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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, 1998
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 March 15, 1999, was approximately $50,506,721 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
March 15, 1999 was 8,935,339.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on May 13, 1999 are incorporated by reference into Part
III of this Form 10-K
Index of Exhibits appears on Pages 43 and 44.
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PART I
ITEM 1: Business
Founded in 1987, Bell Microproducts Inc. and its subsidiaries (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, microprocessor,
peripheral and specialty components. Computer products include disk, tape and
optical drives and subsystems, drive controllers, monitors, 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.
When used in this report, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A under the
Securities Act of 1933 and Section 21E under the Securities Exchange Act of
1934. Such statements include but are not limited to statements regarding the
ability to obtain favorable product allocations, the ability to increase gross
profit while controlling expenses, the ability to realize synergies between
contract manufacturing and distribution, and the costs of Year 2000 compliance.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially, including those risks described under "Risk
Factors" below.
Products and Services
Semiconductor Products
The Company distributes a broad range of semiconductor, passive and
electromechanical 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 1998 included IBM Microelectronics, Cypress
Semiconductor, Fujitsu Microelectronics, NEC Electronics, Sony Electronics,
Harris Semiconductor and OKI Semiconductor.
Computer Products
While a substantial portion of the Company's sales of computer products
in 1998 was attributable to hard disk drives, the Company's computer product
sales also included tape drives, optical disk drives, networking products,
monitors, computers, motherboards and value-added services and solution
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 other resellers.
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Disk, Tape and Optical 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 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 IBM, Maxtor Corporation, Quantum Corporation, Seagate Technology, Sun
Microelectronics (a division of Sun Microsystems Inc.), TEAC and Western Digital
Corporation.
Networking Products. The Company sells specialized board-level mass
storage 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. The Company 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 integrators. The
principal motherboard supplier is Sun Microelectronics.
Value-Added Services
The Company provides the following value-added services:
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. By capitalizing on its strengths
as a distributor, including its customer relationships, expertise in materials
acquisition and inventory management, coupled with a complete in-house kitting
(as defined below) 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.
Systems Integration. Systems integration is a customer specific turnkey
solution provided by the Company which integrates such high technology products
as motherboards, disk, tape and optical drives with power supplies, enclosures,
interface electronics, cables and connectors to build a completed system.
Subsystem and Device Value-Added Services. The Company provides
value-added services to board and mass storage products to a customer's
specification delivering subsystems modified to meet the requirements of
specific applications.
Bellstor. The Company offers its own product line of disk and tape
subsystems and RAID products to OEMs, VARs, and integrators for application in
standard interface computer environments. In 1998, the Company announced the
release of a new Bellstor product family, Galaxy and Discovery, meeting the
needs of customers from a subsystem to a complete RAID ready (JBOD) storage
solution.
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Trademark. With the acquisition of the Computer Products Division of
Almo Corporation in November 1998, the Company increased its product offerings
to include the manufacture of private-labeled personal computers that are sold
to value-add resellers, under the brand name Trademark.
Kitting. Kitting of customer component product requirements is provided
to a select customer base. Kitting is a service whereby the Company purchases
materials according to the customer's specifications and assembles them into kit
form, ready for the assembly process.
Distribution Operations
The majority of the products sold by the Company's distribution
division are purchased pursuant to authorized distributor agreements. These
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 to product obsolescence, changing consumer demands
and declining average selling prices. The Company's 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 part number or device type, and the Company's inventory
management system provides information to assist in making future purchasing and
stock rotation decisions. This system enables the Company to effectively manage
its inventory so as to respond quickly to customer requirements while minimizing
inventory levels. The asset management group also monitors supplier stock
rotation programs, inventory price protection opportunities, rejected material
and other factors related to inventory quality and quantity.
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
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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 the Company have
successfully expanded their customer lists and line cards and consequently
achieved increased revenues.
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'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 primarily through two aspects of its sales, marketing and product
strategies: (i) increasing distribution of relatively high gross margin
products, such as semiconductors and its value added products and capabilities,
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. The Company increased its sales
locations to 33 in 1998 primarily through the November 1998 acquisitions of the
Computer Products Division of Philadelphia-based Almo Corporation and the Tenex
Data Division of Axidata, Inc. in Canada. The Company addresses what it believes
constitutes many of the largest sectors of the national market for semiconductor
and computer products. The Company will continue 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, 1998, the Company had a total of 880 employees. None of
the Company's employees are 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
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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,
enforcing cancellation provisions of manufacturing agreements, 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, the
ability of the Company to integrate recently acquired companies, 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
and marketing development funds 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. In
addition, the Company's contract manufacturing division has experienced lower
than expected sales which, when combined with the division's relatively fixed
overhead, has adversely impacted operating results in recent periods. 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.
Limited History of Profitability in Contract Manufacturing; Dependence on Key
Customers
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 change of financial strength
of these customers, or loss of customers altogether could have a material
adverse effect on the results of operations of the contract manufacturing
division and on the profitability of the Company. The Company's revenues and
profitability from its contract manufacturing operations may also 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. There can be no assurance that the
Company's contract manufacturing division will retain existing major customers,
attract new contract manufacturing customers or otherwise increase sales levels
to support expanded operations, continue to maintain supply of necessary
components, or that it will achieve profitability in future periods. Failure to
do so would have an adverse effect on the Company's operating results.
5
Management of Growth
The Company's growth in recent years 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. In 1998, the
Company acquired the Computer Products Division of Philadelphia-based Almo
Corporation and Toronto-based Tenex Data, a division of Axidata Inc. The
integration of the newly acquired companies will involve the assimilation of
operations and products, which could divert the attention of the Company's
management team and may have a material adverse effect on the Company's
operating results in future quarters. The Company's strategy includes
consideration of possible additional acquisitions in the future. Such
acquisitions entail numerous risks, including an inability to assimilate
acquired operations and products diversion of management's attention,
difficulties and uncertainties in transitioning the business relationships from
the acquired entity to the Company, difficulty in integrating new employees and
loss of key employees of acquired companies. In addition, future acquisitions by
the Company may result in dilutive issuances of equity securities, the
incurrence of additional indebtedness, large one-time expenses, and the creation
of goodwill or other intangible assets that could result in significant
amortization expense. Continued 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, expand information
systems, or further develop accounting and control systems to 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.
Dependence on Suppliers
Two suppliers provided products which represented 43% of the Company's
sales in 1998, and 43% in 1997. The Company's distribution agreements with these
suppliers are 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. Two vendors accounted for 49%,
57% and 53% of the Company's distribution inventory purchases during 1998, 1997
and 1996, respectively. One of these vendors has obtained a second priority lien
against the Company's inventories to secure payment on the Company's purchase of
goods. The loss of 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. 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.
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
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services including kitting and turnkey assembly. The Company believes that it
competes favorably with respect to these factors. Recently with the increased
acceptance of companies transacting business through the Internet, competition
in the distribution of semiconductors, computer products and related value-added
products is expected to increase. 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 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 times, 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 or continue to operate
both businesses. Failure to do so could have a material adverse effect on the
Company's operating results.
Risks Associated with Limited Price and Inventory Protection Rights
The Company's authorized distributor agreements may be canceled by
either party on short notice and generally provide for a return of the inventory
to the manufacturer upon cancellation. Such agreements also generally provide
the Company with limited price protection and 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, which could have a material adverse effect
on the Company's results of operations.
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 and
pricing pressures. The personal computer industry has experienced significant
unit volume growth over the past several 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; or significant reductions in gross margins earned by the
Company, could adversely affect the Company's ability to continue its revenue
growth and maintain or increase the Company's profitability. 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 to their
customers, which may increase the risk that the
7
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.
Year 2000 Compliance
The Year 2000 issue relates to the way computer systems and programs
define calendar dates; they could fail or make miscalculations due to
interpreting a date including "00" to mean 1900, not 2000. This could result in
system failures causing disruptions in operations, including among other things,
interruptions in processing business transactions and other normal business
operations. Also, many systems and equipment that are not typically thought of
as "computer-related" (referred to as non-IT) contain embedded hardware or
software that may have a time element.
The Company's plan to address the Year 2000 issue includes three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected by the Year 2000 issue; evaluation and
development of strategies to address affected systems and equipment; and
remediation of affected systems and equipment.
The Company has completed the first two phases in that it has
identified all affected systems and equipment, both IT and non-IT, and has
completed its Year 2000 compliance evaluation. The Company has determined that
the majority of its affected systems (both software and hardware) require
upgrade versus replacement in order to become Year 2000 compliant. As of
December 31, 1998, the Company has incurred expenses totaling approximately
$50,000. Estimated costs to complete the implementation including
installation/upgrade, testing and training is approximately $100,000. The
Company has an objective for its systems and equipment to be Year 2000 compliant
in the second quarter of 1999. The Company has extended its
8
estimated completion of remediation from the first quarter of 1999 to the second
quarter of 1999 due to the acquisitions of the Computer Products Division of
Almo Corporation and Tenex Data Division of Axidata, Inc. in November 1998.
The Company has identified and contacted its critical suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues. To the extent that responses to Year 2000 readiness are
unsatisfactory, the Company intends to change suppliers, service providers and
contractors to those who have demonstrated Year 2000 readiness but cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company does not currently have any
formal information concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance. In the event that any of the Company's significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance, and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected. In the event Year
2000 issues relating to key customers and suppliers are not successfully
resolved, based on information available to us at present, we believe that the
most likely worst case scenario is a temporary disruption in infrastructure
service, particularly power and telecommunications, which could adversely impact
supplier deliveries or customer shipments. If severe disruptions occur in these
areas and are not corrected in a timely manner, a revenue or profit shortfall
may result in the year 2000. The Company has no contingency plan regarding the
most reasonably likely case scenario in the event it does not adequately address
the Year 2000 issue. The Company's plans to develop a contingency plan before
April 1,1999 have been delayed until the third quarter of 1999 due to the two
acquisitions in November 1998.
Foreign Currency
Substantially all of the Company's revenue and capital expenditure was
transacted in US Dollars. Transactions in other currencies and the associated
risks of depreciation of value and volatility of cash flows have not been
material to date. The Company is likely to be subject to increased foreign
currency transactions and associated risks following the acquisition of
Toronto-based Tenex Data in November 1998. To the extent the Company is unable
to manage these risks, the Company's results and financial position could be
materially adversely affected.
9
ITEM 2: Properties
Square
Location Type Principal Use Footage Ownership
- - -------------------------- ------------------- ----------------------- ----------- -------------------------------
San Jose, CA Office, warehouse Headquarters, 34,000 Leased until July 2000.
distribution center
(Bldg. One)
San Jose, CA Office Headquarters, (Bldg. 15,657 Leased until 2002 with five
Two) one-year options to extend.
San Jose, CA Warehouse Distribution center 37,797 Leased until June 2002.
San Jose, CA Office, plant & Contract Manufacturing 141,520 Leased until February 2006.
warehouse
Marlboro, MA Office, plant & Distribution center, 14,975 Leased until February 2000.
warehouse Manufacturing
Champlin, MN Office, plant & Distribution center, 26,330 Leased until April 2002.
warehouse Manufacturing
Markham, Ontario Office, warehouse Distribution center 17,628 Leased until March 2004 with
option to extend five years.
Philadelphia, PA Office, warehouse Distribution center 24,500 Leased until December 2006.
The Company also leases sales and/or warehouse locations in Phoenix,
Arizona; Agoura Hills, Irvine and San Diego, California; Denver, Colorado;
Altamonte Springs, Bonita Springs and Deerfield Beach, Florida; Marietta,
Georgia; Chicago, Illinois; Columbia and Hanover, Maryland; Woburn,
Massachusetts; Eden Prairie, Minnesota; Clifton, North Plainfield and Pine
Brook, New Jersey; Smithtown, New York; Beaverton, Oregon; Strongsville, Ohio;
Needmore, Pennsylvania; Austin, Houston and Richardson, Texas; Centerville,
Utah; Herndon, Virginia; Bellevue, Washington; Vancouver, British Columbia; and
Montreal, Quebec.
ITEM 3: Legal Proceedings
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.
10
ITEM 4: Submission of Matters to a Vote of Security Holders
None.
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 1997
First quarter................................. $13.88 $ 8.63
Second quarter ............................... 13.00 9.63
Third quarter ................................ 11.75 8.13
Fourth quarter ............................... 12.00 6.75
Fiscal 1998
First quarter................................. $ 8.75 $ 7.06
Second quarter................................ 8.75 6.63
Third quarter................................. 9.25 5.25
Fourth quarter ............................... 11.00 5.25
Fiscal 1999
First quarter (through March 15, 1999)........ $ 10.44 $ 6.31
On March 15, 1999, the last sale price of the Common Stock as reported
by Nasdaq was $6.38 per share.
As of March 15, 1999, there were approximately 267 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.
11
ITEM 6: Selected Financial Data
The selected financial data of the Company set forth below should be
read in conjunction with the consolidated financial statements of the Company,
including the notes thereto, and Managements's Discussion and Analysis included
elsewhere herein.
(in thousands, except earnings per share data)
Statement of Income Data: 1998(1) 1997 1996 1995 1994(2)
-------- -------- -------- -------- --------
Net sales ......................................... $661,428 $533,736 $483,316 $346,291 $250,753
Cost of sales ..................................... 595,504 476,648 425,258 305,696 217,277
-------- -------- -------- -------- --------
Gross profit ...................................... 65,924 57,088 58,058 40,595 33,476
Marketing, general and
administrative expenses ......................... 49,738 44,430 41,008 30,352 23,258
-------- -------- -------- -------- --------
Income from operations .......................... 16,186 12,658 17,050 10,243 10,218
Interest expense .................................. 5,711 4,574 3,495 3,473 1,691
-------- -------- -------- -------- --------
Income before income taxes ...................... 10,475 8,084 13,555 6,770 8,527
Provision for income taxes ........................ 4,400 3,395 5,693 2,768 3,471
-------- -------- -------- -------- --------
Net income ........................................ $ 6,075 $ 4,689 $ 7,862 $ 4,002 $ 5,056
======== ======== ======== ======== ========
Earnings per share (3)
Basic .......................................... $ .69 $ .55 $ .94 $ .49 $ .91
======== ======== ======== ======== ========
Diluted ........................................ $ .68 $ .53 $ .92 $ .48 $ .86
======== ======== ======== ======== ========
Shares used in per share calculation (3)
Basic .......................................... 8,792 8,562 8,359 8,173 5,571
======== ======== ======== ======== ========
Diluted ........................................ 8,881 8,906 8,511 8,350 5,878
======== ======== ======== ======== ========
As of December 31,
-------------------------------------------------------------------------
Balance Sheet Data: 1998(1) 1997 1996 1995 1994(2)
-------- -------- -------- -------- --------
Working capital ................................... $167,109 $134,612 $105,958 $106,914 $ 52,230
Total assets ...................................... 285,580 205,420 175,680 157,277 122,502
Total long-term debt .............................. 106,963 74,460 50,885 59,453 6,059
Total shareholders' equity ........................ 86,476 77,667 71,127 62,462 56,465
<FN>
- - ------------------------------
(1) 1998 Statement of Income Data and Balance Sheet Data include the results from the purchases of the Computer Products Division
of Almo Corporation on November 13, 1998 and Tenex Data Division of Axidata Inc. on November 19, 1998. Statement of Income Data
includes the result of operations of these divisions from their date of acquisition. See Note 3 of Notes to Consolidated
Financial Statements.
(2) 1994 Statement of Income Data and Balance Sheet Data include the results from the purchase of Vantage Components, Inc. on May
26, 1994.
(3) All per share amounts have been restated in accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per
Share". See Note 2 of Notes to Consolidated Financial Statements.
</FN>
12
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 consolidated financial statements and the
other information appearing elsewhere in this report.
When used in this report, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A under the
Securities Act of 1933 and Section 21E under the Securities Exchange Act of
1934. Such statements include but are not limited to statements regarding the
ability to obtain favorable product allocations, the ability to increase gross
profit while controlling expenses, the ability to realize synergies between
contract manufacturing and distribution, and the costs of Year 2000 compliance.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially, including those risks described under "Risk
Factors" in Item 1 hereof.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales were $661.4 million for the year ended December 31,1998,
which represented an increase of $127.7 million or 24% over 1997. Distribution
sales increased by $114.8 million, and sales through the Company's contract
manufacturing division, Quadrus, increased by approximately $12.9 million. In
distribution, computer products sales increased from 1997 primarily due to the
growth of unit sales in existing product lines, the addition of new lines and
expansion of the customer base related to the acquisitions of the Computer
Products Division of Almo Corporation ("Almo CPD") and Tenex Data Division of
Axidata, Inc. ("Tenex Data") in November 1998. Almo CPD and Tenex Data
contributed net sales of $16.3 million and $8.3 million respectively in the year
ended December 31, 1998. The contribution to net income was not material.
Semiconductor sales decreased from 1997 primarily due to industry-wide price
declines. Quadrus' sales increased as a result of increased sales to new and
existing customers.
The Company's gross profit for 1998 was $65.9 million, an increase of
$8.8 million, or 15% over 1997. The gross profit in distribution increased $9.6
million primarily due to increased sales volume. This increase was offset by a
gross profit decrease of $0.8 million in manufacturing as a result of increased
overhead costs, a change in customer mix and increased inventory reserves from
1997 to 1998. As a percentage of sales, overall gross margins were 10.0% in 1998
as compared to 10.7% in 1997. The decrease was due to the increase in the
proportion of computer product sales, which typically have lower gross margins
than semiconductors.
Marketing, general and administrative expenses increased 12% to $49.7
million in 1998 from $44.4 million in 1997, but decreased as a percentage of
sales to 7.5% from 8.3%. The increase in expenses was attributable to increased
sales volume, the acquisitions of Almo CPD and Tenex Data and the Company's
continuing effort to expand its sales and marketing organization. The Company
also increased its bad debt expenses due to increased sales volumes and changing
market conditions.
Interest expense increased in 1998 to $5.7 million from $4.6 million in
1997. The increase in interest expense was due to increased bank borrowings
during 1998 to fund the Company's working capital needs and the acquisitions of
Almo CPD and Tenex Data.
13
The Company's effective income tax rate remained unchanged at 42% in
1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales were $533.7 million for the year ended December 31, 1997,
which represented an increase of $50.4 million or 10% over 1996. Distribution
sales increased by $69.3 million, while sales through Quadrus decreased by
approximately $18.9 million from 1996. Substantially the entire increase in
distribution sales was attributable to computer products with the expansion of
unit sales in existing product lines due to increased demand for mass storage
products. Semiconductor sales decreased slightly in 1997 from 1996 primarily due
to industry-wide price declines in memory products. The decrease in
manufacturing sales in 1997 was primarily due to unfavorable timing between new
business engagements and the termination of a major customer contract.
The Company's gross profit for 1997 was $57.1 million, a decrease of
$1.0 million or 2% from 1996. Of this total gross profit decrease, $9.0 million
was attributable to the Company's contract manufacturing division, which was
offset by an increase of approximately $8.0 million in the distribution
division. As a percentage of sales, gross margin was 10.7% in 1997 as compared
to 12.0% in 1996. The decrease in total Company gross margin was primarily the
result of decreased gross margins in the contract manufacturing division to 3.9%
in 1997, as compared to 12.9% in 1996. This decline in gross margin in the
contract manufacturing division was primarily due to sales volume, which fell
below the level required to absorb increased overhead expenses. In the
distribution division, the gross margin in 1997 remained flat at 11.8%.
Marketing, general and administrative expenses increased 8% to $44.4
million in 1997 from $41.0 million in 1996, but decreased as a percentage of
sales to 8.3% from 8.5%. The increase in expenses was attributable to increased
sales volume and the Company's continuing effort to expand its sales and
marketing organization and strengthen its financial and administrative support.
Interest expense increased to $4.6 million in 1997 from $3.5 million in
1996. The increase was due to increased bank borrowings during 1997 to fund the
Company's working capital needs.
The Company's effective income tax rate remained unchanged at 42.0% in
1997.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company has funded its working capital
requirements principally through borrowings under bank lines of credit. Working
capital requirements have included the financing of increases in inventory and
accounts receivable resulting from sales growth.
On November 12, 1998 the Company entered into a Third Amended and
Restated Syndicated Credit Agreement arranged by California Bank & Trust, as
Agent, formerly Sumitomo Bank of California. The amendment increased the
Company's $100 million revolving line of credit to $130 million and extended the
maturity date to May 31, 2000. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted LIBOR rate plus 1.85%. At December 31, 1998, the prime interest rate
was 7.75%. The balance outstanding on the revolving line of credit at December
31, 1998 was $102.4 million. Obligations of the Company under the revolving line
of credit are secured by substantially all of the Company's assets. The
revolving line of credit requires the Company to meet certain financial tests
and to comply with certain other covenants on a quarterly basis, including
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, declaration of dividends, repurchases of
stock, making
14
investments and profitability. The Company was in compliance with its bank
covenants at December 31, 1998; 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 intends to
utilize its revolving line of credit to fund future working capital
requirements. 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.
On November 13, 1998, the Company acquired the Computer Products
Division of Almo Corporation for a total consideration of approximately $21.7
million. On November 19, 1998, the Company acquired Tenex Data, a division of
Axidata, Inc. for a total consideration of approximately $5.8 million. Both
acquisitions were financed with cash and funded through the Company's revolving
line of credit.
The Company's accounts receivable and inventories as of December 31,
1998 increased to $120.2 million and $129.4 million at December 31, 1998
respectively, from $79.4 million and $98.4 million, respectively, as of December
31, 1997. Days sales outstanding were at 51 days and inventory turns were 6.0
times per year. These increases were primarily the result of the Company's
increased sales volume and the purchase of accounts receivable and inventory
through the Company's two acquisitions in November 1998. The Company's accounts
payable increased to $81.5 million in 1998 from $45.5 million in 1997 due to
increased inventory purchases and the addition of accounts payable through the
Company's two acquisitions in November 1998.
The net amount of cash provided by financing activities in 1998 was
$32.1 million, principally from utilization of the Company's revolving line of
credit with its banks. The net amount of cash used in operating activities was
$5.5 million in 1998. The net amount of cash used in investing activities in
1998 was $28.9 million, for the acquisition of property and equipment and the
acquisitions of businesses.
Year 2000 Compliance
The Year 2000 issue relates to the way computer systems and programs
define calendar dates; they could fail or make miscalculations due to
interpreting a date including "00" to mean 1900, not 2000. This could result in
system failures causing disruptions in operations, including among other things,
interruptions in processing business transactions and other normal business
operations. Also, many systems and equipment that are not typically thought of
as "computer-related" (referred to as non-IT) contain embedded hardware or
software that may have a time element.
The Company's plan to address the Year 2000 issue includes three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected by the Year 2000 issue; evaluation and
development of strategies to address affected systems and equipment; and
remediation of affected systems and equipment.
The Company has completed the first two phases in that it has
identified all affected systems and equipment, both IT and non-IT, and has
completed its Year 2000 compliance evaluation. The Company has determined that
the majority of its affected systems (both software and hardware) require
upgrade versus replacement in order to become Year 2000 compliant. As of
December 31, 1998, the Company has incurred expenses totaling approximately
$50,000. Estimated costs to complete the implementation including
15
installation/upgrade, testing and training is approximately $100,000. The
Company has an objective for its systems and equipment to be Year 2000 compliant
in the second quarter of 1999. The Company has extended its estimated completion
of remediation from the first quarter of 1999 to the second quarter of 1999 due
to the acquisitions of Almo CPD and Tenex Data in November 1998.
The Company has identified and contacted its critical suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues. To the extent that responses to Year 2000 readiness are
unsatisfactory, the Company intends to change suppliers, service providers and
contractors to those who have demonstrated Year 2000 readiness but cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company does not currently have any
formal information concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance. In the event that any of the Company's significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance, and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected. In the event Year
2000 issues relating to key customers and suppliers are not successfully
resolved, based on information available to us at present, we believe that the
most likely worst case scenario is a temporary disruption in infrastructure
service, particularly power and telecommunications, which could adversely impact
supplier deliveries or customer shipments. If severe disruptions occur in these
areas and are not corrected in a timely manner, a revenue or profit shortfall
may result in the year 2000. The Company has no contingency plan regarding the
most reasonably likely case scenario in the event it does not adequately address
the Year 2000 issue. The Company's plans to develop a contingency plan before
April 1, 1999 have been delayed until the third quarter of 1999 due to the two
acquisitions in November 1998.
ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk
The Company's line of credit has an interest rate that is based on
associated rates such as LIBOR and the Prime Rate that may fluctuate over time
based on changes in the economic environment. The Company is subject to interest
rate risk, and could be subjected to increased interest payments if market
interest rates fluctuate. An effective increase or decrease of 10% in such
interest rate percentages would not have a material adverse effect on the
Company's results from operations. The potential change noted above is based on
sensitivity analysis performed by the Company as of December 31, 1998.
Substantially all of the Company's revenue and capital expenditure are
transacted in US Dollars. Transactions in other currencies and the associated
risks of depreciation of value and volatility of cashflows have not been
material to date. The Company is likely to be subject to increased foreign
currency transactions and associated risks following the acquisition of
Toronto-based Tenex Data in November 1998. To the extent the Company is unable
to manage these risks, the Company's results and financial position could be
materially adversely affected.
ITEM 8: Financial Statements and Supplementary Data
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, independent accountants, are included in Item 14
hereof.
16
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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 1999 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 six executive officers:
Name Age Position
---- --- --------
W. Donald Bell.................... 61 President, Chief Executive Officer and
Chairman of the Board
Remo E. Canessa................... 41 Vice President of Finance and Chief Financial Officer
Brian J. Clark.................... 45 Senior Vice President of Industrial Sales
Bruce M. Jaffe.................... 55 Senior Vice President of Finance & Operations and
Secretary
Ronald H. Mabry................... 51 Senior Vice President of Semiconductor Marketing
Philip M. Roussey................. 56 Senior Vice President of Computer Products Marketing
Robert J. Sturgeon................ 45 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 thirty 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.
17
Remo E. Canessa has been Vice President of Finance
and Chief Financial Officer since November of 1998. Mr.
Canessa was formerly Vice President of Finance and Chief
Financial Officer of Infoseek Corporation. From 1993 to 1998
he was a part of Bell Microproducts' management team, serving
first as Corporate Controller, then as Vice President of
Finance and as its Acting Chief Financial Officer. He has held
senior management positions at Ampex Corporation, Raster
Graphics Inc. and Geoworks Corporation.
Brian J. Clark has been Senior Vice President of
Industrial Sales since September of 1997. Mr. Clark has over
twenty-three years in the electronic business. Mr. Clark was
formerly the Vice President of the Northern California Region
of Arrow Electronics and prior to Arrow he held senior
management positions at Kierulff and Wyle Electronics.
Bruce M. Jaffe has been Senior Vice President of
Finance and Operations since July 1997. Mr. Jaffe has over
thirty years of experience in the electronics industry. Mr.
Jaffe was President of Bell Industries, a distributor of
electronic components, and also served as that Company's
Executive Vice President and Chief Financial Officer for more
than 5 years.
Ronald H. Mabry has been Senior Vice President of
Semiconductor Marketing since October 1996. Mr. Mabry has over
thirty years experience in the electronics distribution
industry. Before joining Bell Microproducts, Mr. Mabry was
Chief Executive Officer and Chairman of the Board of Western
Micro Technology, and prior to that time, he held various
senior management positions at Avnet, Inc.
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 of 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.
18
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.
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) Consolidated Financial Statements Form 10-K
Page Number
-----------
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31, 1998
and 1997 F-2
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
(2) Consolidated 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
Consolidated Financial Statements or Notes to Consolidated Financial Statements.
19
(3) Exhibits
Number Description of Document
------ -----------------------
3.1 Amended and Restated Articles of Incorporation of Registrant (2)
3.2 Amended and Restated Bylaws of Registrant (3)
4.1 Specimen Common Stock Certificate of the Registrant (3)
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 Almo Corporation (7)
10.1 1998 Stock Plan (9)
10.2 The form of Option Agreement used under the 1998 Stock Plan (9)
10.3 Employee Stock Purchase Plan, as amended through May 21, 1998 (9)
10.4 The form of Option Agreement used under the Employee Stock Purchase Plan (4)
10.5 Registrant's 401(k) Plan (3)
10.6 Lease dated March 17, 1992 for Registrant's facilities at 1941 Ringwood Avenue, Suite 100, San Jose, California
(3)
10.7 Lease dated April 15, 1993 for Registrant's facilities at 2350 Lundy Place, San Jose, California (1)
10.8 Standard Distributor Agreement dated June 1, 1990 by and between Quantum Corporation and Registrant (3)
10.9 Form of Indemnification Agreement (3)
10.10 IBM Authorized Distributor Agreement dated May 17, 1993 between IBM Corporation and Registrant (3)
10.11 Sublease dated November 12, 1996 for the Registrant's facilities at 2020 South Tenth Street, San Jose, California,
and related exhibits (8)
10.12* Employment Agreement dated as of December 10, 1996 between the Registrant and W. Donald Bell, the Registrant's
Chief Executive Officer (8)
10.13 Form of Management Retention Agreement between the Registrant and the following executive officers of the
Registrant: W. Donald Bell, Bruce M. Jaffe, Ronald H. Mabry, Philip M. Roussey and Robert J. Sturgeon (8)
10.14 Third Amendment and Restated Credit Agreement dated as of November 12, 1998 by and among the Registrant, the Banks
named therein and California Bank & Trust, as Agent for the Banks (7)
20
10.15 Asset Purchase Agreement dated as of November 5, 1998 by and between the Company, Almo Corporation, Almo
Distributing Pennsylvania, Inc., Almo Distributing Maryland, Inc., Almo Distributing Minnesota, Inc., Almo
Distributing Wisconson, Inc. and Almo Distributing, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
24.1 Power of Attorney (contained on page 21)
<FN>
- - --------------------
* Confidential treatment has been granted 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-8 (File No.
33-66580) filed on July 29, 1993.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated by reference to exhibit filed with the Registrant's Report on Form 10Q for the quarter ended June 30,
1996.
(7) Incorporated by reference to exhibit filed with the Registrant's Report on Form 8-K (File No. 000-21528) filed on
December 4, 1998.
(8) Incorporated by reference to exhibit filed with the Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1996 filed on March 31, 1997.
(9) Incorporated by reference to exhibit filed with the Registrant's Report on Form S-8 (File No. 333-58053) filed on
June 30, 1998.
</FN>
(b) Reports on Form 8-K. None filed.
(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 31, 1999.
BELL MICROPRODUCTS INC.
By: /s/ Remo E. Canessa
----------------------------------------------------
Remo E. Canessa
Chief Financial Officer and Vice President of
Finance (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 31, 1999
- - ------------------------------- Officer (Principal Executive Officer)
(W. Donald Bell)
/s/ Remo E. Canessa Vice President of Finance and Chief Financial Officer March 31, 1999
- - ------------------------------- (Principal Financial and Accounting Officer)
(Remo E. Canessa)
/s/ Gordon A. Campbell Director March 31, 1999
- - -------------------------------
(Gordon A. Campbell)
/s/ Eugene Chaiken Director March 31, 1999
- - -------------------------------
(Eugene Chaiken)
/s/ Edward L. Gelbach Director March 31, 1999
- - -------------------------------
(Edward L. Gelbach)
/s/ James E. Ousley Director March 31, 1999
- - -------------------------------
(James E. Ousley)
/s/ Glenn E. Penisten Director March 31, 1999
- - -------------------------------
(Glenn E. Penisten)
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Bell Microproducts Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a) (1) and (2) on page 19 present fairly, in all
material respects, the financial position of Bell Microproducts Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, 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
mistatement. 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.
PricewaterhouseCoopers LLP
San Jose, California
February 18, 1999
F-1
BELL MICROPRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
----------------------------
1998 1997
-------- --------
ASSETS
Current assets:
Cash $ 4,082 $ 6,235
Accounts receivable, net of allowance for doubtful accounts of
$3,486 and $1,331 120,227 79,389
Inventories 129,389 98,379
Deferred income taxes, net 4,072 2,595
Prepaid expenses 1,730 1,217
-------- --------
Total current assets 259,500 187,905
Property and equipment, net 12,766 10,733
Goodwill, net of accumulated amortization of $1,518 and $1,112 12,362 6,372
Other assets 952 410
-------- --------
Total assets $285,580 $205,420
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 81,480 $ 45,540
Other accrued liabilities 8,429 6,025
Current portion of capitalized lease obligations 2,232 1,728
-------- --------
Total current liabilities 92,141 53,293
Borrowings under the line of credit 102,400 70,000
Capitalized lease obligations, less current portion 4,563 4,460
-------- --------
Total liabilities 199,104 127,753
-------- --------
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred Stock, $0.01 par value, 10,000 shares authorized;
none issued and outstanding -- --
Common Stock, $0.01 par value, 20,000 shares authorized;
8,914 and 8,696 shares issued and outstanding 56,181 53,495
Comprehensive income:
Retained earnings 30,247 24,172
Cumulative translation adjustment 48 --
-------- --------
Total shareholders' equity 86,476 77,667
-------- --------
Total liabilities and shareholders' equity $285,580 $205,420
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
F-2
BELL MICROPRODUCTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31,
------------------------------------------------
1998 1997 1996
-------- -------- --------
Net sales $661,428 $533,736 $483,316
Cost of sales 595,504 476,648 425,258
-------- -------- --------
Gross profit 65,924 57,088 58,058
Marketing, general and administrative expenses 49,738 44,430 41,008
-------- -------- --------
Income from operations 16,186 12,658 17,050
Interest expense 5,711 4,574 3,495
-------- -------- --------
Income before income taxes 10,475 8,084 13,555
Provision for income taxes 4,400 3,395 5,693
-------- -------- --------
Net income 6,075 4,689 7,862
-------- -------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 48 -- --
-------- -------- --------
Comprehensive income $ 6,123 $ 4,689 $ 7,862
======== ======== ========
Earnings per share (Note 2)
Basic $ 0.69 $ 0.55 $ 0.94
======== ======== ========
Diluted $ 0.68 $ 0.53 $ 0.92
======== ======== ========
Shares used in per share calculation (Note 2)
Basic 8,792 8,562 8,359
======== ======== ========
Diluted 8,881 8,906 8,511
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
F-3
BELL MICROPRODUCTS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Other
---------------------- Retained Comprehensive
Shares Amount Earnings Income Total
------- ------- ------- ------- -------
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
Exercise of stock options, including
related tax benefit of $225 147 1,117 -- -- 1,117
Issuance of Common Stock under
Stock Purchase Plan 104 734 -- -- 734
Net income -- -- 4,689 -- 4,689
------- ------- ------- ------- -------
Balance at December 31, 1997 8,696 53,495 24,172 -- 77,667
Comprehensive income:
Net income -- -- 6,075 -- 6,075
Foreign currency translation -- -- -- 48 48
------- ------- ------- ------- -------
Total comprehensive income -- -- 6,075 48 6,123
Exercise of stock options, including
related tax benefit of $86 111 943 -- -- 943
Issuance of Common Stock under
Stock Purchase Plan 107 700 -- -- 700
Issuance of stock warrant (Note 3) -- 1,043 -- -- 1,043
------- ------- ------- ------- -------
Balance at December 31, 1998 8,914 $56,181 $30,247 $ 48 $86,476
======= ======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
F-4
BELL MICROPRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Increase (decrease) in cash, in thousands)
Year Ended December 31,
---------------------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net income $ 6,075 $ 4,689 $ 7,862
Adjustments to reconcile net income to
net cash (used in)/provided by operating activities:
Depreciation and amortization 3,764 2,917 2,569
Change in allowance for doubtful accounts 2,105 (2,897) 928
Change in deferred and refundable income taxes (1,477) 1,119 (296)
Changes in assets and liabilities:
Accounts receivable (22,053) (5,806) (6,348)
Inventories (22,282) (19,720) (8,397)
Prepaid expenses (513) (332) (44)
Other assets (542) (47) (210)
Accounts payable 28,160 (185) 14,129
Other accrued liabilities 1,289 (246) 3,566
-------- -------- --------
Net cash (used in)/provided by operating activities (5,474) (20,508) 13,759
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment, net (2,178) (2,998) (1,120)
Acquisitions of businesses (Note 3) (26,770) -- --
-------- -------- --------
Net cash used in investing activities (28,948) (2,998) (1,120)
Cash flows from financing activities:
Net borrowings/(repayments) under line of credit agreement 32,400 24,100 (8,600)
Net repayments on current portion of long-term liabilities -- (294) --
Proceeds from issuance of Common Stock 1,643 1,851 803
Principal payments on long-term liabilities (1,912) (1,508) (1,649)
-------- -------- --------
Net cash provided by (used in) financing activities 32,131 24,149 (9,446)
Effect of exchange rate changes on cash 48 -- --
-------- -------- --------
Net (decrease)/increase in cash (2,243) 643 3,193
Cash at beginning of period 6,325 5,682 2,489
-------- -------- --------
Cash at end of period $ 4,082 $ 6,325 $ 5,682
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,555 $ 4,641 $ 3,355
Income taxes $ 4,592 $ 2,695 $ 5,744
Supplemental non-cash financing activities:
Obligations incurred under capital leases $ 2,519 $ 1,333 $ 2,292
Stock warrant issued (Note 3) $ 1,043 -- --
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
F-5
BELL MICROPRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
The Company operates in two industry segments: as a distributor of
semiconductor and computer products to original equipment manufacturers (OEMs),
value-added resellers (VARs) and dealers in the United States and Canada, and as
a contract manufacturer. Semiconductor products include memory, logic,
microprocessor, 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of the
Company and its majority controlled and owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
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.
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 and are adjusted periodically to reflect changes in experience and
expected obligations.
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 performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for estimated collection
losses. No customer accounts for more than 10% of sales in any of the three
years ended December 31, 1998, 1997 and 1996, or accounts receivable at December
31, 1998 and 1997.
Two vendors accounted for 49%, 57% and 53% of the Company's
distribution inventory purchases during 1998, 1997 and 1996, 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.
Inventories
Distribution inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out (FIFO) method. Market is based
on estimated net realizable value.
Manufacturing inventories are stated at the lower of standard cost
(which approximates actual cost on a first-in, first-out basis) or market.
Market is based on estimated net realizable value.
F-6
Property and Equipment
Property and equipment are recorded 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 recorded as goodwill and amortized on a straight-line
basis over a fifteen year period for current year acquisitions and a twenty-five
year period for prior years' business combinations. The Company periodically
reviews the recoverability of goodwill.
Impairment of Long-Lived Assets
The Company continually monitors its long-lived assets to determine
whether any impairment of these assets has occurred. In making such
determination, the Company evaluates the performance of the underlying
businesses, products and products lines. The Company recognizes impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. No material
impairments have been experienced.
Income Taxes
Deferred income taxes are 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
Basic EPS is computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period including stock
options, using the treasury stock method, and convertible preferred stock, using
the if-converted method. In computing Diluted EPS, the average stock price for
the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options.
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands, except per share data):
Year Ended December 31,
------------------------
1998 1997 1996
------ ------ ------
Net income $6,075 $4,689 $7,862
====== ====== ======
Weighted average common shares outstanding (basic) 8,792 8,562 8,511
Effect of dilutive warrant and options 89 344 152
------ ------ ------
Weighted average common shares outstanding (diluted) 8,881 8,906 8,511
====== ====== ======
Earnings Per Share:
Basic $ 0.69 $ 0.55 $ 0.94
====== ====== ======
Diluted $ 0.68 $ 0.53 $ 0.92
====== ====== ======
F-7
Options and warrant to purchase 1,129,100 shares of common stock at a
weighted average price of $9.97 per share were outstanding at December 31, 1998
but were not included in the computation of Diluted EPS because the exercise
prices were greater than the average market price of the common shares. At
December 31, 1997, there were 478,200 options and warrant outstanding to
purchase common stock at a weighted average price of $9.98 per share excluded
from the Diluted EPS computation due to their anti-dilution. At December 31,
1996, there were 363,450 options and warrant outstanding to purchase common
stock at a weighted average price of $8.76 per share excluded from the Diluted
EPS computation due to their anti-dilution.
Foreign Currency Translation and Transactions
The financial statements of the Company's foreign subsidiary are
measured using the local currency as the functional currency. Assets and
liabilities of this subsidiary are translated at the rate of exchange at the
balance sheet date. Income and expense items are translated at average quarterly
rates of exchange prevailing during the year. The resulting translation
adjustments are included in accumulated other comprehensive income as a separate
component of stockholders' equity. Gains and losses from foreign currency
transactions are included in the statement of income.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." The Company's policy is to grant
options with an exercise price equal to the quoted market price of the Company's
stock on the date of the grant. Accordingly, no compensation cost has been
recognized in the Company's Statements of Income. The Company provides
additional proforma disclosures as required under Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."
Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income consists of its
reported net income or loss and the change in the foreign currency translation
adjustment during a period.
Segment Reporting
Financial Accounting Standards Board Statement No.131, "Disclosure
about Segments of an Enterprise and Related Information" ("SFAS 131") requires
that companies report separately in the financial statements certain financial
and descriptive information about operating segments profit or loss, certain
specific revenue and expense items and segment assets. Additionally, companies
are required to report information about the revenues derived from their
products and service groups, about geographic areas in which the Company earns
revenues and holds assets, and about major customers (see Note 11).
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes and
amends a number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's financial
statements. The standard is effective for the Company in fiscal 2000.
NOTE 3 - ACQUISITIONS:
On November 13, 1998, the Company acquired certain assets and assumed
certain liabilities of the Computer Products Division of Almo Corporation,
("Almo CPD") for a total consideration of approximately $21.7 million including
acquisition costs. The Company issued to Almo a warrant to purchase 350,000
shares of the Company's
F-8
Common Stock at $12.00 per share, in consideration for a covenant not to
compete. The warrant may be exercised at any date for a period of five years.
The warrant was independently valued at $1,043,000; significant assumptions used
were a risk free rate of 4.89%, fair value of Common Stock of $5.88 and an
expected life of five years. The warrant was recorded as a component of equity
and as additional goodwill. The related charge will be amortized over a period
of five years. The acquisition, which was accounted for as a purchase, was
funded through borrowings under the Company's revolving line of credit.
On November 19, 1998, the Company acquired certain assets and assumed
certain liabilities of Tenex Data Division of Axidata, Inc. ("Tenex Data"), for
a purchase price of approximately $5.8 million in cash including acquisition
costs. The acquisition, which was accounted for as a purchase, was funded
through borrowings under the Company's revolving line of credit. The Almo CPD
and Tenex Data purchase prices were allocated to the acquired assets and
liabilities based upon management's estimate of their fair market values as of
the acquisition dates as follows (in thousands):
Almo CPD Tenex Data Total
-------- -------- --------
Accounts receivable $ 15,525 $ 5,365 $ 20,890
Inventories 5,991 2,737 8,728
Equipment and other assets 517 177 694
Goodwill 4,688 1,373 6,061
Accounts payable (4,135) (3,645) (7,780)
Other accrued liabilities (929) (186) (1,115)
-------- -------- --------
Total consideration $ 21,657 $ 5,821 $ 27,478
======== ======== ========
The results of operations of Almo CPD and Tenex Data have been included
with those of the Company for periods subsequent to the dates of acquisition.
Set forth below is the unaudited pro forma combined summary of operations of the
Company for the years ended December 31, 1998 and 1997, as though both
acquisitions had been made on January 1, 1997.
Year Ended December 31,
(unaudited)
1998 1997
-------- --------
(in thousands)
Net sales $819,565 $720,138
Net income $ 6,441 $ 6,195
Earnings per share
Basic $ 0.73 $ 0.72
Diluted $ 0.73 $ 0.70
Shares used in per share calculation
Basic 8,792 8,562
Diluted 8,881 8,906
The unaudited pro forma combined summary of operations assumes: 1) the
amortization of goodwill over a fifteen year period, 2) the amortization of the
value of the warrant over the five year exercise period, and 3) the additional
interest expense on debt incurred in connection with the acquisition as if the
debt had been outstanding from January 1, 1997.
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 1997 or of those results which
may be obtained in the future.
An additional consideration of $335,000 was paid to the former
shareholders of Vantage Components Inc. during the year and adjustment has been
made to goodwill previously recorded.
F-9
NOTE 4 - BALANCE SHEET COMPONENTS:
December 31,
--------------------------
1998 1997
--------- ---------
(in thousands)
Inventories:
Work-in-process $ 12,052 $ 8,646
Purchased components and materials 117,337 89,733
--------- ---------
$ 129,389 $ 98,379
========= =========
Property and equipment:
Manufacturing and test equipment $ 12,959 $ 9,721
Computer and other equipment 4,945 4,041
Furniture and fixtures 2,455 1,950
Leasehold improvement 2,364 1,784
Warehouse equipment 623 459
--------- ---------
23,346 17,955
Less: accumulated depreciation (10,580) (7,222)
--------- ---------
$ 12,766 $ 10,733
========= =========
NOTE 5 - LINE OF CREDIT AND TERM LOAN:
On November 12, 1998, the Company entered into a Third Amended and
Restated Syndicated Credit Agreement, arranged by California Bank & Trust, as
Agent, formerly Sumitomo Bank of California. The amendment increased the
Company's $100 million revolving line of credit to $130 million and extended the
maturity date to May 31, 2000. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted LIBOR rate plus 1.85%. At December 31, 1998, the prime interest rate
was 7.75%. The balance outstanding on the revolving line of credit at December
31, 1998 was $102.4 million. Obligations of the Company under the revolving line
of credit are secured by substantially all of the Company's assets. The
revolving line of credit requires the Company to meet certain financial tests
and to comply with certain other covenants on a quarterly basis, 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 was in compliance with
its bank covenants at December 31, 1998; however, there can be no assurance that
the Company will be in compliance in the future.
NOTE 6 - STOCK-BASED COMPENSATION PLANS:
Stock Option Plans
In May of 1998, the Company adopted the 1998 Stock Plan (the "Plan")
which replaced the 1988 Amended and Restated Incentive Stock Plan (the "1988
Plan") and the 1993 Director Stock Option Plan (the "Director Plan"). All
options granted after May 1998 are granted under the 1998 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.
Under the Plan, the Company has reserved for issuance a total of 500,000 shares
of Common Stock plus 181,672 shares of Common Stock which were reserved but
unissued under the 1988 Plan and 35,000 shares of Common Stock which were
reserved but unissued under the Director Plan. The maximum aggregate number of
shares of Common Stock which may be optioned and sold under the Plan is 716,672
shares, plus an annual increase to be added on January 1 of each year beginning
in 1999, equal to the lesser of (i) 400,000 shares, (ii) 4% of the outstanding
shares on such date, or (iii) a lesser amount determined by the Board of
Directors, subject to adjustment upon changes in capitalization of the Company.
Since inception, the Company has reserved 3,169,104 shares of Common Stock for
issuance under the aggregate of all stock option plans.
F-10
The stock options become exercisable over a vesting period as
determined by the Board of Directors and expire over terms not exceeding ten
years from the date of grant. 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 1988 Plan, in March 1993, the Board of Directors adopted
a Management Incentive Program (the "Program") for key employees. Under this
Program, options for 40,500, 130,000 and 339,000 shares of Common Stock were
granted in 1998, 1997 and 1996, respectively. The Program provides for ten-year
option terms with vesting at the rate of one tenth 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 1988 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 1988 Plan. Of the approximate 950,000 stock options
outstanding eligible for exchange, 640,900 stock options were exchanged for new
options.
Options granted under the Director Plan prior to May 1998 and
outstanding at December 31, 1998 total 90,000. Under the Director Plan, 75,000
options were granted in 1993 at an exercise price of $8.00 per share, and 20,000
options were granted in 1996 at an exercise price of $7.00 per share. These
options vest annually at the rate of one third per year and have a ten-year
life. In 1997, 20,000 options were granted at an exercise price of $12.63 per
share. These options become vested in one year and have a ten-year life. In
1998, 15,000 options were granted at an exercise price of $7.50 per share. These
options vest annually at the rate of one third per year and have a ten-year
life. Outstanding options will continue to be governed under the 1993 Director
Plan.
The following table presents activity under all Stock Plans:
Options Outstanding
--------------------------------
Options Weighted
Available for Average
Grant Shares Exercise Price
---------- ---------- --------------
Balance at December 31, 1995 243,743 1,029,630 $ 9.40
Increase in options available for grant 300,000 -- --
Options canceled 849,900 (849,900) $ 9.87
Options granted (1,146,800) 1,146,800 $ 6.99
Options exercised -- (22,530) $ 1.94
---------- ---------- --------
Balance at December 31, 1996 246,843 1,304,000 $ 7.10
Increase in options available for grant 300,000 -- --
Options canceled 280,729 (280,729) $ 7.11
Options granted (649,500) 649,500 $ 9.64
Options exercised -- (147,312) $ 6.48
---------- ---------- --------
Balance at December 31, 1997 178,072 1,525,459 $ 8.24
Increase in options available for grant 500,000 -- --
Options canceled 491,050 (491,050) $ 8.33
Options granted (770,800) 770,800 $ 8.14
Options exercised -- (110,796) $ 7.14
---------- ---------- --------
Balance at December 31, 1998 398,322 1,694,413 $ 8.24
========== ========== ========
At December 31, 1998, 366,261 options were exercisable under these
Plans.
F-11
The following table summarizes information about fixed stock options
outstanding for all plans at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- ---------------------------------------
Number of
Options Weighted
Outstanding Average
As of Remaining Weighted Number of Shares Weighted
Range of Exercise December 31, Contractual Life Average Exercisable As of Average
Prices 1998 In Years Exercise Price December 31, 1998 Exercise Price
- - ----------------------- --------------- ----------------- ---------------- ------------------- ----------------
$ 6.50 - $ 6.50 321,963 4.81 $6.50 92,061 $6.50
$ 6.75 - $ 7.50 305,300 4.92 7.40 61,250 7.30
$ 7.63 - $ 8.13 261,000 4.52 7.93 69,000 7.96
$ 8.63 - $ 8.75 86,750 2.99 8.68 32,750 8.66
$ 8.81 - $ 8.81 330,500 4.44 8.81 -- --
$ 9.00 - $ 9.88 247,650 4.81 9.32 62,200 9.29
$10.00 - $12.63 141,250 4.27 11.08 49,000 11.45
=============== ================= ================ =================== ================
1,694,413 4.58 $8.24 366,261 $8.24
=============== ================= ================ =================== ================
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 1998, 1997 and 1996,
respectively; expected volatility of 35%; risk free interest rate of 5.0%, 5.9%
and 6.0% and expected lives of 3.79, 3.92 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 1998, 1997 and 1996 was $2.64, $3.35 and $2.00,
per option, respectively.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan provides for automatic annual
increases in the number of shares reserved for issuance on January 1 of each
year beginning in 1999 by a number of shares equal to the lesser of (i) 150,000
shares, (ii) 1.5% of the outstanding shares on such date, or (iii) a lesser
amount determined by the Board of Directors, subject to adjustment upon changes
in capitalization of the Company.
The Company has reserved 630,000 shares of Common Stock for issuance to
all eligible employees under its Employee Stock Purchase Plan. 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 in the prior two
years. A total of 436,079 shares have been issued under this plan as of December
31, 1998. 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 1998, 1997 and 1996,
respectively; expected volatility of 35%; risk free interest rate of 4.91%,
5.56% and 5.64% and expected lives of 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 1998, 1997 and 1996 as defined by SFAS 123, was
$1.97, $2.43 and $1.82 per right, respectively.
Fair Value Disclosures
At December 31, 1998, the Company had two stock-based compensation
plans as described above. 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 two stock-based
F-12
compensation plans been determined based on the fair value at the grant dates
for awards in 1998, 1997 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 (in thousands, except per share data):
1998 1997 1996
--------- --------- ---------
Net income:
As reported $ 6,075 $ 4,689 $ 7,862
Pro forma 5,499 4,015 7,206
Earnings per share
As reported
Basic 0.69 0.55 0.94
Diluted 0.68 0.53 0.92
Pro forma
Basic 0.63 0.47 0.86
Diluted 0.62 0.47 0.85
Because additional stock options and stock purchase rights are expected
to be granted each year and this pro forma presentation includes only 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.
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following (in
thousands):
1998 1997 1996
------- ------- -------
Current:
Federal $ 5,070 $ 1,880 $ 5,893
State 790 396 1,495
Foreign 17 -- --
------- ------- -------
5,877 2,276 7,388
Deferred:
Federal (1,195) 968 (1,382)
State (282) 151 (313)
------- ------- -------
$ 4,400 $ 3,395 $ 5,693
======= ======= =======
Deferred tax (liabilities) assets comprise the following (in
thousands):
1998 1997 1996
------- ------- -------
Basis differential in assets $ (89) $ (98) $ (110)
Depreciation (843) (678) (621)
------- ------- -------
Gross deferred tax liabilities (932) (776) (731)
------- ------- -------
Bad debt, sales and warranty reserves 1,598 637 1,922
Inventory reserves and basis differences 2,347 1,605 1,756
Compensation accruals and reserves 261 254 128
State taxes, net of federal benefit 198 70 391
Other 600 805 248
------- ------- -------
Gross deferred tax assets 5,004 3,371 4,445
------- ------- -------
Net deferred tax asset $ 4,072 $ 2,595 $ 3,714
======= ======= =======
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.
F-13
A reconciliation of the Federal statutory tax rate to the effective tax
rate follows:
1998 1997 1996
-------- -------- --------
Federal statutory rate 35.0% 34.0% 35.0%
State income taxes, net of Federal tax
benefit and credits 4.1% 4.2% 5.7%
Other 2.9% 3.8% 1.3%
-------- -------- --------
42.0% 42.0% 42.0%
======== ======== ========
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 $12,561,000 less accumulated depreciation of $6,036,000
at December 31, 1998 and $10,042,000 less accumulated depreciation of $3,512,000
at December 31, 1997. Amortization expense on assets subject to capitalized
leases was $2,524,000, $1,177,000, and $1,307,000 for the years ended December
31, 1998, 1997 and 1996, respectively. The capitalized lease terms range from
three to five years.
The following is a summary of commitments under leases:
Capitalized Operating
Year Ending December 31, Leases Leases
- - ------------------------------------------ ------------- -----------
(in thousands)
1999 $ 2,689 $ 2,591
2000 2,459 2,203
2001 1,268 2,001
2002 789 1,722
2003 536 1,127
2004 and beyond -- 2,428
------- -------
Total minimum lease payments 7,741 $12,072
=======
Less: imputed interest (946)
-------
Present value of minimum lease payments $ 6,795
=======
Total operating lease expense was $2,920,000, $2,508,000 and $1,272,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
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 effect 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
F-14
term is automatically renewed for successive one-year periods unless terminated
by either party on 90 days' written notice. Company sales to Pinnacle totaled
$9,590,000, $2,840,000, and $9,692,000, for the years ended December 31, 1998,
1997, and 1996, respectively. The accounts receivable balance from Pinnacle was
$1,828,000 at December 31, 1998 and $132,000 at December 31, 1997. The Company
has purchased approximately $2,169,000, $1,532,000, and $350,000, of inventory
from Pinnacle in 1998, 1997 and 1996, respectively. Inventory on hand, purchased
under contract with Pinnacle, totaled $1,564,000 and $393,000 at December 31,
1998 and December 31, 1997, respectively. 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 Company
terminated the agreement in 1997. Sales to Reply totaled approximately $0,
$262,000, and $2,594,000 during 1998, 1997, and 1996, respectively. The accounts
receivable balance from Reply was $0 at December 31, 1998 and $54,000 at
December 31, 1997. The Company has purchased approximately $0, $123,000, and
$167,000 of inventory from Reply in 1998, 1997, and 1996, respectively. 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.
In May 1998, the Company entered into a manufacturing agreement with
Network Peripherals Inc. ("NPI") providing for the performance by the Company's
manufacturing division of value-added turnkey services for NPI. Sales to NPI
totaled approximately $8,241,000 for the year ended December 31, 1998 and the
accounts receivable balance from NPI was $984,000 at December 31, 1998. The
Company has purchased inventory totaling approximately $546,000 and inventory on
hand, purchased under contract with NPI, totaled $737,000 at December 31, 1998.
Glen E. Penisten, a director of the Company, is a director of NPI. 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.
The Company's distribution division has purchased approximately
$858,000 of inventory from 3DFX Interactive, Inc. ("3DFX") in 1998. The
inventory on hand, purchased from 3DFX, totaled $139,000 at December 31, 1998.
Gordon A. Campbell, a director of the Company, is a director of 3DFX. The
Company believes that terms of these transactions were no less favorable than
reasonably could be expected to be obtained from unaffiliated parties.
In 1998, the Company's distribution division sold $1,528,000 to 3Com
Corporation ("3Com"). The accounts receivable balance from 3Com was $469,000 at
December 21, 1998. Gordon A. Campbell, a director of the Company, is a director
of 3Com. The Company believes that terms of these transactions were no less
favorable than reasonably could be expected to be obtained from unaffiliated
parties.
NOTE 10 - SALARY SAVINGS PLAN:
The Company has a Section 401(k) Plan (the Plan) which provides
participating employees an opportunity to accumulate funds for retirement and
hardship. 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 of participants' contributions up to the statutory
maximum of participants' eligible earnings. The Company has not made any
contributions to the Plan.
NOTE 11 - BUSINESS SEGMENT INFORMATION:
The Company adopted SFAS No.131, Disclosure about Segments of an
Enterprise and Related Information, in 1998 which changes the way the Company
reports information about its operating segments. The information for 1997 and
1996 has been restated from the prior year's presentation in order to conform to
the 1998 presentation.
The Company has two operating segments: Distribution and Contract
Manufacturing. Distribution markets and distributes a broad range of
semiconductor and computer products primarily to industrial OEMs, hardware
integrators, VARs and other resellers. Contract Manufacturing manufactures
board-level and system products to customers'
F-15
specifications, for customers in various industries including networking and
telecommunications, video and graphics, computer workstations and industrial and
testing. The Company earns substantially all of its revenues and income, and
maintains substantially all of its assets in the United States.
The accounting policies of each segment are described in the summary of
significant accounting policies. Revenue and operating profit by business
segment include both sales to customers, as reported in the Company's Statements
of Income, and intersegment sales, which are transferred at cost. The Company
evaluates performances based on profit or loss from operations including
interest expense before income taxes excluding non-recurring gains and losses
and foreign exchange gains and losses. Segment operating profit includes
corporate expenses allocated to each segment based on percentages established by
management and approximate actual usage. Corporate interest expense is allocated
to the manufacturing segment based on its average intercompany payable balances.
Operating results and other financial data are presented for the
principal business segments of the Company for the years ended December 31,
1998, 1997, and 1996 as follows (in thousands):
Contract
Distribution Manufacturing Eliminations Consolidated
------------ ------------- ------------ ------------
1998
Sales to customers $575,330 $ 86,098 $ -- $661,428
Intersegment sales 6,616 -- (6,616) --
-------- -------- -------- --------
Revenue 581,946 86,098 (6,616) 661,428
Depreciation and amortization 1,132 2,632 -- 3,764
Segment profit/(loss) 15,177 (4,702) -- 10,475
Interest expense 3,025 2,686 -- 5,711
Identifiable assets 270,041 46,669 (32,130) 285,580
Capital asset additions 2,252 3,389 -- 5,641
======== ======== ======== ========
1997
Sales to customers $460,516 $ 73,220 $ -- $533,736
Intersegment sales 7,650 631 (8,281) --
-------- -------- -------- --------
Revenue 468,166 73,851 (8,281) 533,736
Depreciation and amortization 779 2,138 -- 2,917
Segment profit/(loss) 12,312 (4,228) -- 8,084
Interest expense 2,451 2,123 4,574
Identifiable assets 190,934 36,245 (21,759) 205,420
Capital asset additions 1,490 2,841 -- 4,331
======== ======== ======== ========
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
Depreciation and amortization 683 1,886 -- 2,569
Segment profit 9,398 4,157 -- 13,555
Interest expense 859 2,636 -- 3,495
Identifiable assets 172,755 39,326 (36,401) 175,680
Capital asset additions 487 2,925 -- 3,412
======== ======== ======== ========
F-16
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(in thousands, except per share amounts)
Quarter Ended
---------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
Net sales .......................... $140,968 $115,136 $138,003 $139,629 $129,280 $144,718 $175,741 $211,689
Cost of sales ...................... 124,820 101,511 124,375 125,942 115,778 129,487 158,139 192,100
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ....................... 16,148 13,625 13,628 13,687 13,502 15,231 17,602 19,589
Marketing, general
and administrative
expenses ........................... 11,151 9,569 11,587 12,123 11,845 11,699 12,403 13,791
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations ............. 4,997 4,056 2,041 1,564 1,657 3,532 5,199 5,798
Interest expense ................... 892 1,178 1,122 1,382 1,321 1,191 1,447 1,752
-------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes ............................. 4,105 2,878 919 182 336 2,341 3,752 4,046
Provision for income taxes ......... 1,724 1,209 386 76 141 983 1,617 1,659
-------- -------- -------- -------- -------- -------- -------- --------
Net income ......................... $ 2,381 $ 1,669 $ 533 $ 106 $ 195 $ 1,358 $ 2,135 2,387
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share
Basic ............................. $ 0.28 $ 0.20 $ 0.06 $ 0.01 $ 0.02 $ 0.15 $ 0.24 $ 0.27
======== ======== ======== ======== ======== ======== ======== ========
Diluted ........................... $ 0.27 $ 0.19 $ 0.06 $ 0.01 $ 0.02 $ 0.15 $ 0.24 $ 0.27
======== ======== ======== ======== ======== ======== ======== ========
Shares used in per share
calculation
Basic ............................ 8,471 8,539 8,607 8,632 8,723 8,767 8,831 8,848
======== ======== ======== ======== ======== ======== ======== ========
Diluted .......................... 8,935 8,539 8,886 8,825 8,795 8,855 8,874 8,998
======== ======== ======== ======== ======== ======== ======== ========
During the fourth quarter of 1997, the Company was adversely affected
by the bankruptcy of one of its suppliers. The impact was a decrease to net
income of approximately $421,000, or five cents per share.
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-Write-offs Balance at End
Year Ended December 31, Period Expenses of Period
- - ------------------------------- ----------------- ----------------- ----------------- -----------------
1998 $ 1,331 $ 4,630 $ (2,475) $ 3,486
1997 4,228 1,763 (4,660) 1,331
1996 3,300 5,035 (4,107) 4,228
S-1
INDEX TO EXHIBITS
Sequential
Number Description of Document Page Number
------ ----------------------- -----------
3.1 Amended and Restated Articles of Incorporation of Registrant (2)
3.2 Amended and Restated Bylaws of Registrant (3)
4.1 Specimen Common Stock Certificate of the Registrant (3)
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 Almo Corporation (7)
10.1 1998 Stock Plan (9)
10.2 The form of Option Agreement used under the 1998 Stock Plan (9)
10.3 Employee Stock Purchase Plan, as amended through May 21, 1998 (9)
10.4 The form of Option Agreement used under the Employee Stock Purchase Plan (4)
10.5 Registrant's 401(k) Plan (3)
10.6 Lease dated March 17, 1992 for Registrant's facilities at 1941 Ringwood Avenue, Suite 100,
San Jose, California (3)
10.7 Lease dated April 15, 1993 for Registrant's facilities at 2350 Lundy Place, San Jose,
California (1)
10.8 Standard Distributor Agreement dated June 1, 1990 by and between Quantum Corporation and
Registrant (3)
10.9 Form of Indemnification Agreement (3)
10.10 IBM Authorized Distributor Agreement dated May 17, 1993 between IBM Corporation and
Registrant (3)
10.11 Sublease dated November 12, 1996 for the Registrant's facilities at 2020 South Tenth Street,
San Jose, California, and related exhibits (8)
10.12* Employment Agreement dated as of December 10, 1996 between the Registrant and W. Donald
Bell, the Registrant's Chief Executive Officer (8)
10.13 Form of Management Retention Agreement between the Registrant and the following executive
officers of the Registrant: W. Donald Bell, Bruce M. Jaffe, Ronald H. Mabry, Philip M.
Roussey and Robert J. Sturgeon (8)
10.14 Third Amendment and Restated Credit Agreement dated as of November 12, 1998 by and among the
Registrant, the Banks named therein and California Bank & Trust, as Agent for the Banks (7)
10.15 Asset Purchase Agreement dated as of November 5, 1998 by and between the Company, Almo
Corporation, Almo Distributing Pennsylvania, Inc., Almo Distributing Maryland, Inc., Almo
Distributing Minnesota, Inc., Almo Distributing Wisconson, Inc. and Almo Distributing, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
24.1 Power of Attorney (contained on page 21)
<FN>
- - -------------------
* Confidential treatment has been granted 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-8 (File No. 33-66580) filed on July 29, 1993.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated by reference to exhibit filed with the Registrant's Report on Form 10Q for the
quarter ended June 30, 1996.
(7) Incorporated by reference to exhibit filed with the Registrant's Report on Form 8-K (File
No. 000-21528) filed on December 4, 1998.
(8) Incorporated by reference to exhibit filed with the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996 filed on March 31, 1997.
(9) Incorporated by reference to exhibit filed with the Registrant's Report on Form S-8 (File
No. 333-58053) filed on June 30, 1998.
</FN>
(b) Reports on Form 8-K. None filed.
(c) Exhibits. See Item 14(a) above.
(d) Financial Statements Schedules. See Item 14(a) above.