No. pages 15
index exhibit pg. none
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( Mark one )
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1941 Ringwood Avenue, San Jose, California 95131-1721
- --------------------------------------------------------------------------------
(Address of principal executive offices ) (Zip Code )
(408) 451-9400
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code )
N/A
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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 initial report, previously not
------- ------- required to file
Common Stock, $.01 Par Value -- Number of Shares Outstanding at
- ---------------------------- June 30, 1996: 8,386,083
<PAGE>
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
------
Item 1: Financial Statements
Condensed Balance Sheets - June 30, 1996 and
December 31, 1995 3
Condensed Statements of Operations - Three months and
six months ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows - Six months
ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports 14
Signature 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
Bell Microproducts Inc.
Condensed Balance Sheets
(in thousands, except per share data)
(unaudited)
<CAPTION>
June 30, December 31,
1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,939 $ 2,489
Accounts receivable, net 65,719 65,266
Inventories 63,500 70,262
Deferred and refundable income taxes 3,035 3,418
Prepaid expenses and other current assets 1,017 841
--------------------- ----------------------
Total current assets 136,210 142,276
Property and equipment, net 8,977 7,861
Goodwill 6,841 6,987
Other assets 309 153
--------------------- ----------------------
Total assets $152,337 $157,277
===================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion $ 147 $ 15
Accounts payable 37,893 31,596
Other accrued liabilities 5,352 2,705
Current portion of capitalized lease
obligations 1,379 1,046
--------------------- ----------------------
Total current liabilities 44,771 35,362
Line of credit 35,500 54,500
Notes payable, less current portion 147 294
Capitalized lease obligations, less current portion 5,599 4,659
--------------------- ----------------------
Total liabilities 86,017 94,815
--------------------- ----------------------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 20,000 shares
authorized; 8,386 and 8,323 issued and outstanding 51,182 50,841
Retained earnings 15,138 11,621
--------------------- ----------------------
Total shareholders' equity 66,320 62,462
--------------------- ----------------------
Total liabilities and shareholders' equity $152,337 $157,277
===================== ======================
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Six months ended
----------------------------- ------------------------------
6/30/96 6/30/95 6/30/96 6/30/95
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales $113,644 $ 80,529 $229,075 $153,456
Cost of sales 99,020 70,117 200,829 133,933
------------- ------------ ------------- -------------
Gross profit 14,624 10,412 28,246 19,523
Marketing, general and
administrative expenses 10,518 6,848 20,277 13,282
------------- ------------ ------------- -------------
Income from operations 4,106 3,564 7,969 6,241
Interest expense (909) (718) (1,904) (1,421)
------------- ------------ ------------- -------------
Income before income taxes 3,197 2,846 6,065 4,820
Provision for income taxes 1,343 1,225 2,548 2,064
------------- ------------ ------------- -------------
Net income $ 1,854 $ 1,621 $ 3,517 $ 2,756
============= ============ ============= =============
Earnings per share $ .22 $ .20 $ .41 $ .33
============= ============ ============= =============
Weighted average common
shares and equivalents 8,539 8,233 8,481 8,251
============= ============ ============= =============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Bell Microproducts Inc.
Condensed Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
<CAPTION>
Six months ended June 30,
-------------------------------------------------------------------------------------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,517 $ 2,756
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,286 686
Change in deferred and refundable income taxes 383 -
Changes in assets and liabilities:
Accounts receivable (453) (5,753)
Inventories 6,762 (1,675)
Prepaid expenses (176) (250)
Other assets (156) 72
Accounts payable 6,297 (8,797)
Other accrued liabilities 2,647 1,337
-------------- -------------
Net cash provided by (used in) operating activities 20,107 (11,624)
-------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment (411) (507)
-------------- -------------
Net cash used in investing activities (411) (507)
-------------- -------------
Cash flows from financing activities:
Net borrowings/(repayments) under line of credit agreement (19,000) 17,329
Repayments under term loan - (5,000)
Proceeds from issuance of common stock 341 489
Principal payments on long term liabilities (587) (594)
-------------- -------------
Net cash provided by (used in) financing activities (19,246) 12,224
-------------- -------------
Net increase in cash 450 93
Cash at beginning of period 2,489 1,402
-------------- -------------
Cash at end of period $ 2,939 $ 1,495
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,825 $ 1,289
Income taxes $ 1,620 $ 1,097
Obligations incurred under capital leases $ 1,845 $ 2,638
Common Stock issued on conversion of Note Payable - $ 772
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation:
The condensed financial statements presented in this Quarterly Report
are unaudited. It is management's opinion that all adjustments, consisting of
normal recurring items, have been included for a fair basis of presentation.
This quarterly report on Form 10-Q should be read in conjunction with the
Company's 1995 Annual Report on Form 10-K. The operating results for the period
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1996.
Note 2 - Inventories:
A summary of inventories follows (in thousands):
June 30, December 31,
1996 1995
------- -------
Purchased components and materials
$51,533 $64,998
Work-in-process 11,967 5,264
------- -------
Total $63,500 $70,262
======= =======
Note 3 - Property and equipment:
A summary of property and equipment follows (in thousands):
June 30, December 31,
1996 1995
----------- ----------
Manufacturing and test
equipment $ 8,861 $ 7,452
Warehouse equipment 174 134
Furniture and fixtures 1,021 941
Computer and other
equipment 2,411 1,695
----------- ----------
12,467 10,222
Accumulated depreciation (3,490) (2,361)
----------- ----------
Total $ 8,977 $ 7,861
=========== ==========
6
<PAGE>
Note 4 - Line of Credit
On June 25, 1996, the Company entered into an amendment to the Amended
and Restated Syndicated Credit Agreement arranged by Sumitomo Bank of California
("Sumitomo Bank") as Agent. The amendment increased the Company's $70 million
revolving line of credit to $80 million and extended the maturity date to May
31, 1998. The syndicate includes Sumitomo Bank of California, Union Bank, The
First National Bank of Boston, Comerica Bank - California and The Sumitomo Bank,
Limited. At the Company's option, the borrowings under the line of credit will
bear interest at Sumitomo Bank's prime rate or the adjusted LIBOR rate plus
1.625%. The revolving line of credit requires the Company to meet certain
financial tests and to comply with certain other covenants, including
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, declaration of dividends, repurchases of
stock, making investments and profitability. The Company is in compliance with
its bank covenants, however, there can be no assurance that the Company will be
in compliance in the future. 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. Obligations of the Company under the revolving line of credit are
secured by substantially all of the Company's assets.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Sales were $113.6 million for the quarter ended June 30, 1996, which
represented an increase of $33.1 million, or 41.1% over the same quarter in
1995. Substantially all of the increase in sales was attributable to greater
unit sales within existing product lines and increased sales volume through the
Company's manufacturing division (Quadrus). Semiconductor sales decreased in the
second quarter of 1996 compared to the same quarter in 1995 primarily due to
decreased sales of memory products of a certain supplier and the discontinuation
of the distribution agreement with Hitachi America Ltd. Computer product
(principally disk drives) sales increased substantially in the second quarter of
1996 due to higher unit sales and a larger proportion of value added and
subsystem sales, which command higher average selling prices. Manufacturing
sales increased in the second quarter of 1996 as a result of increased sales to
new and existing customers, enabled by increased manufacturing equipment
capacity and utilization. For the quarter ended June 30, 1996, Quantum, one of
the Company's largest suppliers, provided products which represented 30.0% of
the Company's sales, as compared to 22.4% in the same quarter in 1995. The loss
of Quantum or any other significant supplier would have a material, adverse
effect on the Company's results of operations.
The Company's gross profit for the second quarter of 1996 was $14.6
million, which was $4.2 million, or 40.5% higher than the second quarter of
1995. Gross margin remained at 12.9% in the second quarter of 1996 compared to
12.9% in the same quarter of 1995. Gross margins may fluctuate quarterly due to
the mix of products sold to customers.
Marketing, general and administrative expenses increased to $10.5
million in the second quarter of 1996 from $6.8 million in the second quarter of
1995, which represented a growth of 54.4%. The increase in expenses was
primarily attributable to the Company's continuing effort to expand its sales
and marketing organization and additional operating expenses related to growth
in the manufacturing division. Due to increased sales volume and changing market
conditions, the Company also increased its provision for doubtful accounts
during the second quarter of 1996.
Interest expense was $909,000 in the second quarter of 1996 as compared
to $718,000 in the second quarter of 1995. The increase in interest expense was
primarily due to increased bank borrowings.
7
<PAGE>
Net income grew to $1,854,000 in the second quarter of 1996 from
$1,621,000 in the same period last year. The increase was due primarily to sales
growth and increased gross profit, which was partially reduced by increased
marketing, general and administrative expenses and interest expense.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Sales were $229.1 million for the six months ended June 30, 1996, which
represented an increase of $75.6 million, or 49.3% over the same period in 1995.
Substantially all of the increase in sales was attributable to greater unit
sales within existing product lines, increased sales volume through the
Company's manufacturing division (Quadrus), and expansion of the customer base.
Semiconductor sales increased slightly in the first six months of 1996. Sales
increased across most semiconductor product lines, however the increase was
partially offset by decreased sales of memory products of a certain supplier,
and the discontinuation of the Hitachi product line. Computer product
(principally disk drives) sales growth increased substantially in the first six
months of 1996 compared to the first six months of 1995. The increased sales
were due primarily to higher unit sales and a larger proportion of value-added
and subsystem sales, which command higher average selling prices. Manufacturing
sales also increased substantially in the first six months of 1996 as a result
of increased sales to new and existing customers, enabled by increased
manufacturing equipment capacity.
The Company's gross profit for the first six months of 1996 was $28.2
million, an increase of $8.7 million, or 45% over the first six months of 1995.
Gross margin was 12.3% in the first six months of 1996 compared to 12.7% in the
first six months of 1995. The decrease in gross margin was primarily due to
increased computer product sales as a percentage of total sales, which
contributed lower margins.
Marketing, general and administrative expenses increased to $20.3
million in the first six months of 1996 from $13.3 million in the first six
months of 1995, a 53% increase. The increase in expenses was attributable to the
Company's continuing effort to expand its sales and marketing organizations, and
to additional operating expenses related to growth in the manufacturing
division. Due to increased sales volume and changing market conditions, the
Company also increased its provision for doubtful accounts during the first six
months of 1996. As a percentage of sales, expenses were 8.9% in the first six
months of 1996 compared to 8.7% in the same period last year.
Interest expense was $1.9 million in the first six months of 1996 as
compared to $1.4 million in the same period in 1995. The increase in interest
expense is primarily related to increased borrowings on the Company's revolving
line of credit.
Net income grew to $3,517,000 in the first six months of 1996 compared
to $2,756,000 in the same period of 1995. The increase was due primarily to
sales growth and increased gross profit, partially reduced by increased
marketing, general and administrative expenses and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements principally
through borrowings under bank lines of credit and sales of equity securities.
Working capital requirements have included the financing of increases in
inventory and accounts receivable resulting from sales growth. On May 26, 1994,
the Company acquired Vantage Components Inc. (Vantage) for a purchase price of
$11,806,000, which included cash of $5,300,000 (funded via Bell Microproducts'
line of credit and term loan facilities), the issuance of 489,281 shares of Bell
Microproducts Common Stock, the issuance of promissory notes totaling $750,000
and acquisition costs.
On June 25, 1996, the Company increased its revolving line of credit
from $70 million to $80 million to provide working capital for the Company. At
the Company's option, the borrowings under the line of credit will bear interest
at Sumitomo Bank's prime rate or the adjusted LIBOR rate plus 1.625%. The
revolving line
8
<PAGE>
of credit has a final payment due date of May 31, 1998. The revolving line of
credit requires the Company to meet certain financial tests and to comply with
certain other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, making investments and profitability. The
Company is in compliance with its bank covenants, however, there can be no
assurance that the Company will be in compliance in the future. If the Company
does not remain in compliance with the covenants 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. Obligations of
the Company under the revolving line of credit are secured by substantially all
of the Company's assets. 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.
The Company's inventories as of June 30, 1996 decreased to $63.5
million from $70.3 million as of December 31, 1995 primarily as a result of the
increased emphasis on inventory management programs and reduced purchases at the
end of the period. The Company's accounts payable increased to $37.9 million as
of June 30, 1996 from $31.6 million as of December 31, 1995, primarily due to
the Company's efforts to negotiate more favorable payment terms with certain
suppliers as well as timing issues related to inventory receipts and payments.
The Company's future 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.
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following risk factors in addition to the other
information set forth herein or incorporated herein by reference. This report on
Form 10-Q contains forward-looking statements within the meaning of section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
in the documents incorporated by reference herein. Forward looking statements
are indicated by an asterisk immediately following the relevant statement.
Potential Fluctuations in Quarterly Operating Results and Effect on Liquidity
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 timing of delivery of products
from suppliers, the product mix sold by the Company, the percent of revenue
derived from distribution versus contract manufacturing, managing Company
inventory in both the contract manufacturing ("Quadrus") division and the
distribution division, availability of products from suppliers, management of
growth, the Company's ability to collect accounts receivable, price decreases on
inventory that is not price protected and price competition for products sold by
the Company, including the Company's ability to sell inventory at anticipated
prices. Due in part to supplier rebate programs and increased sales by the
Company near the end of each quarter, a significant portion of the Company's
gross profit has historically been earned by the Company in the third month of
each quarter. Failure to receive products from its suppliers in a timely manner
or the discontinuance of rebate programs could have a material adverse effect on
the Company's results of operations in a particular quarter. In addition, price
competition for the products sold by the Company is intense and could result in
gross margin declines, which could have an adverse effect on the Company's
results of operations. In various quarters in the past, the Company's operating
results have been affected by these factors. In particular, during the last
quarter of 1995, a sharp decline in DRAM prices and a general softening in the
semiconductor market and an increase in the Company's allowance for doubtful
accounts had a material adverse effect on the Company's results of operations,
causing the Company to report a quarterly net loss of $848,000. As a result of
this
9
<PAGE>
quarterly loss, the Company was out of compliance with one of its covenants in
its revolving line of credit agreement. The Company received a waiver from its
banks regarding this noncompliance. 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 revolving line
of credit agreement and is unable to obtain a waiver of noncompliance from its
banks, the Company's business, financial condition and results of operations
would be materially adversely affected. There can be no assurance that any of
the foregoing factors will not materially adversely affect future operating
results.
Dependence on Suppliers
The Company relies on a limited number of suppliers for products which
represent a significant portion of its sales. For the quarter ended June 30,
1996, sales of Quantum products represented 30.0% of the Company's sales, and
for the quarter ended June 30, 1995, sales of Quantum products represented 22.4%
of the Company's sales. The Company's distribution agreement with Quantum is
cancelable upon 90 days' notice. In the past, distribution arrangements with
significant suppliers have been terminated and there can be no assurance that,
in the future, one or more of the Company's significant distributor
relationships will not be terminated. The loss of Quantum or any significant
supplier could have a material adverse effect on the Company's results of
operations. As the Company enters into distribution relationships with new
suppliers, other competitive suppliers may choose to terminate their
distribution arrangements with the Company with minimal notice. In the fourth
quarter of 1994, Integrated Device Technology terminated its distribution
agreement with the Company. This supplier accounted for approximately $1.8
million and $430,000 of the Company's sales and gross profit, respectively, for
the quarter ended September 30, 1994. In the first quarter of 1996, Hitachi
America Ltd. did not renew its distribution agreement with the Company. This
supplier accounted for approximately $1.7 million and $297,000 of the Company's
sales and gross profit respectively, for the quarter ended December 31, 1995. To
the extent that the Company is unable to enter into or maintain distribution
arrangements with leading suppliers of components and computer products, the
Company's sales and operating results could be materially adversely affected.
The Company has entered into agreements with most of its distribution
suppliers which generally provide the Company with price protection and limited
inventory rotation 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, it would bear the risk
of obsolescence and price fluctuation for those products. In particular, in
February 1996 the Company reported fourth quarter 1995 charges of $2.5 million,
net of tax, of approximately $1.6 million related to inventory valuation issues
of certain DRAM products and approximately $900,000 related to an increase in
the allowance for doubtful accounts. These products were not subject to the
price protection and inventory rotation rights normally applicable to components
purchased from the Company's franchised suppliers. There can be no assurance
that the Company will not have to take additional charges to earnings in the
future due to inventory valuation issues, which could have a material adverse
effect on the Company's results of operations.
Dependence on the Personal Computer Industry
Many of the products the Company sells are used in the manufacture or
configuration of personal computers. These products are characterized by rapid
technological change, short product life cycles and intense competition. The
personal computer industry has experienced significant unit volume growth over
the past three years, which has in turn increased demand for many of the
products distributed by the Company. Recently, however, there appears to be
lower than expected growth of the personal computer industry. Any slowdown in
the growth of the personal computer industry, or growth at less than expected
rates, could adversely affect the Company's ability to continue its recent
revenue growth. In addition, many of the Company's customers in the personal
computer industry are subject to the risks of significant shifts in demand and
severe price pressures, which may increase the risk that the Company may not be
able to collect accounts
10
<PAGE>
receivable owed by some of its customers. In particular, one of the Company's
customers recently filed for bankruptcy, which was the principal reason for the
Company to increase its allowance for doubtful accounts by approximately
$900,000, net of tax, in the fourth quarter of 1995. To the extent the Company
is unable to collect its accounts receivable, the Company's results of
operations will be adversely affected.
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 change in the semiconductor industry in
the past has caused prices to decrease, sometimes affecting the Company's gross
margins. Other technological changes that affect the demand for and prices of
the products distributed by the Company may further effect the Company's gross
margins.
Management of Growth
The Company has grown rapidly in recent years, with sales increasing
from $34 million in 1991 to $346 million in 1995. The Company intends to
continue to pursue its growth strategy through increasing sales of existing and
new product offerings, as well as through acquisitions. This strategy,
particularly as evidenced by the Vantage acquisition, will require 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, further develop
accounting and control systems or 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.
Competition
The semiconductor and computer products distribution industry is highly
competitive. 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 such
competitors are larger, more established and have greater name recognition and
financial and other resources than the Company. Price is a substantial
competitive factor in both the semiconductor and disk drive industries. There
can be no assurance that the Company will be able to compete successfully with
existing or new competitors and failure to do so would have a material adverse
effect on the Company's results of operations.
The contract manufacturing industry is highly competitive. The Company
competes against numerous domestic and offshore manufacturers. Many of such
competitors are larger, more established and have greater name recognition and
financial and other resources than the Company. The Company's manufacturing
operations have recently achieved profitability. There can be no assurance that
such operations will continue to be profitable. Further, although manufacturing
sales levels increased in 1995 as compared to prior years, due to the highly
competitive nature of the contract manufacturing industry there can be no
assurance that this trend will continue or that higher sales levels will in fact
result in increased profitability. Additionally, the Company's contract
manufacturing division is dependent on a relatively limited customer base. Any
significant rescheduling or cancellation of orders from these customers, or loss
of customers, could have a material adverse effect on the results of operations
of such division and on the profitability of the Company.
11
<PAGE>
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
continued contributions of its key employees, particularly, W. Donald Bell,
President, Chief Executive Officer and Chairman of the Board. The loss of other
key employees could also have a material adverse impact on the Company. The
Company's future success will depend in part upon its continuing ability to
attract and retain highly qualified personnel. Competition for such employees is
intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. Failure to attract and retain highly
qualified personnel could have a material adverse effect on the Company's
results of operations.
Possible Volatility of Stock Price
The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to such factors
as, among others, variations in the Company's anticipated or actual results of
operations and market conditions (which may be unrelated to the Company's
operating performance).
12
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Item 4. Submission of Matters to a Vote of Security Holders
Registrant held its Annual Meeting of Shareholders on May 23, 1996.
At the meeting the following matters were voted upon, and the number of
votes cast for or against, as well as the number of abstentions and
broker nonvotes, as to each such matter, along with a separate
tabulation with respect to each nominee for office, is set forth below:
1. Election of directors to serve for the ensuing year and until their
successors are duly elected and qualified.
FOR AGAINST ABSTENTION NONVOTES
--------- -------- ----------- --------
W. Donald Bell 7,591,116 -- 413,131 --
Glenn E. Penisten 7,591,991 -- 412,256 --
Gordon A. Campbell 7,597,567 -- 406,680 --
Jon H. Beedle 7,463,288 -- 540,959 --
Edward L. Gelbach 7,597,942 -- 406,305 --
2. Amendment of the Company's Employee Stock Purchase Plan to increase the
number of shares of Common Stock available for grant under the plan by
145,000 shares.
FOR AGAINST ABSTENTION NONVOTES
--------- ------------- ---------------- -------------
5,949,895 170,965 58,847 1,824,540
3. Amendments of the Company's Amended and Restated 1988 Incentive Stock
Plan to (i) increase the number of shares of Common Stock available for
grant by 300,000 shares.
FOR AGAINST ABSTENTION NONVOTES
--------- ------------- ---------------- -------------
5,098,708 974,594 106,405 1,824,540
4. Ratification of the appointment of Price Waterhouse LLP as the
Company's independent accountants for the current fiscal year ending
December 31, 1996.
FOR AGAINST ABSTENTION NONVOTES
--------- ------------- ---------------- -------------
7,968,629 7,050 28,568 --
13
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Item 6. Exhibits and Reports
(a) Exhibits:
27. Financial Data Schedule for the quarter ended June 30, 1996.
99. First Amendment to Second Amended and Restated Credit Agreement.
(b) Reports on Form 8-K:
None
14
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996
BELL MICROPRODUCTS INC.
By: Remo E. Canessa
-----------------------------
Remo E. Canessa, Vice President,
Chief Financial Officer, Corporate Controller and Secretary
(Principal Financial Officer and Accounting Officer)
15
EXECUTION COPY
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), dated as of June 25, 1996, is entered into by and among:
(1) BELL MICROPRODUCTS INC., a California corporation
("Borrower");
(2) Each of the financial institutions listed in Schedule I to
the Credit Agreement referred to in Recital A below (collectively, the
"Banks"); and
(3) SUMITOMO BANK OF CALIFORNIA, a California banking
corporation, as agent for the Banks (in such capacity, "Agent").
RECITALS
A. Borrower, the Banks and Agent are parties to a Second Amended and
Restated Credit Agreement dated as of May 23, 1995 (the "Credit Aqreement").
B. Borrower has requested the Banks and Agent to amend the Credit
Agreement in certain respects.
C. The Banks and Agent are willing so to amend the Credit Agreement
upon the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Banks and Agent hereby agree as follows:
1. Definitions, Interpretation. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
<PAGE>
2. Amendments to Credit Agreement. Subject to the conditions set forth
in paraqraph 4 below, the Credit Agreement is hereby amended as follows:
(a) Subparaqraph 2.01(a) is amended to read in its entirety as
follows:
(a) Revolving Loan Availability. Subject to the terms
and conditions of this Agreement (including the amount
limitations set forth in Paragraph 2.02 and the conditions set
forth in Section III), each Bank severally agrees to advance
to Borrower from time to time during the period beginning on
the Effective Date and ending on May 31, 1998 (the "Revolving
Loan Maturity Date") such loans as Borrower may request under
this Paragraph 2.01 (individually, a "Revolving Loan"), not to
exceed at any time in aggregate principal amount then
outstanding:
(i) At any time during the period commencing
on the Effective Date and ending on May 31, 1996 (the
"Commitment Adjustment Date"), the amount set forth
opposite the name of such Bank in Schedule I under
the column headed "Initial Revolving Loan Commitment"
(as reduced from time to time pursuant to Paragraph
2.02, the "Initial Revolving Loan Commitment" of such
Bank); or
(ii) At any time during the period commencing
on the Commitment Adjustment Date and ending on the
Revolving Loan Maturity Date, the amount set forth
opposite the name of such Bank in Schedule I under
the column headed "Increased Revolving Loan
Commitment" (as reduced from time to time pursuant to
Paragraph 2.02, the "Increased Revolving Loan
Commitment" of such Bank);
Provided, however, that the aggregate principal amount of all
Revolving Loans made by such Bank at any time outstanding
shall not exceed at any time the Initial Revolving Loan
Commitment of such Bank unless the conditions set forth in
Paragraph 3.02 are satisfied. All Revolving Loans shall be
made on a pro rata basis by the Banks in accordance with their
respective Proportionate Shares, with each Revolving Loan
Borrowing to be comprised of a Revolving Loan by each Bank
equal to such Bank's Proportionate Share of such Revolving
Loan Borrowing. Except as otherwise provided herein, Borrower
may borrow, repay and reborrow Revolving Loans until the
Revolving Loan Maturity Date.
2
<PAGE>
(b) Subparagraph 5.02(m) is amended to read in its entirety as
follows:
(m) Financial Covenants. Borrower shall not permit:
(i) Its Quick Ratio to be less than 0.75 to
1.00 at any time;
(ii) Its Working Capital to be less than
$50,000,000 at any time;
(iii) Its Tangible Net Worth to be less than:
(A) At any time during the period
beginning on the Effective Date and ending
on December 30, 1995, $45,000,000;
(B) At any time during the period
beginning on December 31, 1995 and ending on
the Commitment Adjustment Date, $55,000,000;
and
(C) At any time thereafter, the sum
on any date of determination of (1)
$57,000,000 plus (2) fifty percent (50%) of
the sum of Borrower's Net Income After Tax
for each quarter (excluding any quarter in
which such amount was negative) which begins
after the Commitment Adjustment Date and
ends on or prior to such date of
determination;
(iv) Its Leverage Ratio to be greater than
2.25 to 1.00 at any time;
(v) Its Interest Coverage Ratio for any
consecutive four-quarter period to be less than 2.00
to 1.00; or
(vi) Its Net Operating Income or Net Income
After Tax to be (1) a loss in excess of $350,000 for
any quarter or (2) a loss of any amount for any
consecutive two-quarter period.
3. Representations and Warranties. Borrower hereby represents and
warrants to Agent and the Banks that, on the date of this Amendment and after
giving effect to the amendments set forth in Paragraph 2 above on the Amendment
Effective Date (as defined below), the following are and shall be true and
correct on each such date:
(a) The representations and warranties set forth in Paragraph
4.01 of the Credit Agreement are true and correct in all material
respects;
3
<PAGE>
(b) No Event of Default or Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and effect.
4. Amendment Effective Date. The amendments effected by paragraph 2
above shall become effective on June 25, 1996 (the "Amendment Effective Date",
subject to receipt by the Banks and Agent on or prior to the Amendment Effective
Date of the following, each in form and substance satisfactory to the Banks,
Agent and their respective counsel:
(a) This Amendment duly executed by Borrower, each Bank and
Agent;
(b) Evidence in form and substance satisfactory to Agent of
the merger by Vantage into Borrower, with Borrower as the surviving
corporation, effective as of December 31, 1995;
(c) A Certificate of the Secretary of Borrower, dated the
Amendment Effective Date, certifying that (i) the Certificate of
Incorporation and Bylaws of Borrower, in the form delivered to Agent on
the Effective Date, are in full force and effect and have not been
amended, supplemented, revoked or repealed since such date and (ii)
that attached thereto are true and correct copies of resolutions duly
adopted by the Board of Directors of Borrower and continuing in effect,
which authorize the execution, delivery and performance by Borrower of
this Amendment and the consummation of the transactions contemplated
hereby;
(d) A written opinion of Wilson, Sonsini, Goodrich & Rosati,
outside counsel to Borrower, dated the Amendment Effective Date and
addressed to Agent and each Bank, in the form of Exhibit A hereto; and
(e) Such other evidence as Agent or any Bank may reasonably
request to establish the accuracy and completeness of the
representations and warranties and the compliance with the terms and
conditions contained in this Amendment and the other Credit Documents.
5. Effect of this Amendment. On and after the Amendment Effective Date,
each reference in the Credit Agreement and the other Credit Documents to the
Credit Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or
4
<PAGE>
remedy of the Banks or Agent, nor constitute a waiver of any provision of the
Credit Agreement or any other Credit Document.
Miscellaneous.
(a) Counterparts. This Amendment may be executed in any number
of identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for
all purposes.
(b) Headings. Headings in this Amendment are for convenience
of reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
IN WITNESS WHEREOF, Borrower, the Agent and the Banks have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: BELL MICROPRODUCTS INC.
By: /s/ W. Donald Bell
------------------------------------
Name: W. Donald Bell
Title: President and CEO
AGENT: SUMITOMO BANK OF CALIFORNIA,
As Agent
By: /s/ S.C. Bellicini
------------------------------------
Name: S.C. Bellicini
Title: Vice President
By: /s/ Clark Warden
------------------------------------
Name: F. Clark Warden
Title: Sr. Vice President/Secretary
5
<PAGE>
BANKS SUMITOMO BANK OF CALIFORNIA,
As a Bank
By: /s/ S.C. Bellicini
------------------------------------
Name: S.C. Bellicini
Title: Vice President
By: /s/ Clark Warden
------------------------------------
Name: F. Clark Warden
Title: Sr. Vice President
UNION BANK, a Division of Union Bank of
California, N.A.,
As a Bank
By: /s/ Frank Gwynn
------------------------------------
Name: Frank Gwynn
Title: Vice President
By: /s/ Kelly D. Takahashi
------------------------------------
Name: Kelly D. Takahashi
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
As a Bank
By: /s/ Melissa Forbes
------------------------------------
Name: Melissa Forbes
Title: Vice President
COMERICA BANK-CALIFORNIA,
As a Bank
By: /s/ Scott T. Smith
------------------------------------
Name: Scott T. Smith
Title: Assistant Vice President
6
<PAGE>
THE SUMITOMO BANK LIMITED,
As a Bank
By: /s/ Andrea B. Sargent
------------------------------------
Name: Andrea B. Sargent
Title: Vice President and Manager
By: /s/ Carole A. Daley
------------------------------------
Name: Carole A. Daley
Title: Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,939
<SECURITIES> 0
<RECEIVABLES> 68,705
<ALLOWANCES> 2,986
<INVENTORY> 63,500
<CURRENT-ASSETS> 136,210
<PP&E> 12,467
<DEPRECIATION> 3,490
<TOTAL-ASSETS> 152,337
<CURRENT-LIABILITIES> 44,771
<BONDS> 41,246
<COMMON> 84
0
0
<OTHER-SE> 66,236
<TOTAL-LIABILITY-AND-EQUITY> 152,337
<SALES> 113,644
<TOTAL-REVENUES> 113,644
<CGS> 99,020
<TOTAL-COSTS> 99,020
<OTHER-EXPENSES> 9,338
<LOSS-PROVISION> 1,180
<INTEREST-EXPENSE> 909
<INCOME-PRETAX> 3,197
<INCOME-TAX> 1,343
<INCOME-CONTINUING> 1,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,854
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
