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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number: 0-21528
BELL MICROPRODUCTS INC.
(Exact name of registrant as specified in its charter)
California 94-3057566
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1941 Ringwood Avenue, San Jose, California 95131-1721
(Address of principal executive office, including zip code)
Registrant's telephone number, including area code: (408) 451-9400
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of February 28, 1997, was approximately $67,591,989 based upon
the last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by officers and
directors of the Registrant have been excluded because such persons may be
deemed to be affiliates. This determination is not necessarily conclusive.
The number of shares of Registrant's Common Stock outstanding as of
February 28, 1997 was 8,481,979.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on May 21, 1997 are incorporated by reference into Part
III of this Form 10-K
Index of Exhibits appears on Pages 42, 43 and 44.
================================================================================
PART I
ITEM 1: Business
Founded in 1987, Bell Microproducts Inc. (the "Company") markets and
distributes a select group of semiconductor and computer products to original
equipment manufacturers ("OEMs") and value-added resellers ("VARs").
Semiconductor products include memory, logic microprocessors, peripheral and
specialty components. Computer products include disk, tape and optical drives
and subsystems, drive controllers, computers and board-level products. The
Company also provides a variety of manufacturing and value-added services to its
customers, including the manufacturing of board-level and systems products to
customer specifications, as well as certain types of components and subsystem
testing services, systems integration and disk drive formatting and testing, and
the packaging of electronic component kits to customer specifications.
The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. To the extent there are discussions regarding
financial projections, information, or expectations about the Company's products
or markets, or other statements about the future, the statements are
forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made,
including in particular those factors described under "Risk Factors" below.
Reference should also be made to other documents the Company files from time to
time with the Securities and Exchange Commission. These documents may contain
and identify other important factors or information that could cause the actual
events or results to differ materially from those contained herein.
Forward-looking statements are indicated by an asterisk immediately following
the relevant statement.
Products and Services
Semiconductor Products
The Company distributes a broad range of semiconductor products
including memory, logic, microprocessor, peripheral and specialty components.
The products distributed primarily are advanced integrated circuits, critical to
the performance of the customer's products utilizing these components. The
Company's customer base for its semiconductor products comprises primarily small
and medium-sized OEMs, including manufacturers of computer and office products,
industrial equipment (including machine tools, factory automation and robotic
equipment), scientific and medical instruments and telecommunications products.
The Company's principal suppliers of semiconductor products in 1996 included IBM
Microelectronics, Cypress Semiconductor, Sony Electronics, OKI Semiconductor,
NEC Electronics and Fujitsu Microelectronics. In addition, in the second half of
1996 the Company became a national distributor of Harris Semiconductor's
digital, linear and power integrated circuits.
Computer Products
While a substantial portion of the Company's sales of computer products
in 1996 was attributable to hard disk drives, the Company's computer product
sales also included optical disk drives, imaging products and solutions,
networking products, computers, motherboards and value-added products. Based on
a comparison of its product lines with product lines offered by other major
industrial electronics distributors, the Company believes that its breadth of
product offerings for mass storage computer products is among the strongest in
the industry. The Company distributes these products primarily to industrial
OEMs, hardware integrators, VARs and dealers.
Disk Drives and Tape Drives. The Company sells floppy, hard and optical
disk and tape drives to a wide range of customers, including industrial OEMs
(some of which produce computer, office, medical and
-1-
telecommunications products), as well as integrators and manufacturers of
computers based on the UNIX, DOS/Windows and Macintosh operating systems and
frequently markets subsystems to integrators and VARs. To serve these customers,
Bell Microproducts offers a full range of products from the industry leaders in
mass storage such as Adaptec Inc., Exabyte Corporation, IBM, Micropolis
Corporation, Quantum Corporation, Seagate Technology, Sun Microelectronics, a
division of Sun Microsystems Inc., TEAC and Unisys Corporation.
Optical and Imaging Solutions. The Company markets a broad range of
product lines and solutions to optical mass storage and imaging customers,
including optical disk drives, scanner, memory, computer, "jukebox" (robotic
media changers) and software products for these applications. Product lines
represented include Philips Laser Magnetic Storage, Sony Electronics, Maxoptix
Corporation, Panasonic Communications and Systems and Ricoh Corporation, as well
as software drivers for most operating systems. The Company also sells
specialized software for imaging applications.
Networking Products. The Company sells specialized products and mass
storage memory and memory systems products including full "plug and play" (ready
for immediate installation) tape, optical (including jukebox) and RAID
(Redundant Array of Inexpensive Disks) solutions for OEMs, VARs and
sophisticated end users. These solutions are configured using standard
components from the Company's inventory.
Computers. Bell Microproducts delivers standard and custom
configurations of motherboards, computers and file servers to the VAR and OEM
markets, including medical, commercial and test system OEMs and vertical market
VARs. The principal motherboard suppliers are First International Computer (FIC)
and Sun Microelectronics. The Company's principal computer suppliers are Diamond
Flower Electric Instrument Company and Everex.
Value-Added Services
The Company provides the following services through its contract
manufacturing division:
Contract Manufacturing. The Company produces board-level products for
customers on a turnkey basis. Contract manufacturing operations involve building
board-level products to customer specifications, utilizing franchised and
non-franchised products and materials. Under these turnkey agreements, the
Company procures the required raw materials, manages the assembly and test
operations, and supplies circuit boards to the customer's delivery schedule and
quality requirements.
The capabilities of the Company's manufacturing division (Quadrus)
include automated advanced surface mount technology (SMT) and pin-through-hole
(PTH) assembly capabilities, complete with advanced in-circuit and functional
test capabilities and ISO 9002 certification. Quadrus utilizes the ASK Computer
materials requirements planning (MRP) system to manage its inventories. By
capitalizing on its strengths as a distributor, including its strong customer
relations, expertise in materials acquisition and inventory management, coupled
with a complete in-house kitting and turnkey manufacturing capability, the
Company offers its customers high quality products and service as well as a
single source for their product, materials, assembly and test requirements.
Subsystems Integration. Subsystems integration is a service where the
Company provides a turnkey solution to a customer's specification by integrating
such high technology products as disk, tape and optical drives with passive and
electromechanical products, including power supplies, enclosures, interface
electronics, cables and connectors.
Kitting. Kitting of customer component product requirements is provided
to a select customer base. Kitting is a service where the Company purchases
materials according to the customer's specifications and provides them to the
customer in kit form, ready for the assembly process.
-2-
Distribution Operations
The majority of the products sold by Bell Microproducts' distribution
division are purchased pursuant to authorized distributor agreements. Authorized
distributor agreements generally establish marketing relationships with product
manufacturers, provide for joint sales and marketing programs and generally
provide the Company price protection and limited inventory rotation rights.
These agreements are typically for renewable terms of one year, are
non-exclusive, and authorize the Company to sell through most or all of its
sales and distribution centers all or a portion of the products produced by that
manufacturer.
The Company manages the quality and quantity of its distribution
inventory through its asset management group, which seeks to maximize
responsiveness to customer requirements while optimizing inventory turns.
Inventory management is critical to a distributor's business. The Company's
strategy is to focus on a high number of resales or "turns" of existing
inventory to reduce exposure due to product obsolescence and changing consumer
demands. The Company's IBM RS6000 computer system facilitates the control of
purchasing and inventory, accounts payable, shipping and receiving, and
invoicing and collection information for the Company's distribution business.
Each of the Company's sales centers is electronically linked to the Company's
central computer system which provides fully integrated on-line real-time data
with respect to the Company's inventory levels. Inventory turns are tracked by
line item, and the Company's inventory management system provides information to
assist in making purchasing decisions and decisions as to which inventory to
exchange with suppliers under stock rotation programs. This system enables the
Company to effectively manage its inventory and to respond quickly to customer
requirements. The asset management group also monitors supplier stock rotation
programs, inventory price protection, rejected material and other factors
related to inventory quality and quantity. In addition, in 1996 the Company
implemented a technology that enables its customers to submit bills of materials
(BOMs), verify product availability and obtain current quotes through the
Internet.
Backlog
The Company does not believe that information concerning backlog is
material to an understanding of its business, as the Company's objective is to
ship orders on the same day they are received unless the customer has requested
a specific future delivery date on an order. Additionally, it is common industry
practice for customers, in most cases, to be able to re-schedule or cancel
orders with future delivery dates without penalties.
Marketing and Sales
The semiconductor and computer products industries are characterized by
rapid technological advances and a constant flow of new products. The resulting
shorter product life cycles have necessitated compressed design and development
cycles, more rapid production build-up and quick response to major technological
shifts. To react to these factors, manufacturers are focusing on and devoting
significant resources to their core areas of expertise including research and
product design and development, and are increasingly outsourcing their marketing
and manufacturing requirements.
Over the past two decades the growth in the electronics distribution
industry reflects a gradual trend among electronics manufacturers towards the
use of distributors, particularly for servicing medium and smaller size OEMs and
VARs. As a result of these trends, distributors such as Bell Microproducts Inc.
have successfully expanded their customer lists and line cards and consequently
achieved increased revenues.
-3-
Strategy
The Company's business strategy is designed to benefit from industry
trends toward increasing use of distributors and the outsourcing of
manufacturing requirements. The Company seeks to maintain its position as one of
the most efficient and productive distributors in the industry. The Company's
strategy includes the following key elements:
Focus on Select Product Offerings. The Company's product strategy is to
focus its line card on a select group of semiconductor and computer products,
including a particularly strong line of mass storage products, with the goal of
achieving a leadership position in the major markets for such products. This
approach allows the Company to provide more knowledgeable service and technical
support to its customers than it could if it offered a more extensive array of
products. The Company also believes that this approach should allow it to
develop close working relationships with suppliers and to strengthen its ability
to obtain favorable product allocations in times of shortage of supply.
Expand Operating Profit. The Company seeks to maximize its operating
profit through two aspects of its sales, marketing and product strategies: (i)
increasing distribution of relatively high gross margin products, such as
semiconductors with leading edge technology content and (ii) selling high volume
products, thereby enhancing productivity and allowing the Company to increase
gross profit while controlling operating expenses.
Provide National Major Market Distribution. The Company focuses its
marketing and sales strategy on the largest U.S. markets with the goal of
maximizing productivity per sales office. With its 19 sales locations, the
Company addresses what it believes constitutes many of the largest sectors of
the national market for semiconductor and computer products. The Company
continues to evaluate potential expansion into additional markets.
Realize Synergies Between Contract Manufacturing and Distribution. The
Company seeks to take advantage of synergies and efficiencies arising out of the
combination of distribution and contract manufacturing in a single organization.
Through its distribution arm, the Company provides its contract manufacturing
operation access to preferred component purchasing, as well as a substantial
sales force that would be difficult for a stand alone contract manufacturer of
comparable size to support.
Employees
At December 31, 1996, the Company had a total of 650 employees. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good. The Company's future success will depend in part upon its continuing
ability to attract and retain highly qualified personnel. Competition for such
employees is intense and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. Failure to attract and
retain highly qualified personnel could have a material adverse effect on the
Company's results of operations.
Risk Factors
Potential Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have in the past and could in
the future fluctuate substantially. The Company's expense levels are based, in
part, on expectations of future sales. If sales in a particular quarter do not
meet expectations, operating results could be adversely affected. Factors
affecting quarterly operating results include the loss of key suppliers or
customers, price competition, problems incurred in managing inventories or
receivables, the timing or cancellation of orders from major customers, a change
in the product mix sold by the Company, customer
-4-
demand, availability of products from suppliers, management of growth, the
percent of revenue derived from distribution versus contract manufacturing, the
Company's ability to collect accounts receivable, price decreases on inventory
that is not price protected, the timing or cancellation of purchase orders with
or from suppliers, and the timing of expenditures in anticipation of increased
sales and customer product delivery requirements. Price competition in the
industries in which the Company competes is intense and could result in gross
margin declines, which could have an adverse impact on the Company's
profitability. Due in part to supplier rebate programs and increased sales by
the Company near the end of each quarter, a significant portion of the Company's
gross profit has historically been earned by the Company in the third month of
each quarter. Failure to receive products from its suppliers in a timely manner
or the discontinuance of rebate programs could have a material adverse effect on
the Company's results of operations in a particular quarter. In various periods
in the past, the Company's operating results have been affected by all of these
factors. In particular, price fluctuations in the disk drive and semiconductor
industries have affected the Company's gross margins in recent periods. The
Company has recently experienced rapid sales growth and there can be no
assurance that such sales growth will continue or that such sales and profit
levels will be maintained. The Company's cash requirements will depend on
numerous factors, including the rate of growth of its sales. The Company
believes that its working capital, including its existing credit facility, will
be sufficient to meet the Company's short term capital requirements. However,
the Company may seek additional debt or equity financing to fund continued
growth.
Dependence on Suppliers
A select number of suppliers represent a significant portion of the
Company's sales. For the year ended December 31, 1996, Quantum provided products
which represented 37% of the Company's sales. For the year ended December 31,
1995, Quantum and IBM provided products that represented 25% and 11%
respectively, of the Company's sales. The Company's distribution agreement with
Quantum is cancelable upon 90 days notice. In the past, distribution
arrangements with significant suppliers have been terminated and there can be no
assurance that, in the future, one or more of the Company's significant
distributor relationships will not be terminated. The loss of Quantum, IBM or
any significant supplier or the shortage or loss of any significant product line
could materially adversely affect the Company. As the Company enters into
distribution arrangements with new suppliers, other competitive suppliers may
terminate their distribution arrangements with the Company with minimal notice.
In the first quarter of 1996, Hitachi America Ltd. terminated its distribution
agreement with the Company. This supplier accounted for approximately $1.7
million and $297,000 of the Company's sales and gross profit, respectively, for
the quarter ended December 31, 1995. To the extent that the Company is unable to
enter into or maintain distribution arrangements with leading suppliers of
components, the Company's sales and operating results could be materially
adversely affected.
The Company's authorized distributor agreements may be canceled by
either party on short notice and generally provide for a return of the
manufacturer's inventory upon cancellation. Such agreements also generally
provide the Company with price protection and limited inventory protection
rights. There can be no assurance that such agreements will not be canceled, or
that price protection and inventory rotation policies will provide complete
protection or will not be changed in the future. If the Company were to purchase
significant amounts of products on terms that do not include effective price
protection or inventory rotation rights, the Company would bear the risk of
obsolescence and price fluctuation for those products. In particular, in
February 1996 the Company reported fourth quarter 1995 charges of $1.6 million,
net of tax, related to inventory valuation issues of certain DRAM products. The
price levels of such DRAM products had fallen significantly, requiring
revaluation of inventory and these products were not subject to the price
protection and inventory rotation rights normally applicable to components
purchased from the Company's franchised suppliers. There can be no assurance
that the Company will not have to take additional charges to earnings in the
future due to inventory valuation issues, which could have a material adverse
effect on the Company's results of operations.
-5-
Dependence on the Personal Computer Industry
Many of the products the Company sells are used in the manufacture or
configuration of personal computers. These products are characterized by rapid
technological change, short product life cycles and intense competition. The
personal computer industry has experienced significant unit volume growth over
the past three years, which has in turn increased demand for many of the
products distributed by the Company, however, any slowdown in the growth of the
personal computer industry, or growth at less than expected rates, could
adversely affect the Company's ability to continue its revenue growth. In
addition, many of the Company's customers in the personal computer industry are
subject to the risks of significant shifts in demand and severe price pressures,
which may increase the risk that the Company may not be able to collect accounts
receivable owed by some of its customers. To the extent the Company is unable to
collect its accounts receivable, the Company's results of operations would be
adversely affected.
The Company faces certain industry-related risks. To the extent that
its suppliers do not maintain their product leadership, the Company's operating
results could be materially adversely affected. Moreover, the increasingly short
product life cycles experienced in the electronics industry may increase the
Company's exposure to inventory obsolescence and the possibility of fluctuations
in operating results. Other factors adversely affecting the semiconductor or
computer industries in general, including trade barriers which may affect the
Company's supply of products from its Japanese suppliers, could have a material
adverse effect on the Company's operating results.
Cyclical Nature of the Semiconductor and Disk Drive Industries
Semiconductors and disk drives have represented a significant portion
of the Company's sales and the Company believes they will continue to do so in
future periods.* Both the semiconductor and the disk drive industries have
historically been characterized by fluctuations in product supply and demand
and, consequently, severe fluctuations in price. In the event of excess supply
of disk drives or semiconductors, the Company's gross margins may be adversely
affected. In the event of a shortage of supply of disk drives or semiconductors,
the Company's results of operations will depend on the amount of product
allocated to the Company by its suppliers and the timely receipt of such
allocations. Additionally, technological changes that affect the demand for and
prices of the products distributed by the Company may further affect the
Company's gross margins. Although the Company's agreements with its suppliers
provide the Company with limited price protection and certain rights of stock
rotation, rapid price declines or a shortfall in demand for disk drives or
semiconductor products could have an adverse effect on the Company's sales or
gross margins.
Competition
The distribution industry is highly competitive. In the distribution of
semiconductor and computer products, the Company generally competes for both
supplier and customer relationships with numerous local, regional and national
authorized and unauthorized distributors and for customer relationships with
semiconductor and computer product manufacturers, including some of its own
suppliers. Many of the Company's distribution competitors are larger, more
established and have greater name recognition and financial and marketing
resources than the Company. The Company believes that competition for
distribution customers is based on product lines, customer service, product
availability, competitive pricing and technical information, as well as
value-added services including kitting and turnkey assembly. The Company
believes that it competes favorably with respect to these factors. There can be
no assurance that the Company will be able to compete successfully with existing
or new competitors. Failure to do so would have a material adverse effect on the
Company's results of operations.
Contract manufacturing and other value-added services are highly
competitive and are based upon technology, quality, service, price and the
ability to deliver finished products on an expeditious and reliable basis. The
Company
-6-
believes it competes favorably with respect to such factors. The Company
attempts to focus on markets where it has advantages in flexibility, service and
high component content of the total price. In this area, the Company competes
with many contract manufacturers and other distributors, as well as with the
in-house manufacturing capabilities of its existing and potential customers.
Many of the Company's competitors are larger, more established and have greater
name recognition and financial and marketing resources than the Company. The
Company also faces significant offshore competition in turnkey manufacturing.
Although such competitors may offer lower bid prices, the Company believes that
offshore manufacturing is often less attractive due to the additional costs and
risks associated with utilizing offshore services, such as delays in shipping,
long lead items, shipping and insurance costs, inflexibility with respect to
production and engineering changes, high cancellation charges, uncertain product
quality and difficulty in communication.
Both distribution and contract manufacturing businesses are highly
competitive, and there can be no assurance that the Company will be able to
compete successfully with existing or new competitors. Failure to do so would
have a material adverse effect on the Company's operating results.
Short History of Profitability in Contract Manufacturing
The Company's revenues from its contract manufacturing operations are
likely to depend on the availability of necessary components, from a single
source or otherwise, whose lack of availability could delay or curtail
production and shipment of assemblies utilizing such components. Manufacturing
sales levels and profitability increased in 1996 as compared to prior years. Due
to the highly competitive nature of the contract manufacturing industry, there
can be no assurance that this trend will continue, that higher sales levels will
in fact result in increased profitability or that the Company will be able to
successfully manage the expanded operations, retain existing customers or
attract new contract manufacturing customers sufficient to support its expected
expanded level of operations. Failure to do so could have an adverse effect on
the Company's operating results. The Company's contract manufacturing division
has been dependent historically on a relatively limited customer base. Any
significant rescheduling or cancellation of orders from these customers, or the
lack of financial strength of these customers, could have a material adverse
effect on the results of operations of the contract manufacturing division and
on the profitability of the Company.
Management of Growth
The Company has grown rapidly in recent years, with sales increasing
from $125.3 million in 1993 to $483.3 million in 1996, and this growth has
placed, and continues to place a strain on the Company's management, financial
and operational resources. The Company intends to continue to pursue its growth
strategy through increasing sales of existing and new product offerings,
increasing geographical sales coverage, and possibly through strategic
acquisitions.* The Company also plans to expand its corporate offices into a
second building in April 1997, and to relocate its contract manufacturing
division, which will expand its facilities and enable increased manufacturing
capacity.* This expected growth may require additional equipment, increased
personnel, expanded information systems and additional financial and
administrative control procedures.* There can be no assurance that the Company
will be able to attract and retain qualified personnel or further develop
accounting and control systems and successfully manage expanding operations,
including an increasing number of supplier and customer relationships and
geographically dispersed locations. Further, there can be no assurance that the
Company will be able to sustain its recent rate of growth or continue its
profitable operations.
Hazardous Materials
The Company uses small quantities of certain hazardous materials in its
contract manufacturing operations. As a result, the Company is subject to
stringent Federal, state and local regulations governing the storage, use and
disposal
-7-
of such materials. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed by
state and Federal regulations, there is nevertheless the risk of accidental
contamination or injury from these materials. To date, the Company has not
incurred substantial expenditures for preventative action with respect to
hazardous materials or for remedial action with respect to any hazardous
materials accident. In the event of such an accident, the Company could be held
liable for any damages that result. The liability in the event of an accident or
the costs of such remedial actions could have a material adverse effect on the
Company's financial condition and results of operations.
ITEM 2: Properties
Square
Location Type Principal Use Footage Ownership
- ------------------ --------------------- ------------------------ ----------- ---------------------------------
San Jose, CA Office, warehouse Headquarters, 34,000 Leased until May 1999 with
distribution center option to extend one year.
(Bldg. One)
San Jose, CA Office Headquarters (Bldg. Two) 15,657 Leased until December 2002 with
five one-year options to extend.
San Jose, CA Office, plant & Contract Manufacturing 60,958 Termination notice tendered and
warehouse effective April 7, 1997.
San Jose, CA Office, plant & Contract Manufacturing 141,520 Leased from March 1997 to
warehouse February 2006.
The Company also leases sales and/or warehouse locations in Irvine, San
Diego, San Jose (Capitol Avenue), Glendale and Westlake Village, California;
Alamonte Springs and Deerfield Beach, Florida; Marietta, Georgia; Chicago,
Illinois; Overland Park, Kansas; Columbia, Maryland; Billerica, Massachusetts;
Eden Prairie, Minnesota; Clifton, New Jersey; Smithtown, New York; Richardson
and Austin, Texas; Centerville, Utah; Herndon, Virginia and Redmond, Washington.
ITEM 3: Legal Proceedings
The Company is not a party to, nor is its property subject to, any
material pending legal proceedings.
ITEM 4: Submission of Matters to a Vote of Security Holders
None.
-8-
PART II
ITEM 5: Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "BELM." The following table sets forth for the periods
indicated the high and low sale prices of the Common Stock as reported by
Nasdaq.
High Low
------ -----
Fiscal 1995
First Quarter ..................................... $14.25 $8.00
Second Quarter .................................... 10.50 8.00
Third Quarter ..................................... 13.50 9.63
Fourth Quarter .................................... 12.25 7.00
Fiscal 1996
First Quarter ..................................... $ 8.25 $5.88
Second Quarter .................................... 9.88 6.63
Third Quarter ..................................... 8.13 5.75
Fourth Quarter .................................... 8.88 6.75
Fiscal 1997
First Quarter (through February 28, 1997) ......... $12.25 $8.63
On February 28, 1997, the last sale price of the Common Stock as
reported by Nasdaq was $10.88 per share.
As of February 28, 1997 there were approximately 322 holders of record
of the Common Stock (not including shares held in street name).
To date, the Company has paid no cash dividends to its shareholders.
The Company has no plans to pay cash dividends in the near future. The Company's
line of credit agreement prohibits the Company's payment of dividends or other
distributions on any of its shares except dividends payable in the Company's
capital stock.
-9-
ITEM 6: Selected Financial Data
BELL MICROPRODUCTS INC.
SELECTED FINANCIAL DATA
(in thousands, except earnings per share data)
1996 1995 1994(1) 1993(2) 1992
--------- --------- --------- --------- ---------
Statement of Operations Data:
Sales ........................................ $ 483,316 $ 346,291 $ 250,753 $ 125,303 $ 65,512
Cost of sales................................. 425,258 305,696 217,277 107,999 55,424
--------- --------- --------- --------- ---------
Gross profit ............................... 58,058 40,595 33,476 17,304 10,088
Marketing, general and
administrative expenses .................... 41,008 30,352 23,258 13,200 8,769
--------- --------- --------- --------- ---------
Income from operations ..................... 17,050 10,243 10,218 4,104 1,319
Interest expense.............................. (3,495) (3,473) (1,691) (501) (316)
--------- --------- --------- --------- ---------
Income before income taxes ................. 13,555 6,770 8,527 3,603 1,003
Provision for income taxes ................... 5,693 2,768 3,471 1,549 452
--------- --------- --------- --------- ---------
Net income ................................... $ 7,862 $ 4,002 $ 5,056 $ 2,054 $ 551
========= ========= ========= ========= =========
Earnings per share............................ $ .92 $ .48 $ .86 $ .45 $ .14
========= ========= ========= ========= =========
Weighted average common shares and
equivalents (3)............................. 8,511 8,350 5,878 4,515 3,818
As of December 31,
-------------------------------------------------------------------------------
1996 1995 1994(1) 1993(2) 1992
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital .............................. $ 105,958 $ 106,914 $ 52,230 $ 17,400 $ 8,106
Total assets.................................. 175,680 157,277 122,502 51,253 27,985
Total long-term debt ......................... 50,885 59,453 6,059 1,130 111
Total shareholders' equity ................... 71,127 62,462 56,465 18,351 8,507
- --------------------
(1) 1994 Statement of Operations Data and Balance Sheet Data reflect the
effects of the purchase of Vantage Components, Inc. on May 26, 1994 (see
Note 11 of Notes to Financial Statements).
(2) 1993 Statement of Operations Data and Balance Sheet Data reflect the
effects of the purchase of certain assets of Adlar Turnkey Manufacturing
Corporation ("ATMC") on April 7, 1993.
(3) See Note 2 of Notes to Financial Statements.
ITEM 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
For an understanding of the significant factors that influenced the
Company's performance during the past three years, the following discussion
should be read in conjunction with the financial statements and the other
information appearing elsewhere in this report.
The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. To the extent there are discussions regarding
financial projections, information, or expectations about the Company's products
or markets, or other statements about the future, the statements are
forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made,
including in particular the factors discussed under "Risk Factors" in Item 1
hereof. Reference should also be made to documents the Company files from time
to time with the Securities and Exchange Commission. These documents may contain
and identify important factors or information that could cause the actual events
or results to differ materially from those contained herein. Forward-looking
statements are indicated by an asterisk immediately following the relevant
statement.
Results of Operations
The following table sets forth certain financial data as a percentage
of total Company sales for the periods indicated:
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----- ----- -----
Sales
Distribution ...................................................... 80.9% 85.7% 88.1%
Manufacturing ..................................................... 19.1% 14.3% 11.9%
----- ----- -----
Total Company ................................................ 100.0% 100.0% 100.0%
----- ----- -----
Cost of sales
Distribution ...................................................... 71.4% 75.6% 76.3%
Manufacturing ..................................................... 16.6% 12.7% 10.3%
----- ----- -----
Total Company ................................................ 88.0% 88.3% 86.6%
----- ----- -----
Gross profit ........................................... 12.0% 11.7% 13.4%
Marketing, general and administrative expenses ......................... 8.5% 8.8% 9.3%
----- ----- -----
Income from operations ................................................. 3.5% 2.9% 4.1%
Interest expenses ...................................................... (0.7%) (1.0%) (0.7%)
Income before income taxes ............................................. 2.8% 1.9% 3.4%
Provision for income taxes ............................................. 1.2% 0.8% 1.4%
----- ----- -----
Net income ............................................................. 1.6% 1.1% 2.0%
===== ===== =====
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales were $483.3 million for the year ended December 31, 1996,
which represented an increase of $137.0 million or 40% over 1995. Distribution
sales increased by $94.6 million, while sales through the Company's contract
manufacturing division (Quadrus) increased by approximately $42.4 million over
1995. Substantially the entire increase in distribution sales was attributable
to computer products with the expansion of unit sales in existing product
-11-
lines due to increased demand for mass storage products, a larger proportion of
value-added and subsystem sales and the expansion of the customer base due to
the addition of sales and marketing resources. Semiconductor sales decreased
slightly in 1996 from 1995 primarily due to decreased DRAM unit sales,
industry-wide price declines in memory products and the discontinuation of the
distribution agreement with Hitachi America Ltd. Manufacturing sales growth in
1996 was primarily a result of increased sales to existing customers, enabled by
increased manufacturing equipment capacity.
The Company has grown rapidly in recent years, with sales increasing
from $125.3 million in 1993 to $483.3 million in 1996, and this growth has
placed, and continues to place a strain on the Company's management, financial
and operational resources. The Company intends to continue to pursue its growth
strategy through increasing sales of existing and new product offerings,
increasing geographical sales coverage, and possibly through strategic
acquisitions.* The Company also plans to expand its corporate offices into a
second building in April 1997, and to relocate its contract manufacturing
division, which will expand its facilities and enable increased manufacturing
capacity.* This expected growth may require additional equipment, increased
personnel, expanded information systems and additional financial and
administrative control procedures.* There can be no assurance that the Company
will be able to attract and retain qualified personnel or further develop
accounting and control systems and successfully manage expanding operations,
including an increasing number of supplier and customer relationships and
geographically dispersed locations. Further, there can be no assurance that the
Company will be able to sustain its recent rate of growth or continue its
profitable operations.
The Company's gross profit for 1996 was $58.1 million, which was $17.5
million, or 43% higher than 1995. Of the total gross profit increase, $11.4
million was attributable to the distribution division, and $6.1 million was
generated through the Company's contract manufacturing division. As a percentage
of sales, gross margin was 12.0% in 1996 as compared to 11.7% in 1995. The
increase in total Company gross margin was primarily a result of increased gross
margin in the contract manufacturing division to 13.0% in 1996, as compared to
11.8% in 1995. The increase in contract manufacturing gross margin was primarily
attributable to decreased material costs, most significantly for memory
products. In the distribution division, margins in 1996 were 11.8% compared to
11.7% in 1995. The increase in gross margin was primarily a result of a
decreased dependence by the Company on sales of DRAM memory product, which was
partially reduced by a greater proportion of computer product sales as a
percentage of total Company sales, which contributed lower margins.
Marketing, general and administrative expenses increased to $41.0
million in 1996 from $30.4 million in 1995, an increase of $10.6 million, or
35%, but decreased as a percentage of sales to 8.5% from 8.8%. The decline in
marketing, general and administrative expenses as a percentage of sales was
primarily attributable to the Company's successful efforts to control costs
while increasing sales, and a higher proportion of sales from large volume
orders, particularly for hard disk drives and certain semiconductor devices,
both of which resulted in lower operating expenses as a percentage of sales. The
increase in expenses was attributable to increased sales volume, the Company's
continuing effort to expand its sales and marketing organization, the addition
of operating expenses related to the contract manufacturing division and
increases to bad debt expenses due to increased sales volumes and changing
market conditions.
Interest expense remained unchanged at $3.5 million in 1996 versus
1995, despite record sales growth over the same period. This was attributable to
the Company's efforts to manage working capital by decreasing its days sales
outstanding on accounts receivable, increasing its inventory turns and
negotiating more favorable payment terms with certain suppliers.
-12-
The Company's effective income tax rate increased to 42.0% in 1996
compared to 40.9% in 1995, primarily due to the increased Federal income tax
rate, related to increased earnings.
Net income increased to $7.9 million in 1996 from $4.0 million in 1995.
The increase in net income was primarily the result of sales growth and
increased gross margins, partially offset by increased operating expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales were $346.3 million for the year ended December 31, 1995,
which represented an increase of $95.5 million or 38% over 1994. Distribution
sales increased by $75.8 million, and sales through the Company's contract
manufacturing division (Quadrus) increased by approximately $20 million over
1994. Substantially all of the increase in distribution sales was attributable
to the expansion of unit sales in existing product lines due to the addition of
sales and marketing resources, the addition of new lines, the expansion of the
customer base and the acquisition of Vantage in May 1994. Semiconductor sales
increased slightly from 1994, while computer product sales increased over $65
million. Semiconductor sales were adversely affected by lower allocations of
memory products from a major supplier. Across all other semiconductor lines
combined, sales increased over $25 million in 1995 compared to 1994, as a result
of sales growth in existing products lines, the addition of Cypress
Semiconductor Corporation as a new supplier in October 1994 and the acquisition
of Vantage in May 1994. Computer product sales growth in 1995 was positively
affected by higher unit sales and a larger proportion of high capacity hard disk
drives which commanded higher average selling prices, as well as the addition of
new product lines. Contract manufacturing sales increased in 1995 as a result of
increased sales to new and existing customers, enabled by increased
manufacturing equipment capacity.
The Company's gross profit for 1995 was $40.6 million, which was $7.1
million, or 21% higher than 1994. Of this total gross profit increase, $5.3
million was attributable to distribution sales, and $1.8 million was generated
through the Company's contract manufacturing division. As a percentage of sales,
gross margin was 11.7% in 1995 as compared to 13.4% in 1994. The decrease in
gross margin was primarily attributable to fourth quarter charges of $2.5
million related to the write-down of certain DRAM inventories in the
distribution segment of the business, as well as an increase in computer product
sales as a percentage of total Company sales, which typically generate lower
margins. Gross margin, as a percentage of sales, decreased in the contract
manufacturing division in 1995, primarily due to the Company's efforts to
increase market penetration in this segment, including initial startup costs for
new customers.
Marketing, general and administrative expenses increased to $30.4
million in 1995 from $23.3 million in 1994, an increase of $7.1 million, or 30%,
but decreased as a percentage of sales to 8.8% from 9.3%. The decline in
marketing, general and administrative expenses as a percentage of sales was
primarily attributable to the Company's successful efforts to control costs
while increasing sales, and a higher proportion of sales from large volume
orders, particularly for hard disk drives and certain semiconductor devices,
both of which resulted in lower operating expenses as a percentage of sales. The
increase in expenses was attributable to the acquisition of Vantage in May 1994,
the Company's continuing effort to expand its sales and marketing organization,
the addition of operating expenses related to the contract manufacturing
division, as well as an increase in the Company's allowance for doubtful
accounts, principally for a customer which filed for bankruptcy in the fourth
quarter of 1995.
Interest expense increased in 1995 to $3.5 million from $1.7 million in
1994. The increase in interest expense was due to increased bank borrowings to
fund the Company's working capital needs.
The Company's effective income tax rate remained relatively stable at
40.9% in 1995 compared to 40.7% in 1994.
-13-
Net income decreased to $4.0 million for 1995 from $5.1 million in
1994. The decrease in net income is primarily the result of the decrease in
gross margin percentage and increased operating and interest expenses.
INFLATIONARY IMPACT
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and changing
interest rates have had a significant effect on the economy in general and
therefore could affect the operating results of the Company in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements principally
through borrowings under bank lines of credit and sales of equity securities.
Working capital requirements have included the financing of increases in
inventory and accounts receivable resulting from sales growth. The Company
completed the initial public offering of its Common Stock in June 1993, selling
1.2 million shares for net proceeds of $7.6 million. In November 1994 the
Company completed a public offering of approximately 2.6 million shares of its
Common Stock for net proceeds of $27.3 million.
On June 25, 1996, the Company entered into an amendment to the Amended
and Restated Syndicated Credit Agreement arranged by Sumitomo Bank of California
("Sumitomo Bank") as Agent. The amendment increased the Company's $70 million
revolving line of credit to $80 million. The syndicate includes Sumitomo Bank of
California, Union Bank, The First National Bank of Boston, Comerica Bank -
California and The Sumitomo Bank, Limited. At the Company's option, the
borrowings under the line of credit will bear interest at Sumitomo Bank's prime
rate or the adjusted LIBOR rate plus 1.625%. At December 31, 1996, the interest
rate was 8.25%. The revolving line of credit has a final payment due date of May
31, 1998. The revolving line of credit requires the Company to meet certain
financial tests and to comply with certain other covenants, including
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, declaration of dividends, repurchases of
stock, making investments and profitability. Obligations of the Company under
the revolving line of credit are secured by substantially all of the Company's
assets. The balance outstanding on the revolving line of credit at December 31,
1996 was approximately $45.9 million. The Company intends to utilize its
revolving line of credit to fund future working capital requirements. The
Company is in compliance with its bank convenants, however, there can be no
assurance that the Company will be in compliance with its bank covenants in the
future. If the Company does not remain in compliance with the covenants in its
Amended and Restated Syndicated Credit Agreement and is unable to obtain a
waiver of noncompliance from its banks, the Company's financial condition and
results of operations would be materially adversely affected. The Company
evaluates potential acquisitions from time to time and may utilize its line of
credit to acquire complementary businesses, provided consent from its banks is
obtained.
The Company's accounts receivable and inventories as of December 31,
1996 have increased to $70.7 million and $78.7 million, respectively, from $65.3
million and $70.3 million, respectively, as of December 31, 1995 primarily as a
result of the Company's increased sales. The Company's accounts payable
increased to $45.7 million in 1996 from $31.6 million in 1995, primarily due to
the Company's efforts to negotiate more favorable payment terms with certain
suppliers, as well as timing issues related to inventory receipts and payments.
The net amount of cash provided by operating activities in 1996 was
$13.8 million. The net amount of cash used in financing activities in 1996 was
$9.5 million, principally for repayments against the Company's revolving line of
credit with its banks. The net amount of cash used in investing activities in
1996 was approximately $1.1 million, principally for the acquisition of property
and equipment.
-14-
The Company's results of operations for any particular period may be
adversely affected by numerous factors, such as the loss of key suppliers or
customers, price competition, problems incurred in managing inventories or
receivables, the timing or cancellation of orders from major customers, a change
in the product mix sold by the Company, customer demand, availability of
products from suppliers, management of growth, the percent of revenue derived
from distribution versus contract manufacturing, the Company's ability to
collect accounts receivable, price decreases on inventory that is not price
protected, the timing or cancellation of purchase orders with or from suppliers,
and the timing of expenditures in anticipation of increased sales and customer
product delivery requirements. Price competition in the industries in which the
Company competes is intense and could result in gross margin declines, which
could have an adverse impact on the Company's profitability. In various periods
in the past, the Company's operating results have been affected by all of these
factors. In particular, price fluctuations in the disk drive and semiconductor
industries have affected the Company's gross margins in recent periods. The
Company has recently experienced rapid sales growth and there can be no
assurance that such sales growth will continue or that such sales and profit
levels will be maintained. The Company's cash requirements will depend on
numerous factors, including the rate of growth of its sales. The Company
believes that its working capital, including its existing credit facility, will
be sufficient to meet the Company's short term capital requirements. However,
the Company may seek additional debt or equity financing to fund continued
growth.
ITEM 8: Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse LLP, independent accountants, are included in Item 14 hereof.
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-15-
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Commission
in connection with the 1997 Annual Meeting of Shareholders (the "Proxy
Statement").
ITEM 10: Directors and Executive Officers of the Registrant
(a) Information concerning directors of the Company appears in
the Company's Proxy Statement, under Item 1 "Election of
Directors." This portion of the Proxy Statement is
incorporated herein by reference.
(b) Executive Officers Of The Registrant
The following table and descriptions identify and set forth
information regarding the Company's five executive officers:
Name Age Position
---- --- --------
W. Donald Bell.................... 59 President, Chief Executive Officer and
Chairman of the Board
Remo E. Canessa................... 39 Chief Financial Officer, Vice President of Finance,
Corporate Controller and Secretary
William Murphy.................... 46 Senior Vice President of Industrial Sales
Philip M. Roussey................. 54 Senior Vice President of Computer Products Marketing
Robert J. Sturgeon................ 43 Vice President of Operations
W. Donald Bell has been President, Chief Executive
Officer and Chairman of the Board of the Company since its
inception in 1987. Mr. Bell has over 30 years of experience
in the electronics industry. Mr. Bell was formerly the
President of Ducommun Inc. and its subsidiary, Kierulff
Electronics Inc., as well as Electronic Arrays Inc. He has
also held senior management positions at Texas Instruments
Incorporated, American Microsystems and other electronics
companies. He is a member of the Board of Directors of
Control Data Systems Inc.
Remo E. Canessa has been Chief Financial Officer, Vice
President of Finance and Secretary of the Company since July
1995. Since November 1993 Mr. Canessa has served as the
Company's Corporate Controller. From 1989 to 1993 Mr.
Canessa was Headquarters Controller of Ampex Corporation, a
developer, manufacturer and distributor of audio and video
recording equipment and mass data storage devices. Prior to
that time, Mr. Canessa was Corporate Controller of Geoworks
Inc., and also held positions at Dialogic Systems
Corporation and Arthur Andersen & Co. He is a Certified
Public Accountant in the State of California.
-16-
William A. Murphy has been Senior Vice President of
Sales for the Industrial Division of Bell Microproducts Inc.
since June 1995. From 1985 to 1995 Mr. Murphy held various
senior management positions at Pioneer Standard Electronics,
including Regional Vice President for the South Central
United States, Area Vice President for the Western United
States and Canada, and Vice President of National and
Strategic Accounts for North America. Prior to that time,
Mr. Murphy held various sales management and operations
positions at Texas Instruments and Kierulff Electronics.
Philip M. Roussey has been Senior Vice President of
Computer Products Marketing since March 1993. Prior to that
time, he was the Company's Vice President of Marketing since
its inception in 1987. Prior to joining the Company, Mr.
Roussey was Corporate Vice President of Marketing at
Kierulff Electronics during 1987, and from 1982 to 1986, Mr.
Roussey held the position of Vice President of Computer
Products at Kierulff Electronics.
Robert J. Sturgeon has been Vice President of
Operations since 1992. Mr. Sturgeon was formerly Director of
Information Services for Disney Home Video from January 1991
to February 1992. Prior to that time, Mr. Sturgeon served as
Management Information Services ("MIS") Director for
Paramount Pictures, Home Video Division from June 1989 to
January 1991 and as a Marketing Manager for MTI Systems, a
division of Arrow Electronics Inc., from January 1988 to
June 1989. Other positions Mr. Sturgeon has held include
Executive Director of MIS for Ducommun where he was
responsible for ten divisions, including Kierulff
Electronics.
(c) Information concerning Compliance with Section 16(a) of the
Securities Exchange Act of 1934 appears in the Company's
Proxy Statement, under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934," and is
incorporated herein by reference.
ITEM 11: Executive Compensation
Information concerning executive compensation appears in the Company's
Proxy Statement, under the caption "Executive Compensation," and is incorporated
herein by reference.
ITEM 12: Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of certain beneficial
owners and management appears in the Company's Proxy Statement, under Item 1
"Election of Directors," and is incorporated herein by reference.
ITEM 13: Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
appears in the Company's Proxy Statement, under Item 1 "Election of Directors,"
and is incorporated herein by reference.
-17-
PART IV
ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements Form 10-K
Page Number
-----------
Report of Independent Accountants F-1
Balance Sheets at December 31, 1996
and 1995 F-2
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 F-3
Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts and Reserves S-1
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is included in the
Financial Statements or Notes to Financial Statements.
(3) Exhibits
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Reorganization dated as of February 2,
1994 between Registrant, Bell Microproducts Acquisition
Corporation, a New York corporation and wholly-owned
subsidiary of Registrant, Vantage Components Inc., a New
Jersey corporation, Vantage Components, Inc., a New York
corporation, Vantage Components of Maryland, Inc., a Maryland
corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (1)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
as of February 2, 1994 between Registrant, Bell Microproducts
Acquisition Corporation, a New York corporation and
wholly-owned subsidiary of Registrant, Vantage Components,
Inc., a New Jersey corporation, Vantage Components Inc., a New
York corporation, Vantage Components of Maryland, Inc., a
Maryland corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (2)
3.1 Amended and Restated Articles of Incorporation of Registrant
(3)
-18-
(3) Exhibits Continued
Number Description of Document
------ -----------------------
3.2 Amended and Restated Bylaws of Registrant (4)
4.1 Specimen Common Stock Certificate of the Registrant (4)
4.2 Amended and Restated Registration Rights Agreement dated June
11, 1992 between Registrant and certain investors named
therein, as amended (1)
4.3 Warrant issued to Sutro & Co. Incorporated (2)
10.1 1988 Incentive Stock Plan, as amended through May 23, 1996 (6)
10.2 The form of Option Agreement used under the 1988 Incentive
Stock Plan (5)
10.3 Employee Stock Purchase Plan, as amended through May 23, 1996
(6)
10.4 The form of Option Agreement used under the Employee Stock
Purchase Plan (5)
10.5 1993 Director Stock Option Plan, as amended through May 24,
1995 (5)
10.6 The form of Option Agreement used under the 1993 Director
Stock Option Plan (5)
10.7 Registrant's 401(k) Plan (4)
10.8 Lease dated March 17, 1992 for Registrant's facilities at 1941
Ringwood Avenue, Suite 100, San Jose, California (4)
10.9 Lease dated April 15, 1993 for Registrant's facilities at 2350
Lundy Place, San Jose, California (1)
10.10 Amended and Restated Asset Purchase Agreement dated February
26, 1993 by and between Registrant, Barclay Financial Group
and Adlar Turnkey Manufacturing Company, as amended (4)
10.11 Form of Convertible Note issued by Registrant in favor of
Barclay Financial Group (4)
10.12 Amended and Restated Credit Agreement dated as of May 23, 1995
by and among the Registrant, the Banks named therein and
Sumitomo Bank of California, as Agent for the Banks, as
amended (2)
10.13 First Amendment to Second Amended and Restated Credit
Agreement dated as of June 25, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(7)
10.14 Second Amendment to Second Amended and Restated Credit
Agreement dated as of September 30, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(8)
10.15 Standard Distributor Agreement dated June 1, 1990 by and
between Quantum Corporation and Registrant (4)
-19-
(3) Exhibits Continued
Number Description of Document
------ -----------------------
10.16 Form of Indemnification Agreement (4)
10.17 IBM Authorized Distributor Agreement dated May 17, 1993
between IBM Corporation and Registrant (4)
10.18 Sublease dated November 12, 1996 for the Registrant's
facilities at 2020 South Tenth Street, San Jose, California,
and related exhibits
10.19* Employment Agreement dated as of December 10, 1996 between the
Registrant and W. Donald Bell, the Registrant's Chief
Executive Officer
10.20 Form of Management Retention Agreement between the Registrant
and the following executive officers of the Registrant: W.
Donald Bell, Remo E. Canessa, William Murphy, Philip M.
Roussey and Robert J. Sturgeon
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
24.1 Power of Attorney (contained on page 22)
- -----------------------
* Confidential treatment has been requested for portions of this
document.
(1) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1993
filed on March 31, 1994.
(2) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-79692) in the form
declared effective on November 1, 1994.
(3) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-66580) filed on
July 29, 1993.
(4) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-60954) filed on
April 14, 1993 and which became effective on June 14, 1993.
(5) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-83398) filed on
August 29, 1994.
(6) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-10837) filed on
August 26, 1996.
(7) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.
-20-
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1996.
(c) Exhibits. See Item 14(a) above.
(d) Financial Statements Schedules. See Item 14(a) above.
-21-
SIGNATURES
Pursuant to the requirements 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 on March 26, 1997.
BELL MICROPRODUCTS INC.
By: /s/ Remo E. Canessa
------------------------------------------------
Remo E. Canessa
Chief Financial Officer,
Vice President of Finance,
Corporate Controller and Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints W. Donald Bell and Remo E. Canessa and
each of them, jointly and severally, his attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------------------------------- ----------------------------------------------------- --------------------------
/s/ W. Donald Bell Chairman of the Board, President and Chief Executive March 26, 1997
- ------------------------------- Officer (Principal Executive Officer)
(W. Donald Bell)
/s/ Remo E. Canessa Chief Financial Officer, Vice President of Finance, March 26, 1997
- ------------------------------- Corporate Controller and Secretary (Principal Financial
(Remo E. Canessa) and Accounting Officer)
/s/ Jon H. Beedle Director March 26, 1997
- -------------------------------
(Jon H. Beedle)
/s/ Glenn E. Penisten Director March 26, 1997
- -------------------------------
(Glenn E. Penisten)
/s/ Gordon A. Campbell Director March 26, 1997
- -------------------------------
(Gordon A. Campbell)
/s/ Edward L. Gelbach Director March 26, 1997
- -------------------------------
(Edward L. Gelbach)
-22-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Bell Microproducts Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14 (a) (1) and (2) on page 18 present fairly, in all material
respects, the financial position of Bell Microproducts Inc. at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, 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
San Jose, California
February 13, 1997
F-1
BELL MICROPRODUCTS INC.
BALANCE SHEETS
(in thousands, except per share data)
December 31,
---------------------------
1996 1995
-------- --------
ASSETS
Current assets:
Cash $ 5,682 $ 2,489
Accounts receivable, net of allowance for doubtful accounts
of $4,228 and $3,300 70,686 65,266
Inventories (Note 3) 78,659 70,262
Deferred and refundable income taxes (Note 7) 3,714 3,418
Prepaid expenses 885 841
-------- --------
Total current assets 159,626 142,276
Property and equipment, net (Notes 3 and 8) 9,006 7,861
Goodwill 6,685 6,987
Other assets 363 153
-------- --------
Total assets $175,680 $157,277
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Notes payable, current portion $ 294 $ 15
Accounts payable 45,725 31,596
Other accrued liabilities 6,271 2,705
Current portion of capitalized lease obligations (Note 8) 1,378 1,046
-------- --------
Total current liabilities 53,668 35,362
Line of credit (Note 4) 45,900 54,500
Notes payable, less current portion (Note 11) -- 294
Capitalized lease obligations, less current portion (Note 8) 4,985 4,659
-------- --------
Total liabilities 104,553 94,815
-------- --------
Commitments and contingencies (Note 8)
Shareholders' equity (Notes 5 and 6):
Preferred Stock, $0.01 par value, 10,000 shares authorized;
none issued and outstanding -- --
Common Stock, $0.01 par value, 20,000 shares authorized;
8,445 and 8,323 shares issued and outstanding 51,644 50,841
Retained earnings 19,483 11,621
-------- --------
Total shareholders' equity 71,127 62,462
-------- --------
Total liabilities and shareholders' equity $175,680 $157,277
======== ========
The accompanying notes are an integral part of these financial statements.
F-2
BELL MICROPRODUCTS INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
---- ---- ----
Sales $ 483,316 $ 346,291 $ 250,753
Cost of sales 425,258 305,696 217,277
--------- --------- ---------
Gross profit 58,058 40,595 33,476
Marketing, general and administrative expenses 41,008 30,352 23,258
--------- --------- ---------
Income from operations 17,050 10,243 10,218
Interest expense (3,495) (3,473) (1,691)
--------- --------- ---------
Income before income taxes 13,555 6,770 8,527
Provision for income taxes (Note 7) 5,693 2,768 3,471
--------- --------- ---------
Net income $ 7,862 $ 4,002 $ 5,056
========= ========= =========
Earnings per share (Note 2) $ 0.92 $ 0.48 $ 0.86
========= ========= =========
Weighted average common shares
and equivalents (Note 2) 8,511 8,350 5,878
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-3
BELL MICROPRODUCTS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Common Stock
-------------------- Retained
Shares Amount Earnings Total
------ ------ -------- -----
Balance at December 31, 1993 4,867 $15,788 $ 2,563 $18,351
Issuance of Common Stock in secondary public offering, net
of issuance costs of $2,284 2,573 27,300 -- 27,300
Issuance of Common Stock for acquisition of Vantage
Components, Inc. 489 5,015 -- 5,015
Exercise of stock options, including related tax benefit
of $127 74 388 -- 388
Issuance of Common Stock under Stock Purchase Plan 44 355 -- 355
Net Income -- -- 5,056 5,056
------- ------- ------- -------
Balance at December 31, 1994 8,047 48,846 7,619 56,465
Exercise of stock options, including related tax benefit
of $181 103 749 -- 749
Issuance of Common Stock under Stock Purchase Plan 66 473 -- 473
Conversion of note payable to Common Stock 107 773 -- 773
Net Income -- -- 4,002 4,002
------- ------- ------- -------
Balance at December 31, 1995 8,323 50,841 11,621 62,462
Exercise of stock options, including related tax benefit
of $159 26 202 -- 202
Issuance of Common Stock under Stock Purchase Plan 96 601 -- 601
Net Income -- -- 7,862 7,862
------- ------- ------- -------
Balance at December 31, 1996 8,445 $51,644 $19,483 $71,127
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-4
BELL MICROPRODUCTS INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(in thousands)
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 7,862 $ 4,002 $ 5,056
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,569 1,659 801
Change in deferred and refundable income taxes (296) (2,020) (718)
Changes in assets and liabilities:
Accounts receivable (5,420) (13,431) (21,071)
Inventories (8,397) (13,236) (30,524)
Prepaid expenses (44) (294) (346)
Other assets (210) 49 (67)
Accounts payable 14,129 (3,483) 12,941
Other accrued liabilities 3,566 795 (719)
-------- -------- --------
Net cash provided by (used in) operating activities 13,759 (25,959) (34,647)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment, net (1,120) (1,160) (933)
Acquisition of Vantage Components Inc., net of cash
acquired (Note 11) -- -- (4,688)
-------- -------- --------
Net cash used in investing activities (1,120) (1,160) (5,621)
-------- -------- --------
Cash flows from financing activities:
Net borrowings/repayments under line of credit (8,600) 33,000 8,500
Net borrowings/repayments under term loan -- (5,000) 5,000
Proceeds from issuance of Common Stock 803 1,222 27,916
Principal payments on long-term liabilities (1,649) (1,016) (274)
-------- -------- --------
Net cash provided by (used in) financing activities (9,446) 28,206 41,142
-------- -------- --------
Net increase in cash 3,193 1,087 874
Cash at beginning of period 2,489 1,402 528
-------- -------- --------
Cash at end of period $ 5,682 $ 2,489 $ 1,402
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,355 $ 3,380 $ 1,558
Income taxes $ 5,744 $ 4,282 $ 4,143
Obligations incurred under capital leases $ 2,292 $ 5,254 $ 768
Assets acquired in exchange for notes payable
$ -- $ -- $ 750
Common Stock issued for the acquisition of Vantage
Components, Inc. $ -- $ -- $ 5,015
Common Stock on conversion of note payable $ -- $ 773 $ --
The accompanying notes are an integral part of these financial statements.
F-5
BELL MICROPRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
Bell Microproducts Inc. (the Company) was incorporated in California on
October 23, 1987 and commenced operations in January 1988. The Company operates
in two industry segments: as a contract manufacturer and as a distributor of
semiconductor and computer products to original equipment manufacturers (OEMs),
value added resellers (VARs) and dealers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Revenues are recognized when products are shipped. Provisions for
estimated losses on returns and for expected warranty costs are recorded at the
time of sale.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is computed using the straight-line method based upon the estimated
useful lives of the assets which range from three to five years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated life of the asset or the lease term.
Goodwill
Assets and liabilities acquired in connection with business
combinations accounted for under the purchase method are recorded at their
respective fair values. The excess of the purchase price over the fair value of
the assets acquired is amortized on a straight-line basis over a twenty-five
year period. Accumulated amortization equaled $799,000 and $497,000 as of
December 31, 1996 and 1995, respectively. The Company periodically reviews the
recoverability of goodwill based on estimated future cash flows.
Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.
Earnings Per Share
Earnings per share is computed using the weighted average number of
common and common equivalent shares ("weighted average shares") outstanding
during the period. Common equivalent shares consist of the dilutive effect of
stock options and warrants using the treasury stock method.
F-6
Disclosures About Fair Value of Financial Instruments
Financial instruments that are subject to fair value disclosure
requirements are carried in the financial statements at amounts that approximate
fair value.
Concentration of Credit and Other Risks
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's accounts receivable are derived from sales to OEMs, VARs and dealers
located primarily in the United States. The Company performs ongoing credit
evaluations of its customers, and generally does not require collateral. The
Company maintains reserves for estimated credit losses. Two vendors accounted
for 53%, 40% and 48% of the Company's distribution inventory purchases during
1996, 1995 and 1994, respectively. One such vendor has obtained a second
priority lien against the Company's inventories to secure payment on the
Company's purchase of goods.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - BALANCE SHEET COMPONENTS:
December 31,
-----------------------
1996 1995
---- ----
(in thousands)
Inventories:
Work-in-process $ 9,146 $ 5,264
Purchased components and materials 69,513 64,998
-------- --------
$ 78,659 $ 70,262
======== ========
Property and equipment:
Warehouse equipment $ 195 $ 134
Manufacturing and test equipment 9,070 7,452
Furniture and fixtures 1,147 941
Computer and other equipment 3,212 1,695
-------- --------
13,624 10,222
Less: accumulated depreciation and
amortization (4,618) (2,361)
======== ========
$ 9,006 $ 7,861
======== ========
NOTE 4 - LINE OF CREDIT AND TERM LOAN:
On May 5, 1994, the Company entered into an Amended and Restated Credit
Agreement with Sumitomo Bank of California ("Sumitomo Bank") and a new
participating bank, Union Bank, which increased the Company's revolving line of
credit to $25 million. On May 26, 1994, the banks also provided a five year term
loan of $5 million. On August 29, 1994, the Company entered into an amendment to
the Amended and Restated Credit Agreement which increased the revolving line of
credit to $35 million.
On May 23, 1995, the Company entered into an Amended and Restated
Syndicated Credit Agreement, arranged by Sumitomo Bank of California ("Sumitomo
Bank") as Agent, which increased the Company's $35 million revolving line of
credit and $5 million term loan facilities to $70 million. This agreement was
amended on June 25, 1996, to
F-7
increase the line of credit to $80 million and extend the maturity date to May
31, 1998. The syndicate includes Sumitomo Bank of California and Union Bank, The
First National Bank of Boston, Comerica Bank - California and The Sumitomo Bank,
Limited. At the Company's option, the borrowings under the line of credit will
bear interest at Sumitomo Bank's prime rate or the adjusted LIBOR rate plus
1.625%. At December 31, 1996 the interest rate was 8.25%. The revolving line of
credit requires the Company to meet certain financial tests and to comply with
certain other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, making investments and profitability. The
Company is in compliance with its bank covenants, however, there can be no
assurance that the Company will be in compliance in the future. Obligations of
the Company under the revolving line of credit are secured by substantially all
of the Company's assets. The balance outstanding on the revolving line of credit
at December 31, 1996 was approximately $45.9 million.
NOTE 5 - SHAREHOLDERS' EQUITY:
On June 15, 1993, the Company completed an initial public offering
(Offering) of 1,500,000 shares of Common Stock, 1,200,000 shares being sold by
the Company and 300,000 shares being sold by certain of the Company's
shareholders, at a price of $7.50 per share. Upon the closing of the Offering,
5,106,000 shares of convertible Preferred Stock were converted into 2,042,400
shares of Common Stock.
The Company sold to Sutro & Co. Incorporated, the Representative of the
Underwriters (Representative) of the initial public offering, for $1,050, the
Representative's Warrants to purchase from the Company up to 105,000 shares of
Common Stock at an exercise price equal to $9.00 per share. The Representative's
Warrants are exercisable for a period of four years, beginning June 14, 1994.
On November 1, 1994, the Company completed a secondary public offering
of 2,859,570 shares of Common Stock, 2,573,277 shares being sold by the Company
and 286,293 shares being sold by certain of the Company's shareholders, at a
price of $11.50 per share.
NOTE 6 - STOCK-BASED COMPENSATION PLANS:
At December 31, 1996, the Company had three stock-based compensation
plans which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its plans, all of which are fixed plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on the fair value at the grant dates for awards in 1995 and
1996 under those plans consistent with the provisions of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and earnings per share would have been reduced as presented below:
1996 1995
---- ----
Net income:
As reported $7,862 $4,002
Pro forma 7,206 3,696
Earnings per share
As reported 0.92 0.48
Pro forma 0.85 0.44
Because additional stock options and stock purchase rights are expected
to be granted each year and these only include the effect of options granted
subsequent to December 31, 1994, the above pro forma disclosures are not
representative of pro forma effects on reported financial results for future
years.
F-8
Stock Option Plans
The Company has two fixed stock option plans. The Amended and Restated
1988 Incentive Stock Plan (the Plan) provides for the grant of stock options and
stock purchase rights to employees, directors and consultants of the Company at
prices not less than the fair value of the Company's Common Stock at the date of
grant for incentive stock options and prices not less than 85% of the fair value
of the Company's Common Stock for nonstatutory stock options and stock purchase
rights. Since inception, the Company has reserved 2,224,104 shares of Common
Stock for issuance under the Plan.
The options lapse five years after the date of grant or such shorter
period as may be provided for in the stock option agreement. All options granted
vest over four years. If an optionee ceases to be employed by the Company, the
optionee may, within one month (or such other period of time, as determined by
the Board of Directors, but not exceeding three months) exercise options to the
extent vested.
As part of the Plan, in March 1993, the Board of Directors adopted a
Management Incentive Program (the "Program") for key employees. Under this
Program, options for 339,000 shares, 224,000 shares and 30,000 shares of Common
Stock were granted in 1996, 1995 and 1994, respectively. The Program provides
for ten-year option terms with vesting at the rate of 1/10th per year, with
potential for accelerated vesting based upon attainment of certain performance
objectives. The options lapse ten years after the date of grant or such shorter
period as may be provided for in the stock option agreement.
On February 7, 1996, the Board of Directors offered employees with
options under the Plan the opportunity to exchange existing options for new
options at an exercise price of $6.50, the fair market value of the Company's
Common Stock on the date of the exchange. Any vesting in the canceled options
was lost, and the new options were subject to the normal four-year vesting
schedule under the Plan. Of the approximate 950,000 stock options outstanding
eligible for exchange, 640,900 stock options were exchanged for new options.
F-9
The following table presents activity under the Plan:
Options outstanding
-----------------------------
Options Weighted
available for average
grant Shares exercise price
----- ------ --------------
Balance at December 31, 1993 118,044 585,638 $ 6.22
Increase in options available for grant 206,714 --
Options granted (388,800) 388,800 $10.70
Options exercised -- (71,225) $ 3.68
Options canceled 173,325 (173,325) $ 8.22
---------- ---------- ------
Balance at December 31, 1994 109,283 729,888 $ 8.36
Increase in options available for grant 435,000 --
Options granted (516,800) 516,800 $10.19
Options exercised -- (105,798) $ 5.44
Options canceled 181,260 (181,260) $ 9.21
---------- ---------- ------
Balance at December 31, 1995 208,743 959,630 $ 9.50
Increase in options available for grant 300,000 --
Options granted (1,126,800) 1,126,800 $ 6.99
Options exercised -- (22,530) $ 1.94
Options canceled 842,900 (842,900) $ 9.88
---------- ---------- ------
Balance at December 31, 1996 224,843 1,221,000 $ 7.06
========== ========== ======
At December 31, 1996, 115,450 options were exercisable under this Plan.
In March 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan") which initially provided for the grant of an aggregate of
90,000 options for the purchase of the Company's Common Stock. The number of
shares was increased in May 1994 to 120,000 and increased to 145,000 in May
1995. 75,000 options available under the Director Plan were granted in March
1993 at an exercise price of $8.00 per share and during 1996, 20,000 shares were
granted at an exercise price of $7.00 per share. In February 1996, 10,000
options were canceled. These options vest annually at the rate of 1/3 and have a
ten-year life.
For the fixed stock option plans, the fair value of each option grant
used for calculating pro forma net income is estimated on the date of grant
using the Black-Scholes multiple option-pricing model with the following
weighted average assumptions used for grants in 1995 and 1996, respectively;
expected volatility of 35% and 35%; risk free interest rate of 6.0% and 6.0% and
expected lives of 4.70 and 4.19 years. The Company has not paid dividends and
assumed no dividend yield. The weighted average fair value of those stock
options granted in 1995 and 1996 was $3.87 and $2.00, respectively.
F-10
The following table summarizes information about fixed stock options outstanding
at December 31, 1996.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- -----------------------------------------
Number of
Shares
Outstanding Number of Shares
As of Weighted Average Weighted Exercisable As Weighted
Range of Exercise December 31, Remaining Average of December 31, Average
Prices 1996 Contractual Life Exercise Price 1996 Exercise Price
- --------------------- --------------- ------------------ ---------------- ------------------ ----------------
$ 0.63 - $ 1.25 16,150 0.49 years $ 0.70 15,450 $ 0.68
$ 6.50 - $ 7.00 774,200 6.11 6.56 12,150 7.00
$ 7.25 - $ 8.38 337,000 5.21 7.71 128,650 7.80
$ 8.63 - $10.00 162,450 4.02 8.73 13,900 9.07
$11.00 - $12.75 11,200 2.70 11.92 5,300 11.90
--------- ---- ------- ------- -------
$ 0.63 - $12.75 1,301,000 5.52 $ 7.10 175,450 $ 7.34
========= ==== ======= ======= =======
Employee Stock Purchase Plan
The Company has reserved for issuance to all eligible employees under
its Employee Stock Purchase Plan 380,000 shares of Common Stock. Sales made
through this plan will be at the lower of 85% of market price at the date of
purchase or on the first day of each six-month offering period. 224,524 shares
have been issued under this plan as of December 31, 1996. The fair value of each
purchase right is estimated on the beginning of the offering period using the
Black-Scholes option-pricing model with the following weighted average
assumptions used in 1995 and 1996, respectively; expected volatility of 35% and
35%; risk free interest rate of 5.48% and 5.64% and expected lives of 0.5 and
0.5 years. The Company has not paid dividends and assumed no dividend yield. The
weighted average fair value of those purchase rights granted in 1995 and 1996
was $2.59 and $1.82, respectively.
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following for the years
ended December 31 (in thousands):
1996 1995 1994
---- ---- ----
Current:
Federal $ 5,893 $ 2,716 $ 3,281
State 1,495 424 908
------- ------- -------
7,388 3,140 4,189
Deferred:
Federal (1,382) (284) (411)
State (313) (88) (307)
------- ------- -------
$ 5,693 $ 2,768 $ 3,471
======= ======= =======
F-11
Deferred tax (liabilities) assets comprise the following at December 31 (in
thousands):
1996 1995 1994
---- ---- ----
Basis differential in assets $ (110) $ (118) $ (127)
Depreciation (621) (201) (87)
------- ------- -------
Gross deferred tax liabilities (731) (319) (214)
------- ------- -------
Bad debt, sales and warranty reserves 1,922 1,351 575
Inventory reserves and basis differences 1,756 495 733
Compensation accruals and reserves 128 110 33
State taxes, net of federal benefit 391 67 207
Other 248 66 64
------- ------- -------
Gross deferred tax assets 4,445 2,089 1,612
------- ------- -------
Net deferred tax asset $ 3,714 $ 1,770 $ 1,398
======= ======= =======
The net deferred tax asset represents temporary differences for future
tax deductions which can generally be realized by carryback to taxable income in
prior years.
The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pre-tax
income as follows:
Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Federal statutory rate 35.0% 34.0% 34.0%
State income taxes, net of
Federal tax 5.7% 3.3% 4.7%
benefit and credits
Other 1.3% 3.6% 2.0%
---- ---- ----
42.0% 40.9% 40.7%
==== ==== ====
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under cancelable and noncancelable
operating lease agreements. The leases expire at various times through 2006 and
contain renewal options. Certain of the leases require the Company to pay
property taxes, insurance, and maintenance costs.
The Company leases certain equipment under capitalized leases with such
equipment amounting to $8,698,000 less accumulated depreciation of $2,335,000 at
December 31, 1996 and $6,524,000 less accumulated depreciation of $913,000 at
December 31, 1995. Amortization expense on assets subject to capitalized leases
was $1,307,000, $696,000, and $180,000 for the years ended December 31, 1996,
1995 and 1994, respectively. The capitalized lease terms range from three to
five years.
F-12
The following is a summary of commitments under leases:
Capitalized Operating
Year ending December 31, leases leases
------------------------ ------ ------
(in thousands)
1997 $ 1,863 $ 2,041
1998 1,872 1,920
1999 1,824 1,381
2000 1,507 954
2001 488 920
2002 and beyond -- 2,866
------- -------
Total minimum lease payments $ 7,554 $10,082
=======
Less: imputed interest (1,191)
-------
Present value of minimum lease payments $ 6,363
=======
Total operating lease expense was $1,272,000, $1,167,000 and $1,052,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
On May 10, 1996, the Company entered into an agreement with a financial
institution to provide inventory flooring financing to selected Company
customers. Under this agreement, should a customer default on its payment
obligations, the Company is obligated to repurchase any unsold inventory. Due to
the rapid turnover of inventory sold in conjunction with the agreement and the
timely customer payment history experienced to date, management estimates its
exposure at December 31, 1996 to be immaterial.
The Company is subject to legal proceedings and claims that arise in
the normal course of business. Management believes that the ultimate resolution
of such matters will not have a material adverse affect on the Company's
financial position or results of operations.
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES:
The Company has entered into a manufacturing agreement with Pinnacle
Systems, Inc. ("Pinnacle") providing for the performance by the Company's
manufacturing division of value-added turnkey services for Pinnacle. The
agreement term is automatically renewed for successive one year periods unless
terminated by either party on 90 days' written notice. Company sales to Pinnacle
totaled $9,692,000, $13,461,000, and $3,856,000 for the years ended December 31,
1996, 1995, and 1994, respectively. The accounts receivable balance from
Pinnacle was $202,000 and $3,798,000 at December 31, 1996 and December 31, 1995,
respectively. The Company has purchased approximately $350,000, $576,000, and
$121,000 of inventory from Pinnacle in 1996, 1995 and 1994, respectively.
Inventory on hand at December 31, 1996 purchased under contract with Pinnacle
totaled $914,000. Glenn E. Penisten, a director of the Company, is a director of
Pinnacle. The agreement was entered into in the ordinary course of business and
the Company believes that it has terms no less favorable than reasonably could
be expected to be obtained from unaffiliated parties.
In May 1994, the Company entered into a manufacturing agreement with
Reply Corporation ("Reply") providing for the performance by the Company's
manufacturing division of value-added turnkey services for Reply. The agreement
term is automatically renewed for successive one year periods unless terminated
by either party on 90 days'
F-13
written notice. Sales to Reply totaled approximately $2,594,000, $3,144,000 and
$2,086,000 during 1996, 1995, and 1994, respectively. The accounts receivable
balance from Reply was $413,000 at December 31, 1996 and $742,000 at December
31, 1995. The Company has purchased approximately $167,000, $66,000 and $342,000
of inventory from Reply in 1996, 1995, and 1994, respectively. Inventory on hand
at December 31, 1996 purchased under contract with Reply totaled $270,000. Glenn
E. Penisten and Gordon A. Campbell, directors of the Company, are directors of
Reply. The agreement was entered into in the ordinary course of business and the
Company believes that it has terms no less favorable than reasonably could be
expected to be obtained from unaffiliated parties.
NOTE 10 - SALARY SAVINGS PLAN:
In April 1990, the Company adopted a Section 401(k) Plan (the Plan)
which provides participants an opportunity to accumulate funds for retirement
and hardship. Under the terms of the Plan, eligible participants may contribute
up to 15% of their eligible earnings to the Plan. The Company may elect to make
matching contributions equal to a discretionary percentage, to be determined by
the Company, of participants' contributions up to the statutory maximum of
participants' eligible earnings. The Company has not made contributions to the
Plan.
NOTE 11 - ACQUISITIONS:
On May 26, 1994, the Company acquired Vantage Components, Inc.
(Vantage) for a purchase price of $11,806,000, which included cash of $5,300,000
(funded via Bell Microproducts' line of credit and term loan facilities), the
issuance of 489,281 shares of Bell Microproducts Common Stock, the issuance of
promissory notes totaling $750,000 and acquisition costs. The acquisition was
accounted for as a purchase. The purchase price was allocated to the acquired
assets and liabilities based upon management's estimate of their fair market
values as of the acquisition date as follows (in thousands):
---------------------------------------------------------------
Cash.............................................. $ 1,371
Accounts receivable............................... 4,948
Inventories....................................... 4,527
Equipment and other assets........................ 119
Goodwill.......................................... 7,063
Accounts payable.................................. (3,500)
Line of credit.................................... (1,900)
Note payable to bank.............................. (23)
Other accrued liabilities......................... (799)
-------
$11,806
=======
---------------------------------------------------------------
The results of operations of Vantage, predominantly a distributor of
semiconductor products, have been included with those of the Company for periods
subsequent to the date of acquisition. Vantage had sales of $34.2 million and
net income of $776,000 for its fiscal year ended February 28, 1994.
F-14
Set forth below is the unaudited pro forma combined summary of
operations of the Company and Vantage for the year ended December 31, 1994 as
though the acquisition had been made on January 1, 1994 (in thousands, except
per share data):
------------------------------------------------------------------
(Unaudited) Year ended December 31,
------------------------
1994
-----------------------
Sales........................................... $263,460
Net income...................................... 4,984
Earnings per share.............................. $0.80
Weighted average common shares and equivalents.. 6,245
------------------------------------------------------------------
The unaudited pro forma combined summary of operations includes: 1) the
amortization of goodwill over a twenty-five year period, 2) the additional
interest expense on debt incurred in connection with the acquisition as if the
debt had been outstanding from the beginning of the period presented, and 3) the
elimination of Vantage's sales and related incremental costs associated with the
distribution of certain products, as a relationship with a key supplier was
terminated in connection with the Company's acquisition of Vantage.
The unaudited pro forma combined summary of operations does not purport
to be indicative of the results which actually would have been obtained if the
acquisitions had been made at the beginning of 1994 or of those results which
may be obtained in the future.
F-15
NOTE 12 - BUSINESS SEGMENT INFORMATION:
Operating results and other financial data are presented for the
principal business segments of the Company for the years ended December 31,
1996, 1995 and 1994 as follows:
Distribution Manufacturing Eliminations Consolidated
------------ ------------- ------------ ------------
1996
Sales to customers ................................... $391,187 $ 92,129 $ -- $483,316
Intersegment sales ................................... 4,855 282 (5,137) --
-------- ------ -------- --------
Revenue .............................................. 396,042 92,411 (5,137) 483,316
Operating profit ..................................... 11,556 5,494 -- 17,050
Identifiable assets .................................. 172,755 39,326 (36,401) 175,680
Depreciation and amortization ........................ 683 1,886 -- 2,569
Capital asset additions .............................. 487 2,925 -- 3,412
1995
Sales to customers ................................... $296,633 $ 49,658 $ -- $346,291
Intersegment sales ................................... 7,090 495 (7,585) --
-------- ------ -------- --------
Revenue .............................................. 303,723 50,153 (7,585) 346,291
Operating profit ..................................... 7,559 2,684 10,243
Identifiable assets .................................. 152,584 39,316 (34,623) 157,277
Depreciation and amortization ........................ 605 1,054 -- 1,659
Capital asset additions .............................. 402 6,012 -- 6,414
1994
Sales to customers ................................... $220,883 $ 29,870 $ -- $250,753
Intersegment sales ................................... 4,762 24 (4,786) --
-------- ------ -------- --------
Revenue .............................................. 225,645 29,894 (4,786) 250,753
Operating profit ..................................... 10,991 (773) 10,218
Identifiable assets .................................. 117,870 18,615 (13,983) 122,502
Depreciation and amortization ........................ 392 409 -- 801
Capital asset additions .............................. 636 1,147 -- 1,783
Revenue and operating profit by business segment includes both sales to
customers, as reported in the Company's statements of operations, and
intersegment sales, which are transferred at cost.
F-16
NOTE 13 - SELECTED UNAUDITED QUARTERLY FINANCIAL DATA:
(in thousands, except per share amounts)
Quarter Ended
-----------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
Sales ...................... $ 72,927 $ 80,529 $ 89,213 $ 103,622 $ 115,431 $ 113,644 $ 118,018 $ 136,222
Cost of sales .............. 63,816 70,117 77,472 94,291 101,809 99,020 103,855 120,574
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit ............... 9,111 10,412 11,741 9,331 13,622 14,624 15,648
Marketing, general
and administrative
expenses ................. 6,434 6,848 7,177 9,893 9,759 10,518 9,896 10,835
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations ............... 2,677 3,564 4,564 (562) 3,863 4,106 4,267 4,813
Interest expense ........... (703) (718) (921) (1,130) (995) (909) (767) (822)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes ............. 1,974 2,846 3,643 (1,692) 2,868 3,197 3,500 3,991
Provision for income
taxes .................... 839 1,225 1,548 (844) 1,205 1,343 1,470 1,676
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) .......... $ 1,135 $ 1,621 $ 2,095 $ (848) $ 1,663 $ 1,854 $ 2,030 $ 2,315
========= ========= ========= ========= ========= ========= ========= =========
Net income (loss)
per share ................ $ 0.14 $ 0.20 $ 0.25 $ (0.10) $ 0.20 $ 0.22 $ 0.24 $ 0.27
========= ========= ========= ========= ========= ========= ========= =========
Weighted average
common shares
and equivalents .......... 8,269 8,233 8,499 8,282 8,423 8,539 8,531 8,552
========= ========= ========= ========= ========= ========= ========= =========
During the fourth quarter of 1995 the Company recorded charges of
approximately $2,500,000 related to the write-down of certain DRAM inventories.
During the fourth quarter of 1995 the Company also increased its allowance for
doubtful accounts, primarily for a customer which filed for bankruptcy during
the quarter. The fourth quarter of 1995 also reflects decreases in the
applicable effective full year tax rates, partially attributable to the
recognition of certain investment tax credits for equipment purchased. During
the fourth quarter of 1996, the Company began capitalizing certain labor
overhead costs related to its manufacturing activities. The impact was an
increase to net income in the fourth quarter of 1996, of approximately $217,000.
F-17
SCHEDULE II
BELL MICROPRODUCTS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
Additions
Balance at Charged to
Beginning of Costs and Deductions- Balance at
Year Ended December 31, Period Expenses Write-offs End of Period
----------------------- ------ -------- ---------- -------------
1996 $ 3,300 $ 5,035 $ (4,107) $ 4,228
1995 1,550 2,427 (677) 3,300
1994 736 1,277 (463) 1,550
S-1
INDEX TO EXHIBITS
Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
2.1 Agreement and Plan of Reorganization dated as of February 2,
1994 between Registrant, Bell Microproducts Acquisition
Corporation, a New York corporation and wholly-owned
subsidiary of Registrant, Vantage Components Inc., a New
Jersey corporation, Vantage Components, Inc., a New York
corporation, Vantage Components of Maryland, Inc., a Maryland
corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (1)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
as of February 2, 1994 between Registrant, Bell Microproducts
Acquisition Corporation, a New York corporation and
wholly-owned subsidiary of Registrant, Vantage Components,
Inc., a New Jersey corporation, Vantage Components Inc., a
New York corporation, Vantage Components of Maryland, Inc., a
Maryland corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (2)
3.1 Amended and Restated Articles of Incorporation of Registrant
(3)
3.2 Amended and Restated Bylaws of Registrant (4)
4.1 Specimen Common Stock Certificate of the Registrant (4)
4.2 Amended and Restated Registration Rights Agreement dated June
11, 1992 between Registrant and certain investors named
therein, as amended (1)
4.3 Warrant issued to Sutro & Co. Incorporated (2)
10.1 1988 Incentive Stock Plan, as amended through May 23, 1996
(6)
10.2 The form of Option Agreement used under the 1988 Incentive
Stock Plan (5)
10.3 Employee Stock Purchase Plan, as amended through May 23, 1996
(6)
10.4 The form of Option Agreement used under the Employee Stock
Purchase Plan (5)
10.5 1993 Director Stock Option Plan, as amended through May 24,
1995 (5)
10.6 The form of Option Agreement used under the 1993 Director
Stock Option Plan (5)
10.7 Registrant's 401(k) Plan (4)
10.8 Lease dated March 17, 1992 for Registrant's facilities at
1941 Ringwood Avenue, Suite 100, San Jose, California (4)
10.9 Lease dated April 15, 1993 for Registrant's facilities at
2350 Lundy Place, San Jose, California (1)
10.10 Amended and Restated Asset Purchase Agreement dated February
26, 1993 by and between Registrant, Barclay Financial Group
and Adlar Turnkey Manufacturing Company, as amended (4)
10.11 Form of Convertible Note issued by Registrant in favor of
Barclay Financial Group (4)
Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
10.12 Amended and Restated Credit Agreement dated as of May 23,
1995 by and among the Registrant, the Banks named therein and
Sumitomo Bank of California, as Agent for the Banks, as
amended (2)
10.13 First Amendment to Second Amended and Restated Credit
Agreement dated as of June 25, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(7)
10.14 Second Amendment to Second Amended and Restated Credit
Agreement dated as of September 30, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(8)
10.15 Standard Distributor Agreement dated June 1, 1990 by and
between Quantum Corporation and Registrant (4)
10.16 Form of Indemnification Agreement (4)
10.17 IBM Authorized Distributor Agreement dated May 17, 1993
between IBM Corporation and Registrant (4)
10.18 Sublease dated November 12, 1996 for the Registrant's
facilities at 2020 South Tenth Street, San Jose, California,
and related exhibits.
10.19* Employment Agreement dated as of December 10, 1996 between
the Registrant and W. Donald Bell, the Registrant's Chief
Executive Officer
10.20 Form of Management Retention Agreement between the Registrant
and the following executive officers of the Registrant: W.
Donald Bell, Remo E. Canessa, William Murphy, Philip M.
Roussey and Robert J. Sturgeon.
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
24.1 Power of Attorney (contained on page 22)
- ----------------
* Confidential treatment has been requested for portions of
this document.
(1) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993 filed on March 31, 1994.
(2) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-1 (File No.
33-79692) in the form declared effective on November 1, 1994.
(3) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
33-66580) filed on July 29, 1993.
(4) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-1 (File No.
33-60954) filed on April 14, 1993 and which became effective
on June 14, 1993.
(5) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
33-83398) filed on August 29, 1994.
(6) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
333-10837) filed on August 26, 1996.
(7) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-Q for the quarter ended June
30, 1996.
(8) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.