<PAGE> 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)
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 826-2355
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------------------
<S> <C>
Common stock New York Stock Exchange
Pacific Stock Exchange
</TABLE>
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
================================================================================
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
AREA IN SQUARE FEET
(NUMBER OF LOCATIONS)
-----------------------------------
OWNED LEASED
--------------- ---------------
<S> <C> <C> <C> <C>
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)
======= == ======= ===
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
YEAR FIRST
NAMED
NAME AGE POSITION OFFICER
- ------------------- --- --------------------------------------- ----------
<S> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 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.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED YEAR ENDED JUNE 30
------------------------------ DEC. 31 ------------------------------
1996 1995 1994(3) 1994(3) 1994 1993 1992
-------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- ---------------
(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
<PAGE> 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):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------------ -------------------
1996 1995 1994 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
A summary of comparative operating results data follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
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%
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes gain on sale of division of $3,050 in 1995.
6
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 11
FINANCIAL CONDITION
Selected financial position data is set forth in the following table
(dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 14
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED YEAR ENDED
------------------------------ DEC. 31 JUNE 30
1996 1995 1994 1994 1994
-------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE> 15
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE> 16
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK OTHER
--------------------- PAID-IN REINVESTED
SHARES AMOUNT CAPITAL EARNINGS
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
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
========= ======= ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
15
<PAGE> 17
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED YEAR ENDED
------------------------------ DEC. 31 JUNE 30
1996 1995 1994 1994 1994
-------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16
<PAGE> 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
<PAGE> 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):
<TABLE>
<S> <C>
1997...................................... $ 7,500
1998...................................... 7,500
1999...................................... 10,000
2000...................................... 12,500
2001...................................... 117,500
</TABLE>
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):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales.............................................. $895,300 $820,000
Net income............................................. $ 17,100 $ 17,500
Net income per share................................... $ 2.25 $ 2.35
</TABLE>
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES PAYABLE
Notes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of activity under the plans follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE FAIR VALUE
AVAILABLE FOR UNDER EXERCISE PRICE OF OPTION
FUTURE GRANT OPTION PER SHARE PER SHARE
------------- ------- -------------- ----------
<S> <C> <C> <C> <C>
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
======== ======= ======
</TABLE>
A summary of weighted average amounts for stock options outstanding at
December 31, 1996 follows:
<TABLE>
<CAPTION>
REMAINING
OPTION LIFE OPTIONS OPTIONS EXERCISE
IN YEARS OUTSTANDING EXERCISABLE PRICE
---------------------------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED YEAR ENDED
----------------------------------- DECEMBER 31 JUNE 30
1996 1995 1994 1994 1994
------- ------- ----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======= ======= ====== ====== ======
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED YEAR ENDED
----------------------------------- DECEMBER 31 JUNE 30
1996 1995 1994 1994 1994
------- ------- ----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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%
==== ==== ==== ==== ====
</TABLE>
The provision (credit) for deferred income taxes is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED YEAR ENDED
----------------------------------- DECEMBER 31 JUNE 30
1996 1995 1994 1994 1994
------- ------- ----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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)
====== ======= ===== ===== =====
</TABLE>
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax balances were composed of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1995
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
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):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1995
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
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
====
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS YEAR
DECEMBER 31 ENDED ENDED
------------------------------- DECEMBER 31 JUNE 30
1996 1995 1994 1994 1994
-------- -------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
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
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
25
<PAGE> 27
CONSOLIDATED OPERATIONS SUMMARY (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(1) Includes gain on sale of division of $3,050 in 1995.
26
<PAGE> 28
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------- ----------
BALANCE AT CHARGED TO ACCOUNTS BALANCE
BEGINNING COSTS AND CHARGED AT END
DESCRIPTION OF PERIOD EXPENSES OFF OF PERIOD
- ------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
27
<PAGE> 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
<PAGE> 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:
<TABLE>
<C> <S>
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.
</TABLE>
29
<PAGE> 31
<TABLE>
<C> <S>
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.
</TABLE>
(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
<PAGE> 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/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
</TABLE>
31
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- ----------
<C> <C> <S> <C>
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............................................................
</TABLE>
- ---------------
(*) Incorporated by reference.
<PAGE> 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
<PAGE> 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
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 6
Exhibit 10 (p)
Page 6 of 6
EXHIBIT "A"
<TABLE>
<S> <C> <C>
(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.
</TABLE>
(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-
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant:
<TABLE>
<S> <C>
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)
</TABLE>
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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,097
<SECURITIES> 0
<RECEIVABLES> 84,781
<ALLOWANCES> 1,626
<INVENTORY> 104,049
<CURRENT-ASSETS> 205,121
<PP&E> 46,807
<DEPRECIATION> 24,758
<TOTAL-ASSETS> 241,310
<CURRENT-LIABILITIES> 72,265
<BONDS> 30,584
0
0
<COMMON> 75,666
<OTHER-SE> 62,795
<TOTAL-LIABILITY-AND-EQUITY> 241,310
<SALES> 623,193
<TOTAL-REVENUES> 623,193
<CGS> 485,634
<TOTAL-COSTS> 485,634
<OTHER-EXPENSES> 106,425
<LOSS-PROVISION> 1,235
<INTEREST-EXPENSE> 3,673
<INCOME-PRETAX> 27,461
<INCOME-TAX> 11,534
<INCOME-CONTINUING> 15,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,927
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
</TABLE>
