRICE OF OPTION FUTURE GRANT OPTION PER SHARE PER SHARE ------------- ------- -------------- ---------- Outstanding at June 30, 1993.................. 299,000 235,638 $ 9.39 Granted..................................... (2,500) 2,500 19.25 Exercised................................... (15,685) 1.82 Canceled.................................... 4,966 (12,822) 3.68 -------- ------- ------ Outstanding at June 30, 1994.................. 301,466 209,631 10.41 Granted..................................... (261,000) 261,000 18.49 Exercised................................... (6,873) 5.84 Canceled.................................... 27,468 (28,456) 9.48 Adjustment for 5% stock dividend............ 4,622 20,602 Adoption of 1994 Plan....................... 500,000 -------- ------- ------ Outstanding at December 31,1994............... 572,556 455,904 14.67 Granted..................................... (118,500) 118,500 23.75 $ 7.98 Exercised................................... (16,300) 6.68 Canceled.................................... 10,711 (11,284) 10.85 Adjustment for 5% stock dividend............ 28,327 22,790 -------- ------- ------ Outstanding at December 31, 1995.............. 493,094 569,610 16.28 Granted..................................... (161,500) 161,500 20.42 $ 6.55 Exercised................................... (34,864) 7.88 Canceled.................................... 9,439 (9,439) 19.30 Adjustment for 5% stock dividend............ 20,129 32,795 Adoption of 1996 Plan....................... 150,000 -------- ------- ------ Outstanding at December 31, 1996.............. 511,162 719,602 $16.83 ======== ======= ======
A summary of weighted average amounts for stock options outstanding at December 31, 1996 follows:
REMAINING OPTION LIFE OPTIONS OPTIONS EXERCISE IN YEARS OUTSTANDING EXERCISABLE PRICE ---------------------------------- ------------- ----------- -------------- 1.............................. 61,259 61,259 $ 8.51 2.............................. 76,642 43,149 10.96 3.............................. 297,134 88,095 16.10 4.............................. 119,492 11,933 22.56 5.............................. 165,075 ------- ------- 719,602 204,436 $13.12 ======= =======
At December 31, 1995, 100,239 options were exercisable at a weighted average exercise price of $11.33. During the year ended June 30, 1994 (fiscal 1994), the shareholders approved the Bell Industries Employees' Stock Purchase Plan (the ESPP) under which 750,000 shares were authorized for future issuance to Bell employees. Eligible employees may purchase Bell stock at 85% of market value through the ESPP at various offering times during the year. Under the ESPP, the Company issued 74,024, 58,115 and 36,001 shares during 1996, 1995 and the six months ended December 31, 1994. No shares were issued in fiscal 1994 under the ESPP. The weighted average fair value per share of the purchase rights granted in 1996 and 1995 were $4.28 and $4.57. During the six months ended December 31, 1994, the shares were issued at purchase prices ranging between $13.92 and $15.68. 20 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For 1996 and 1995, the Black-Scholes model was utilized for estimating the fair value of stock-based grants using an assumed volatility of approximately 30% and an expected four year life for stock options, and an assumed volatility of approximately 9% and an expected four month life for the ESPP. The assumed risk free interest rate ranged between 5% and 6% for all plans. Stock-based compensation costs determined under the fair value method would have reduced the Company's reported net income by $0.5 million, or $.07 per share, and $0.3 million, or $.04 per share, in 1996 and 1995. INCOME TAXES The income tax provision charged to continuing operations was as follows (in thousands):
YEAR ENDED SIX MONTHS DECEMBER 31 ENDED YEAR ENDED ----------------------------------- DECEMBER 31 JUNE 30 1996 1995 1994 1994 1994 ------- ------- ----------- ------------ ---------- (UNAUDITED) Current Federal.......................... $ 8,259 $10,326 $ 6,574 $3,335 $5,240 State............................ 2,273 2,438 1,738 846 1,444 Deferred Federal.......................... 810 (1,755) (326) (290) (58) State............................ 192 (168) (29) (46) 28 ------- ------- ------ ------ ------ $11,534 $10,841 $ 7,957 $3,845 $6,654 ======= ======= ====== ====== ======
A reconciliation of the federal statutory tax rate to the effective tax rate follows:
YEAR ENDED SIX MONTHS DECEMBER 31 ENDED YEAR ENDED ----------------------------------- DECEMBER 31 JUNE 30 1996 1995 1994 1994 1994 ------- ------- ----------- ------------ ---------- (UNAUDITED) Federal statutory tax rate......... 35.0% 35.0% 34.4% 34.3% 34.4% State taxes, net of federal benefit.......................... 5.8 5.6 5.8 5.9 5.8 Other, net......................... 1.2 1.4 1.9 1.8 2.1 ---- ---- ---- ---- ---- Effective tax rate................. 42.0% 42.0% 42.1% 42.0% 42.3% ==== ==== ==== ==== ====
The provision (credit) for deferred income taxes is summarized as follows (in thousands):
YEAR ENDED SIX MONTHS DECEMBER 31 ENDED YEAR ENDED ----------------------------------- DECEMBER 31 JUNE 30 1996 1995 1994 1994 1994 ------- ------- ----------- ------------ ---------- (UNAUDITED) Depreciation....................... $ 429 $ (221) $ (341) $ (67) $ (444) Employee benefit accruals.......... 112 (437) (188) (140) (77) Receivables allowance.............. 26 (177) 259 30 371 Inventory capitalization........... 58 190 24 (66) 146 Lease commitment provision......... 8 (1,106) Other.............................. 369 (172) (109) (93) (26) ------ ------- ----- ----- ----- $ 1,002 $(1,923) $ (355) $ (336) $ (30) ====== ======= ===== ===== =====
21 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred tax balances were composed of the following (in thousands):
DECEMBER 31 ----------------- 1996 1995 ------ ------ Deferred tax assets: Discontinued operations.................................. $2,305 $2,424 Deferred compensation and other employee benefits........ 1,312 1,424 Lease commitment provision............................... 1,098 1,106 Postretirement benefits.................................. 706 743 Receivables allowance.................................... 564 590 Inventory capitalization................................. 409 467 Other.................................................... 309 713 ------ ------ 6,703 7,467 Deferred tax liabilities: Depreciation............................................. (357) ------ ------ Net deferred tax balances.................................. $6,346 $7,467 ====== ======
Current deferred income tax benefits included with prepaid expenses and other and noncurrent deferred income tax benefits included with other assets were as follows (in thousands):
DECEMBER 31 ----------------- 1996 1995 ------ ------ Current deferred income tax benefits Federal.................................................. $4,339 $4,730 State.................................................... 94 235 Noncurrent deferred income tax benefits Federal.................................................. 1,702 2,178 State.................................................... 211 324 ------ ------ $6,346 $7,467 ====== ======
EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS The Company has a qualified, trusteed, savings and profit sharing plan for eligible employees. Employees must contribute at least 1% of their annual compensation to participate in the plan. The Company's contribution to the plan, as determined by the Board of Directors, were $1.1 million in calendar 1996, $1 million in calendar 1995, $0.4 million for the six months ended December 31, 1994 and $0.5 million in fiscal 1994. The Company has deferred compensation plans available for certain directors, officers and other key employees. Expense associated with the deferred compensation element of these plans was $0.6 million in calendar 1996, $1.1 million in calendar 1995, $0.5 million for the six months ended December 31, 1994 and $0.3 million in fiscal 1994. The Company provides postretirement medical coverage for qualifying employees. Annual costs and accumulated and vested benefit obligations relating to postretirement medical benefits were not significant. 22 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) COMMITMENTS AND CONTINGENCIES At December 31, 1996 the Company had capital and operating leases on certain of its facilities and equipment expiring in various years through 2001. Under certain operating leases, the Company is required to pay property taxes and insurance. Rent expense pertaining to operating leases was $4.7 million in calendar 1996, $3.9 million in calendar 1995, $1.9 million for the six months ended December 31, 1994 and $3.8 million in fiscal 1994. Amortization of capitalized leases amounted to $1.7 million in calendar 1996, $1.6 million in calendar 1995, $0.8 million for the six months ended December 31, 1994 and $1.6 million in fiscal 1994. Non-cash investing and financing activities for fiscal 1994 included an equipment addition totaling $1.6 million which was financed through a capital lease. Minimum annual rentals on these leases for years subsequent to 1996 are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES ------- --------- 1997...................................................... $ 952 $ 4,985 1998...................................................... 3,890 1999...................................................... 2,819 2000...................................................... 667 2001...................................................... 133 ---- 952 Less amount representing interest......................... (19) ---- Present value of net minimum lease payments under capital leases.................................................. $ 933 ====
The Company is involved in litigation incidental to its business. In the opinion of management, the expected outcome of such litigation will not materially affect the Company's financial position or results of operations. DISCONTINUED OPERATIONS AND SPECIAL ITEMS In 1994, the Company recorded a gain of $0.3 million (net of income taxes of $0.2 million) which represented residual reserves no longer required after the disposal of the Building Products Group, which was discontinued in 1993. In 1995, the Company sold the assets of a division which manufacturers switches, push-buttons and electroluminescent panels used in commercial aircraft. Total cash proceeds were approximately $7.7 million resulting in a gain before income taxes of $3.1 million. Operating results of the division were not material to the Company's consolidated operating results. In 1995, the Company agreed to purchase a building to consolidate national service and computer center operations at a larger facility. The related decision to sublease the present corporate offices for the remaining lease term resulted in a $2.8 million charge for the net lease commitment. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) BUSINESS SEGMENT INFORMATION Depreciation and amortization, identifiable assets, and capital expenditures by business segment are as follows (in thousands):
SIX YEAR ENDED MONTHS YEAR DECEMBER 31 ENDED ENDED ------------------------------- DECEMBER 31 JUNE 30 1996 1995 1994 1994 1994 -------- -------- --------- ----------- -------- (UNAUDITED) Depreciation and amortization Electronics............................. $ 2,077 $ 2,007 $ 2,573 $ 1,021 $ 2,528 Graphics and Electronic Imaging......... 444 185 118 60 112 Recreational Products................... 225 215 132 108 104 Corporate............................... 3,482 3,533 2,911 1,702 2,830 -------- -------- -------- -------- -------- $ 6,228 $ 5,940 $ 5,734 $ 2,891 $ 5,574 -------- -------- -------- -------- -------- Identifiable assets Electronics............................. $143,631 $175,278 $ 149,393 $ 149,393 $134,299 Graphics and Electronic Imaging......... 51,184 22,553 17,181 17,181 15,967 Recreational Products................... 19,064 16,548 17,862 17,862 12,686 Corporate............................... 27,431 19,503 15,931 15,931 21,761 -------- -------- -------- -------- -------- $241,310 $233,882 $ 200,367 $ 200,367 $184,713 ======== ======== ======== ======== ======== Capital expenditures Electronics............................. $ 2,756 $ 3,246 $ 1,714 $ 879 $ 1,939 Graphics and Electronic Imaging......... 1,079 574 201 118 203 Recreational Products................... 467 196 244 170 123 Corporate............................... 5,271 1,003 322 208 297 -------- -------- -------- -------- -------- $ 9,573 $ 5,019 $ 2,481 $ 1,375 $ 2,562 ======== ======== ======== ======== ========
The net sales and operating income of each of the Company's business segments are included under "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition." A description of the Company's business and products appears under "Item 1. Business." Sales between product groups are insignificant. Corporate assets are primarily cash, information technology equipment and deferred income tax benefits. During 1996 the Company purchased five graphics distribution businesses for approximately $10.8 million in cash and the issuance of 153,148 shares of common stock. Goodwill related to these transactions was approximately $2.8 million. The Company purchased two distribution businesses during calendar 1995 for approximately $3.4 million in cash. Goodwill related to these transactions was not significant. During fiscal 1994, the Company purchased a distribution and services business for approximately $5.9 million cash. Goodwill related to this transaction was approximately $1.6 million. Operating results for the purchased businesses were not significant. 24 26 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED ----------------------------------------------- MAR. 31 JUN. 30 SEP. 30 DEC. 31 -------- -------- -------- -------- YEAR ENDED DECEMBER 31, 1996 Net sales....................................... $143,050 $156,709 $164,306 $159,128 -------- -------- -------- -------- Costs and expenses Cost of products sold......................... 110,511 121,665 128,594 124,864 Selling, general and administrative expenses................................... 26,039 26,252 27,208 26,926 Interest expense.............................. 959 885 952 877 -------- -------- -------- -------- 137,509 148,802 156,754 152,667 -------- -------- -------- -------- Income before income taxes...................... 5,541 7,907 7,552 6,461 Income tax provision............................ 2,329 3,319 3,172 2,714 -------- -------- -------- -------- Net income...................................... $ 3,212 $ 4,588 $ 4,380 $ 3,747 ======== ======== ======== ======== SHARE AND PER SHARE DATA Net income...................................... $ .43 $ .60 $ .58 $ .49 ======== ======== ======== ======== Weighted average common shares outstanding...... 7,544 7,615 7,542 7,661 ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1995 Net sales....................................... $126,945 $141,575 $148,639 $147,166 -------- -------- -------- -------- Costs and expenses Cost of products sold......................... 97,983 108,984 115,548 114,053 Selling, general and administrative expenses................................... 23,634 24,497 24,838 25,614 Interest expense.............................. 908 822 872 1,010 Lease commitment provision.................... 2,800 Gain on sale of business...................... (3,050) -------- -------- -------- -------- 122,525 134,303 141,258 140,427 -------- -------- -------- -------- Income before income taxes...................... 4,420 7,272 7,381 6,739 Income tax provision............................ 1,860 3,051 3,100 2,830 -------- -------- -------- -------- Net income...................................... $ 2,560 $ 4,221 $ 4,281 $ 3,909 ======== ======== ======== ======== SHARE AND PER SHARE DATA Net income...................................... $ .35 $ .57 $ .57 $ .52 ======== ======== ======== ======== Weighted average common shares outstanding...... 7,415 7,409 7,486 7,489 ======== ======== ======== ========
25 27 CONSOLIDATED OPERATIONS SUMMARY (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 ---------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- CONSOLIDATED RESULTS OF OPERATIONS Net sales............................................. $623,193 $564,325 $497,566 $395,621 $364,385 -------- -------- -------- -------- -------- Costs and expenses Cost of products sold............................... 485,634 436,568 386,406 302,261 273,517 Selling, general and administrative expenses........ 106,425 98,583 88,205 76,404 77,953 Interest expense.................................... 3,673 3,612 4,053 5,030 5,508 Lease commitment provision.......................... 2,800 Gain on sale of division............................ (3,050) Computer write-down................................. 4,400 -------- -------- -------- -------- -------- 595,732 538,513 478,664 383,695 361,378 -------- -------- -------- -------- -------- Income from continuing operations before income taxes............................................... 27,461 25,812 18,902 11,926 3,007 Income tax provision.................................. 11,534 10,841 7,957 5,057 1,492 -------- -------- -------- -------- -------- Income from continuing operations..................... $ 15,927 $ 14,971 $ 10,945 $ 6,869 $ 1,515 ======== ======== ======== ======== ======== Net income (loss)..................................... $ 15,927 $ 14,971 $ 11,255 $ (1,812) $ (591) ======== ======== ======== ======== ======== SHARE AND PER SHARE DATA Income from continuing operations..................... $ 2.10 $ 2.01 $ 1.50 $ .95 $ .21 ======== ======== ======== ======== ======== Net income (loss)..................................... $ 2.10 $ 2.01 $ 1.54 $ (.25) $ (.08) ======== ======== ======== ======== ======== Weighted average common shares outstanding (000's).... 7,591 7,450 7,293 7,196 7,143 ======== ======== ======== ======== ======== OPERATING RESULTS BY BUSINESS SEGMENT Net sales Electronics......................................... $462,358 $448,390 $399,227 $307,546 $282,192 Graphics and Electronic Imaging..................... 117,131 73,359 59,743 57,134 55,566 Recreational Products............................... 43,704 42,576 38,596 30,941 26,627 -------- -------- -------- -------- -------- $623,193 $564,325 $497,566 $395,621 $364,385 ======== ======== ======== ======== ======== Operating income Electronics(1)...................................... $ 33,045 $ 35,450 $ 26,261 $ 20,705 $ 16,626 Graphics and Electronic Imaging..................... 3,608 1,994 1,836 1,320 1,928 Recreational Products............................... 3,380 3,536 3,580 2,734 2,493 -------- -------- -------- -------- -------- 40,033 40,980 31,677 24,759 21,047 Corporate costs....................................... (8,899) (8,756) (8,722) (7,803) (8,132) Interest expense...................................... (3,673) (3,612) (4,053) (5,030) (5,508) Lease commitment provision............................ (2,800) Computer write-down................................... (4,400) -------- -------- -------- -------- -------- Income from continuing operations before income taxes............................................... $ 27,461 $ 25,812 $ 18,902 $ 11,926 $ 3,007 ======== ======== ======== ======== ======== CONSOLIDATED FINANCIAL POSITION AND RELATED DATA Working capital....................................... $132,856 $136,227 $116,118 $105,640 $113,471 Total assets.......................................... $241,310 $233,882 $200,367 $175,666 $183,591 Long-term liabilities................................. $ 30,584 $ 43,490 $ 40,936 $ 43,166 $ 54,380 Shareholders' equity.................................. $138,461 $117,569 $101,770 $ 89,842 $ 92,268 Depreciation and amortization......................... $ 6,228 $ 5,940 $ 5,734 $ 6,152 $ 4,703 Capital expenditures.................................. $ 9,573 $ 5,019 $ 2,481 $ 4,385 $ 10,180 Days' sales in receivables............................ 48 50 50 47 50 Days' sales in inventory.............................. 76 96 87 95 102
- --------------- (1) Includes gain on sale of division of $3,050 in 1995. 26 28 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS DEDUCTIONS ---------- ---------- BALANCE AT CHARGED TO ACCOUNTS BALANCE BEGINNING COSTS AND CHARGED AT END DESCRIPTION OF PERIOD EXPENSES OFF OF PERIOD - ------------------------------------------------- ---------- ---------- ---------- --------- Allowance for doubtful accounts: Year ended June 30, 1994....................... $1,271 755 1,142 $ 884 Six months ended December 31, 1994............. $ 884 606 449 $ 1,041 Year ended December 31, 1995................... $1,041 1,716 1,285 $ 1,472 Year ended December 31, 1996................... $1,472 1,235 1,081 $ 1,626
27 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors: The information required by Item 10 with respect to directors appears in the Proxy Statement for the 1997 Annual Meeting of Shareholders and is hereby incorporated by reference. (b) Executive Officers: The information required by Item 10 with respect to Executive Officers appears in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 appears in the Proxy Statement for the 1997 Annual Meeting of Shareholders and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 appears under "Election of Directors" in the Proxy Statement for the 1997 Annual Meeting of Shareholders and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 appears in the Proxy Statement for the 1997 Annual Meeting of Shareholders and is hereby incorporated by reference. 28 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS: The Consolidated Financial Statements and Report of Independent Accountants dated February 4, 1997 are included under Item 8 of this Annual Report on Form 10-K. 2. FINANCIAL STATEMENT SCHEDULE: The financial statement schedule listed in the Index to Financial Statements included under Item 8 is filed as part of this Annual Report on Form 10-K. 3. EXHIBITS: 2. a) Agreement and Plan of Merger, dated as of November 26, 1996 among Registrant, ME Acquisitions, Inc., and Milgray Electronics, Inc. is incorporated by reference to Exhibit 2.1 of the Form 8-K dated January 7, 1997. 3. a) The Restated Articles of Incorporation and Restated By-laws are incorporated by reference to Exhibits 3.1 and 3.2, respectively, to Registrant's Form 8-B dated March 22, 1995, as amended. 4. a) The Specimen of Registrant's Common Stock certificates is incorporated by reference to Exhibit 5 to Amendment number 1 to Registrant's Form 8-B filed January 15, 1980. b) Warrant Agreement dated September 15, 1993 including Form of Warrant Certificate issued to the named Insurance Companies included in the Note Purchase Agreement dated February 1, 1991, as amended, is incorporated by reference to Exhibit 4.e of the Form 10-K dated June 30, 1993. 10. a) The Employment and Deferred Compensation Agreements dated January 1, 1979 and the Amendment thereto dated August 6, 1979 concerning certain officers of Registrant are incorporated by reference to Exhibits 9A, 9C and 9D to Amendment number 1 to Registrant's Form 8-B dated November 19, 1979. b) The 1990 Stock Option and Incentive Plan is incorporated by reference to Exhibit A of Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held October 29, 1990. c) The 1993 Employees' Stock Purchase Plan is incorporated by reference to Exhibit A of Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held November 2, 1993. d) The Amendment to Employment and Deferred Compensation Agreement dated September 14, 1994 is incorporated by reference to Exhibit (10) of the Registrant's Quarterly Report on Form 10-Q dated September 30, 1994. e) The Bell Industries, Inc. Directors' Retirement Plan for Non-employees is incorporated by reference to Exhibit (99) of the Registrant's Quarterly Report on Form 10-Q dated September 30, 1994. f) The 1994 Stock Option Plan is incorporated by reference to Exhibit A of the Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held on November 1, 1994. g) Employment and Deferred Compensation Agreement dated February 15, 1995 between the Registrant and Paul F. Doucette is incorporated by reference to Exhibit 10.8 to Registrant's Form 8-B dated March 22, 1995, as amended. h) Form of Severance Agreement between the Registrant and its executive officers, other than Messrs. Williams and Doucette is incorporated by reference to Exhibit 10.9 to Registrant's Form 8-B dated March 22, 1995, as amended.
29 31 i) Form of Indemnity Agreement between the Registrant and its executive officers and directors is incorporated by reference to Exhibit 10.10 to Registrant's Form 8-B dated March 22, 1995, as amended. j) The Amendment to Employment and Deferred Compensation Agreement dated September 26, 1995 is incorporated by reference to Exhibit 10.k to Registrant's Form 10-K dated December 31, 1995. k) Non-Employee Directors' Stock Option Plan, as revised, is incorporated by reference to Exhibit 10.1 to Registrant's Form 10-K dated December 31, 1995. l) Form of Stock Option Agreement between the Registrant and Non-employee Directors is incorporated by reference to Exhibit 10.m to Registrant's Form 10-K dated December 31, 1995. m) Asset Purchase Agreement By and Between Bell Industries, Inc. and IDD Aerospace Corp. dated October 2, 1995 is incorporated by reference to Exhibit 10.n to Registrant's Form 10-K dated December 31, 1995. n) The Amendment to Employment and Deferred Compensation Agreement between the Registrant and Theodore Williams dated November 21, 1996. o) Credit Agreement dated as of January 7, 1997 among Registrant, Bell Ontario Holding, Inc., the Lenders listed therein, and Union Bank of California, N.A., as agent (which includes, among the Exhibits, Form of Company Security Agreement, Form of Company Pledge Agreement, Form of Subsidiary Security Agreement, Form of Subsidiary Guarantee and Form of Subsidiary Pledge Agreement) is incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K dated January 7, 1997. p) Severance Agreement dated as of January 20, 1997 between the Registrant and Bruce M. Jaffe. 21. Subsidiaries of the Registrant. 23. Consent of Independent Accountants. 27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K: a) Form 8-K dated November 19, 1996 filed in connection with the resignation of Registrant's director, Bruce M. Jaffe. b) Form 8-K dated November 26, 1996 filed in connection with the tender offer for the outstanding stock of Milgray Electronics, Inc. c) Form 8-K dated January 7, 1997, filed in connection with the acquisition of Milgray Electronics, inc. 30 32 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) 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: /s/ THEODORE WILLIAMS ------------------------------------ Theodore Williams Chairman of the Board and Chief Executive Officer Date: March 20, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 20, 1997 by the following persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- /s/ THEODORE WILLIAMS Chairman of the Board - --------------------------------------------- and Chief Executive Officer Theodore Williams /s/ HERBERT S. DAVIDSON Vice Chairman of the Board - --------------------------------------------- Herbert S. Davidson /s/ GORDON M. GRAHAM Director, President - --------------------------------------------- and Chief Operating Officer Gordon M. Graham /s/ JOHN J. COST Director and Secretary - --------------------------------------------- John J. Cost /s/ ANTHONY L. CRAIG Director - --------------------------------------------- Anthony L. Craig /s/ MILTON ROSENBERG Director - --------------------------------------------- Milton Rosenberg /s/ CHARLES S. TROY Director - --------------------------------------------- Charles S. Troy /s/ TRACY A. EDWARDS Vice President and Chief - --------------------------------------------- Financial and Accounting Officer Tracy A. Edwards
31 33 EXHIBIT INDEX
EXHIBITS - ---------- 2) Agreement and Plan of Merger dated as of November 26, 1996 among Registrant, ME Acquisition, Inc. and Milgray Electronics, Inc..................................... (*) 3) Articles of incorporation and by-laws.............................................. (*) 4) Instruments defining the rights of security holders, including indentures a) Specimen of Registrant's Common Stock certificate........................... (*) b) Warrant Agreement dated September 15, 1993 including Form of Warrant Certificate issued to the named Insurance Companies included in the Note Purchase Agreement dated February 1, 1991, as amended....................... (*) 10) Material contracts a) The Employment and Deferred Compensation Agreements dated January 1, 1979 and the Amendment thereto dated August 6, 1979 concerning certain officers of Registrant............................................................... (*) b) The 1990 Stock Option and Incentive Plan included as Exhibit A to Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held October 29, 1990.... (*) c) The 1993 Employees' Stock Purchase Plan included as Exhibit A to Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held November 2, 1993.... (*) d) The Amendment to Employment and Deferred Compensation Agreement dated September 14, 1994 included as to Exhibit (10) of the Registrant's Quarterly Report on Form 10-Q dated September 30, 1994................................ (*) e) The Bell Industries, Inc. Directors' Retirement Plan for Non-employees included as Exhibit (99) of the Registrant's Quarterly Report on Form 10-Q dated September 30, 1994.................................................... (*) f) The 1994 Stock Option Plan included as Exhibit A of the Registrant's definitive Proxy Statement (File No. 1-7899) filed in connection with the Annual Meeting of Shareholders held on November 1, 1994..................... (*) g) Employment and Deferred Compensation Agreement dated February 15, 1995 between the Registrant and Paul F. Doucette................................. (*) h) Form of Severance Compensation Agreement between the Registrant and its executive officers, other than Messrs. Williams and Doucette................ (*) i) Form of Indemnity Agreement between the Registrant and its executive officers and directors...................................................... (*) j) The Amendment to Employment and Deferred Compensation Agreement dated September 26, 1995.......................................................... (*) k) Non-Employee Directors' Stock Option Plan, as revised....................... (*) l) Form of Stock Option Agreement between the Registrant and Non-employee Directors................................................................... (*) m) Asset Purchase Agreement By and Between Bell Industries, Inc. and IDD Aerospace Corp. dated October 2, 1995....................................... (*) n) The Amendment to Employment and Deferred Compensation Agreement between the Registrant and Theodore Williams dated November 21, 1996.................... o) Credit Agreement dated as of January 7, 1997 among Registrant, Bell Ontario Holding, Inc., the Lenders named therein, and Union Bank of California, as agent....................................................................... (*) p) Severance Agreement dated January 20, 1997 between the Registrant and Bruce M. Jaffe.................................................................... 21) Subsidiaries of the Registrant..................................................... 23) Consent of Independent Accountants................................................. 27) Financial Data Schedule............................................................
- --------------- (*) Incorporated by reference. EX-10.(N) 2 AMENDMENT TO EMPLOYMENT AND DEFERRED COMPENSATION 1 Exhibit 10 (n) Page 1 of 1 AMENDMENT TO EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT This is an Amendment to that certain Employment and Deferred Compensation Agreement dated as of January 1, 1979, as amended on August 8, 1979, September 14, 1994, and September 26, 1995 (the "Agreement"), by and between BELL INDUSTRIES, INC., a California corporation (the "Company"), and THEODORE E. WILLIAMS ("Employee"). WHEREAS, the Company and Employee desire to amend in certain respects the Agreement which sets forth the terms and conditions of employment and retirement benefits of Employee. IT IS THEREFORE AGREED: A. AMENDMENTS There shall be added at the end of Section 3 of the Agreement the following sentence: "At any time during the 1996 calendar year, Employee may request a partial payment of the above sum payable upon his retirement or death in an amount not to exceed nine hundred eighty eight thousand dollars ($988,000)." B. OTHER PROVISIONS IN FULL FORCE AND EFFECT All other terms and provisions of the Agreement shall remain in full force and effect and shall not be deemed amended or modified hereby except to the extent such terms and provisions may be inconsistent with this Amendment. IN WITNESS WHEREOF, the undersigned has executed this Amendment as of this 21st day of November, 1996. BELL INDUSTRIES, INC. By: /s/ TRACY A. EDWARDS ------------------------------- EMPLOYEE /s/ THEODORE E. WILLIAMS ---------------------------------- THEODORE E. WILLIAMS EX-10.(P) 3 SEVERANCE AGREEMENT DATED JANUARY 20, 1997 1 Exhibit 10 (p) Page 1 of 6 SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT IS MADE AS OF THE 20 DAY OF JANUARY, 1997 WITH REFERENCE TO THE FOLLOWING: 1. Parties. The parties to this Severance Agreement ("Agreement") are: 1.1 Bruce M. Jaffe, an individual (referred to herein as "Jaffe"); and 1.2 Bell Industries, Inc., a California corporation (referred to herein as "Bell"). 2. Recitals. This Agreement is entered into with reference to the following facts: 2.1 Employment History. Jaffe was employed by Bell in an executive capacity for over 25 years; his most recent office being President and Chief Operating Officer. Jaffe voluntarily resigned his office at Bell on or about November 18, 1996 and this Agreement, inter alia, confirms his voluntary resignation, effective as of December 17, 1996. 2.2 Existing Employment Agreement. The parties hereto executed an Employment and Retirement Compensation Agreement dated as of February 15, 1995 (the "Employment Agreement") setting forth the terms of Jaffe's employment with, and retirement benefits from, Bell. The parties acknowledge and agree that this Agreement represents a settlement and compromise of rights, claims and defenses, arising under the Employment Agreement and/or Jaffe's employment by Bell. 3. Mutual General Release. In consideration of the terms and provisions of this Agreement except as specifically set forth herein, Jaffe does hereby release and discharge Bell and its respective successors, affiliates, officers, directors, agents, and employees and Bell does hereby release and discharge Jaffe from any and all claims, debts, liabilities, demands, obligations, contracts, omissions, accounts, liens, promises, acts, agreements, costs, losses and expenses of every type, character and kind, nature or description (including, but not limited to, attorneys' fees), damages, actions, defenses and causes of action for any and all acts, of whatever kind or nature, including, without limitation, any statutory, civil or administrative claim, or any claim, arising out of acts, whether known or unknown, suspected or unsuspected, fixed or contingent, apparent or concealed (collectively referred to as "claims"), including, but not limited to, any claims based on, arising out of, related to or connected with the subject matter of the claims referred to in paragraph 2, above, and 2 Exhibit 10 (p) Page 2 of 6 any and all facts in any manner arising out of, related or pertaining to or connected with those claims, including but not limited to, any claims arising from rights under federal, state, and local laws relating to the regulation of federal or state tax payments or accounting, to federal or state laws which prohibit discrimination on the basis of race, national origin, religion, sex, age, marital status, pregnancy, handicap, perceived handicap, ancestry, sexual orientation, or any other form of discrimination, or to laws such as workers' compensation laws, which provide rights and remedies for injuries sustained in the workplace or any common law claims of any kind, including, but not limited to, contract, tort, and property rights including, but not limited to, breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract or current or prospective economic advantage, fraud, deceit, breach of privacy, misrepresentation, defamation, wrongful termination, tortious infliction of emotional distress, loss of consortium, breach of fiduciary duty, violation of public policy and any other common law claim of any kind whatever, any claims for severance pay, sick leave, family leave, liability pay, vacation, life insurance, bonuses, health insurance, disability or medical insurance or any other fringe benefit or compensation, and all rights or claims arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), or pertaining to ERISA regulated benefits. 3.1 Prohibition of Other Claims. Neither Jaffe nor Bell has filed, nor will either file at any time in the future, any statutory, civil, or administrative claim, complaint, or charge of any kind whatever with any state or federal court, administrative agency, or tribunal of any kind whatever, concerning any subject matter connected with, or pertaining or relating to the issues referred to in this paragraph 3, or paragraph 2, above, and the parties agree that this Agreement and the consideration exchanged in this Agreement are contingent upon this promise not to file any such claim, complaint or charge of any kind whatsoever. 4. Consideration. 4.1 Monetary Consideration. The parties agree that Bell shall pay to Jaffe, pursuant to the terms of this Agreement, the consideration set forth on Exhibit A hereto. 4.2 Confidentiality. Except as provided in this paragraph, Jaffe agrees with and represents to Bell that the existence, fact, terms, or provisions of or information concerning this Agreement, as well as the matters released in this Agreement, shall remain absolutely confidential and shall not be disclosed to the mass media or the press, or to any person, firm, corporation, or other entity (collectively referred to as "any person"), with the sole and exclusive exception of Jaffe's accountant or attorneys (if any) as -2- 3 Exhibit 10 (p) Page 3 of 6 required only for the rendition of such professional services, so long as any such attorneys or accountant is informed of this confidentiality agreement and is instructed by and agrees to retain the confidentiality of this Agreement. 4.3 Confidential Information. Jaffe further agrees that he will not in any fashion, form or manner, either directly or indirectly, solicit or use for his own purposes or for the purposes of any third party, whether person, firm, entity or corporation, or divulge, disclose, or communicate to any person, firm, corporation or entity of any kind material "confidential information" in any form concerning Bell. As used herein "confidential information" means (i) descriptions of or information concerning the performance of services agreed to and undertaken by Bell; (ii) the status of work in progress or future development plans; (iii) any list, compilation, report or other description or information relating to customers, "contract individuals" with customers, prices charged, services performed, employee histories or relations, agreements or relations with agents, shareholders, contractors or other business-related contacts of any kind; (iv) any list, compilation, report or other description of or information concerning business or product or process development, projections, data, figures, estimates, accounting procedures, promotions or tax records; or (v) any other legally-protected confidential information concerning the business of Bell, or any of its officers, directors, employees or related entities, its manner of operation, its plans, including without limitation for product or process development, processes, trade secrets, commercial intentions, business practices or financial condition. Jaffe also agrees that he will not attempt to cause any employee of Bell or its subsidiaries to terminate his or her employment with Bell or such subsidiary and become employed by another entity. 4.4 Company Information. Jaffe also warrants and represents that he has returned to Bell all information and related reports, files, memoranda, records, financial records or statements or technical or business information, credit cards, cardkey passes, door and file keys, computer access codes, software, and other physical or personal property pertaining to or owned by Bell which Jaffe received or prepared or helped prepare while he was an employee of Bell or in connection with his status as an employee of Bell ("Company Information and Assets"). Jaffe further warrants and represents that he has not retained and will not retain any copies, duplicates, reproductions or excerpts in any form of Company Information and Assets, or provide such Company Information and Assets to any third party, including any person, firm, corporation or entity of any kind. 4.5 Full Consideration. The parties expressly agree that the above-referenced consideration is offered and accepted as a complete and final settlement, as fully -3- 4 Exhibit 10 (p) Page 4 of 6 described in this Agreement, of any and all claims and obligations whatsoever. 5. Section 1542 of the Civil code. Jaffe and Bell expressly waive any and all rights under Section 1542 of the Civil Code of the State of California, or any other federal or state statutory rights or rules, or principles of common law or equity, or those of any jurisdiction, government, or political subdivision, similar to section 1542 ( similar provision"). Thus, Jaffe and Bell may not invoke the benefits of Section 1542 or any similar provision in order to prosecute or assert in any manner any claims that are released under this Agreement. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 6. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the parties to this Agreement, and each of them. In the case of Bell, this Agreement is intended to release and inure to the benefit of Bell's subsidiaries (whether or not wholly owned), divisions, predecessors and their shareholders, officers, directors, agents, representatives, employees, and subsidiaries and any and all other related individuals and entities, if any, individually as well as in the capacity indicated. 7. Integration. This Agreement constitutes a single, integrated written contract expressing the entire agreement of the parties to this Agreement. No covenants, agreements, representations, or warranties of any kind whatsoever, whether express or implied in law or fact, have been made by any party to this Agreement, except as specifically set forth in this Agreement. All prior and contemporaneous discussions, negotiations, agreements, and policies have been and are merged and integrated into, and are superseded by, this Agreement. 8. Modifications. No modification, amendment or waiver of any of the provisions contained in this Agreement, or any future representations, promise, or condition in connection with the subject matter of this Agreement, shall be binding upon any party to this Agreement unless made in writing and signed by such party or by a duly authorized officer or agent of such party. 9. Severability. In the event that any provision of this Agreement should be held to be void, voidable, unlawful or for any reason unenforceable, the remaining provisions or -4- 5 Exhibit 10 (p) Page 5 of 6 portions of this Agreement shall remain in full force and effect. 10. Independent Advice From Counsel. Each of the parties had the opportunity to receive prior independent advice from legal counsel of his or its choice with respect to the advisability of making the settlement provided for in this Agreement and with respect to the advisability of executing this Agreement. 11. Execution in Counterparts. This Agreement may be executed and delivered in any number of counterparts or copies ("counterpart") by the parties to this Agreement. When each party has signed and delivered at least one counterpart to the other party to this Agreement, each counterpart shall be deemed an original and, taken together, shall constitute one and the same Agreement, which shall be binding and effective as to the parties to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Bell Industries, Inc. By: /s/ THEODORE WILLIAMS --------------------------------- Theodore Williams (authorized officer) /s/ BRUCE M. JAFFE ------------------------------------ (Bruce M. Jaffe) -5- 6 Exhibit 10 (p) Page 6 of 6 EXHIBIT "A" (1) Cash Payment re Employment Contract (includes medical benefits) $1,020,000 (2) 1996 Management Bonus 65,000 (3) Payable in twelve monthly installments commencing January 1997 150,000 (4) Executive Deferred Compensation (in accordance with plan) 20,000 (5) Executive Life Insurance (Jaffe may purchase at Bell's cost) (6) Bell will pay Jaffe's normal COBRA costs for 18 months.
(7) Stock Option Vesting 1993 Grant--all options granted shall be vested 1994 Grant--in addition to options vested through Jaffe's termination date, an additional 6,020 shares shall be deemed vested all vested option grants must be exercised on or before March 31, 1997 at which time the options expire -6- EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Subsidiaries of the Registrant: Bell Electronics Corp. (California) (*) Bell Industries, Inc. (Minnesota) J. W. Miller Company (California) (*) Industrial Photographic Supply, Inc. (Texas) Milgray Electronics, Inc. (New York) (1) Milgray Electronics/P.R., Inc. (Delaware) (1) Milgray International, Inc. (New York) (1) Milgray LTD (New York) (1) Milgray/Toronto, Inc. (Ontario, Canada) (1) Viewtek, Inc. (New York) (1) Bell Ontario Holding, Inc. (California)
All companies listed are considered wholly owned by the Registrant (Bell Industries, Inc. of California) or one of its wholly owned subsidiaries and are included in the consolidated financial statements except for Milgray Electronics, Inc., and its wholly owned subsidiaries which were acquired by the Registrant in January 1997. - --------------- (*) Inactive. (1) Acquired with Milgray Electronics, Inc. EX-23 5 CONSENT OF INDEPENDENT ACCOUTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-74896, No. 33-38737 and No. 33-73044) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-71030) and in the Prospectus constituting part of the Registration Statement on Form S-4 (No. 33-65229) of Bell Industries, Inc. of our report dated February 4, 1997 appearing on page 12 of this Form 10-K. PRICE WATERHOUSE LLP Los Angeles, California March 19, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 DEC-31-1996 12,097 0 84,781 1,626 104,049 205,121 46,807 24,758 241,310 72,265 30,584 0 0 75,666 62,795 241,310 623,193 623,193 485,634 485,634 106,425 1,235 3,673 27,461 11,534 15,927 0 0 0 15,927 2.10 2.10
-----END PRIVACY-ENHANCED MESSAGE-----