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, 2000
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, 2000: 9,690,935
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Bell Microproducts Inc.
Index to Form 10-Q
Page
PART I - FINANCIAL INFORMATION Number
Item 1: Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Income - Three
months and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Six
months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3: Quantitative and Qualitative Disclosure about Market Risk 14
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 6: Exhibits and Reports 16
Signature: 17
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Bell Microproducts Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------------------------------- -------------------- -----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 696 $ 5,103
Accounts receivable, net 216,967 168,857
Inventories 159,220 156,648
Deferred income taxes 5,843 4,220
Prepaid expenses and other current assets 1,799 1,238
-------------------- -----------------------
Total current assets 384,525 336,066
Property and equipment, net 12,778 7,626
Goodwill and other intangibles 23,946 16,059
Other assets 968 600
-------------------- -----------------------
Total assets $422,217 $360,351
==================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $150,307 $143,632
Borrowings under lines of credit 46,910 -
Other accrued liabilities 15,139 9,808
-------------------- -----------------------
Total current liabilities 212,356 153,440
Borrowings under lines of credit 100,303 110,600
Other long-term liabilities 2,125 38
-------------------- -----------------------
Total liabilities 314,784 264,078
-------------------- -----------------------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 40,000
shares authorized; 9,691 and 9,251 issued
and outstanding 62,911 58,527
Retained earnings 44,469 37,285
Accumulated other comprehensive income 53 461
-------------------- -----------------------
Total shareholders' equity 107,433 96,273
-------------------- -----------------------
Total liabilities and shareholders' equity $422,217 $360,351
==================== =======================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Bell Microproducts Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
------------------------------------ -----------------------------------
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 382,407 $ 231,627 $ 748,677 $ 451,226
Cost of sales 347,258 210,826 684,270 411,003
--------------- ---------------- --------------- ---------------
Gross profit 35,149 20,801 64,407 40,223
Selling general and administrative expenses 25,472 15,926 46,827 30,881
--------------- ---------------- --------------- ---------------
Income from continuing operations 9,677 4,875 17,580 9,342
Interest expense 2,959 1,556 5,326 2,780
Foreign exchange remeasurement gain (133) (358) (131) (358)
--------------- ---------------- --------------- ---------------
Income from continuing operations before
income taxes 6,851 3,677 12,385 6,920
Provision for income taxes 2,877 1,544 5,201 2,906
--------------- ---------------- --------------- ---------------
Income from continuing operations 3,974 2,133 7,184 4,014
Discontinued operations:
Loss from discontinued operations, net of
income tax benefit - (2,295) - (2,946)
Gain on sale of contract manufacturing
segment - 1,054 - 1,054
--------------- ---------------- --------------- ---------------
Net income $ 3,974 $ 892 $ 7,184 $ 2,122
=============== ================ =============== ===============
Earnings per share
Basic
Continuing operations $ 0.42 $ 0.24 $ 0.76 $ 0.45
Discontinued operations - (0.14) - (0.21)
--------------- ---------------- --------------- ---------------
Total $ 0.42 $ 0.10 $ 0.76 $ 0.24
=============== ================ =============== ===============
Earnings per share
Diluted
Continuing operations $ 0.38 $ 0.24 $ 0.70 $ 0.45
Discontinued operations - (0.14) - (0.21)
--------------- ---------------- --------------- ---------------
Total $ 0.38 $ 0.10 $ 0.70 $ 0.24
=============== ================ =============== ===============
Shares used in per share calculation
Basic 9,511 8,945 9,410 8,939
=============== ================ =============== ===============
Diluted 10,501 8,982 10,244 8,996
=============== ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Bell Microproducts Inc.
Condensed Consolidated Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------------------------------------------------------- -------------- -- -------------
2000 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing activities $ 7,184 $ 4,014
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,690 1,001
Change in allowance for doubtful accounts 1,192 1,066
Change in deferred income taxes (558) -
Changes in assets and liabilities:
Accounts receivable (42,365) (28,585)
Inventories 5,493 (20,869)
Prepaid expenses (482) 155
Other assets 4 (1,825)
Accounts payable (1,061) 25,674
Other accrued liabilities (2,236) (154)
-------------- -------------
Net cash used in continuing operating activities (31,139) (19,523)
Net cash used in discontinued operations - (1,765)
------------- -------------
Net cash used in operating activities (31,139) (21,288)
-------------- -------------
Cash flows from investing activities:
Acquisition of property, equipment and other, net (5,042) (1,577)
Proceeds from sale of business - 34,665
Acquisition of new businesses (4,679) -
-------------- -------------
Net cash (used in) provided by investing activities (9,721) 33,088
-------------- -------------
Cash flows from financing activities:
Net borrowings/(repayments) under line of credit agreement 32,899 (12,100)
Proceeds from issuance of Common Stock 1,876 535
Net borrowings on long term liabilities 2,067 3
-------------- -------------
Net cash provided by (used in) financing activities 36,842 (11,562)
-------------- -------------
Effect of exchange rate changes on cash (389) 162
Net (decrease) increase in cash (4,407) 400
Cash at beginning of period 5,103 4,082
-------------- -------------
Cash at end of period $ 696 $ 4,482
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,197 $ 3,838
Income taxes $ 4,701 $ 1,484
Supplemental non-cash financing activities:
Common Stock issued for acquisition (Note 2) $ 2,508 $ -
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation:
The consolidated 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 1999 Annual Report on Form 10-K. The operating results for
the period ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2000.
The Company operates primarily in one business segment as a distributor
of semiconductors and computer products primarily to original equipment
manufacturers (OEMs), value added resellers (VARs) and dealers in the United
States, Canada, Latin America and Europe.
Note 2 - Acquisitions and Divestitures:
All acquisitions below have been accounted for under the purchase
method. Accordingly, the results of operations of the acquired businesses are
included in the consolidated financial statements from the dates of acquisition.
Rorke Data, Inc. Acquisition
On May 15, 2000, the Company acquired all of the outstanding capital
stock of Rorke Data, Inc. ("RDI"), a privately held company headquartered in
Minnesota, with a subsidiary in The Netherlands. RDI provides leading-edge Fibre
Channel and SAN storage solutions to vertical markets such as digital
audio/video, publishing, and medical imaging throughout the U.S. and Europe.
RDI was acquired for a total purchase price of approximately $7.1
million, which included cash of $4.1 million, the issuance of 179,612 shares of
the Company's Common Stock and acquisition costs. Management is currently
finalizing the valuation of assets acquired and liabilities assumed.
Accordingly, the final allocations could be different from the amounts reflected
below. The preliminary allocation of the purchase price to acquired assets and
assumed liabilities based on management estimates are as follows (in thousands):
Cash $ 216
Accounts receivable 6,792
Inventories 7,765
Equipment and other assets 3,678
Goodwill 7,428
Accounts payable (7,488)
Other accrued liabilities (7,567)
Notes payable (3,734)
----------------------
Total consideration $ 7,090
======================
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Results of operations of RDI were not material to the Company.
Hammer Storage Solutions Acquisition
On April 27, 2000, the Company acquired certain assets and assumed
certain liabilities of Hammer Storage Solutions ("Hammer"); a manufacturer of
digital storage sub-systems based in Newark, California, which was acquired in
bankruptcy. Hammer's principal customers are concentrated in the entertainment
industry.
The Hammer assets acquired were primarily accounts receivable,
inventory and fixed assets. As consideration for the assets purchased, the
Company paid $463,000 in cash, including acquisition costs and assumed certain
liabilities, primarily trade accounts payable. The purchase price was allocated
to the acquired assets and liabilities assumed based upon management's
preliminary estimate of their fair market values as of the acquisition date.
Results of operations of Hammer were not material to the Company.
Future Tech International, Inc. Acquisition
On July 21, 1999, the Company acquired certain assets and assumed
certain liabilities of Future Tech International, Inc. ("FTI"), a privately held
company located in Miami. Prior to its reorganization in bankruptcy and
subsequent acquisition by the Company, FTI was a leading value-added distributor
of computer components to the markets of Latin America and the Caribbean. FTI
distributes products manufactured by AMD, Canon, Maxtor, NEC, Quantum and other
leading manufacturers.
The FTI assets acquired were primarily accounts receivable, inventory
and fixed assets. As consideration for the assets purchased, the Company paid
$2.2 million in cash, including acquisition costs and assumed certain
liabilities, primarily trade accounts payable. The Company is obligated to pay
up to an additional $4.5 million in cash within 21 months of the closing date as
a contingent incentive payment to be based upon earnings achieved up to the
first anniversary of the acquisition.
The FTI purchase price was allocated to the acquired assets and
liabilities assumed based upon management's estimate of their fair market values
as of the acquisition date as follows (in thousands):
Restricted cash $ 23
Accounts receivable 12,576
Inventories 2,639
Equipment and other assets 3,947
Goodwill 4,227
Accounts payable (20,989)
Other accrued liabilities (204)
----------------------
Total consideration $ 2,219
======================
Divestiture of Quadrus
On July 8, 1999, the Company completed the sale of its Contract
Manufacturing Division, Quadrus, for a total consideration of approximately
$34.7 million. The sale resulted in an after tax gain of $1.1 million or $0.11
per share. The results of Quadrus have been reported separately as discontinued
operations in the Consolidated Statements of Income.
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Note 3 - 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.
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Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2000 1999 2000 1999
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 3,974 $ 892 $ 7,184 $ 2,122
============== ============ ============= ==============
Weighted average common shares
outstanding (Basic) 9,511 8,945 9,410 8,939
Effect of dilutive warrants and options 990 37 834 57
-------------- ------------ ------------- --------------
Weighted average common shares
outstanding (Diluted) 10,501 8,982 10,244 8,996
============== ============ ============= ==============
</TABLE>
In the six months ended June 30, 1999, the numbers of common stock
warrants and options excluded from diluted loss per share calculations because
they are antidilutive were 37,000 and 1,557,000 respectively.
Note 4 - Lines of Credit:
On May 15, 2000 and on June 22, 2000 the Company entered into
amendments to its Third Amended and Restated Credit Agreement arranged by
California Bank & Trust, as Agent (the "CBT Facility"). The May 15th amendment
allows the Company to include certain of the Company's subsidiaries' accounts
receivable and inventory in the calculation of the amount available for
borrowing under its $160 million line of credit. The June 22nd amendment permits
the TCFC financing described below. At the Company's option, the borrowings
under the line of credit bear interest at California Bank & Trust's prime rate
(9.5% at June 30, 2000) or the adjusted LIBOR rate plus a maximum of 2.75%. The
balance outstanding on the revolving line of credit at June 30, 2000 was $127.4
million. Obligations of the Company under the revolving line of credit are
secured by substantially all of the Company's and its subsidiaries' 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, repurchase of stock,
making investments and profitability. The Company was in compliance with its
bank covenants at June 30, 2000; 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 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.
On June 20, 2000, the Company entered into an agreement with
Transamerica Commercial Finance Corporation ("TCFC") to provide $15 million in
short term financing to the Company. The loan has a maturity date of June 20,
2001, and bears interest at 10.5%. On July 6, 2000, the Company repaid the loan
with proceeds received from the RSA facility described below.
On July 6, 2000, the Company entered into a Securities Purchase
Agreement with The Retirement Systems of Alabama and certain of its affiliated
funds (the "RSA facility"), under which the Company borrowed $180 million of
subordinated debt financing. The proceeds from the financing were used to repay
in full $123.9 million outstanding under the CBT facility and $15 million of
borrowings from TCFC. This subordinated debt financing is comprised of $80
million with interest at 9.125%, due June 30, 2001, and $100 million with
interest at 9.0%, payable in semi-annual principal and interest installments
commencing December 31, 2000, and a final maturity date of June 30, 2010. The
RSA facility is secured by a second lien on the Company's and its subsidiaries'
North American and South American assets. The Company must meet certain
financial tests on a quarterly basis, and comply with certain other covenants,
including restrictions on incurrence of debt and liens, restrictions on asset
dispositions, declaration of dividends, and repurchase of stock. The Company is
in compliance with its subordinated debt financing covenants; however, there can
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be no assurance that the Company will be in compliance with such covenants in
the future. If the Company does not remain in compliance with the covenants in
the Securities Purchase Agreement and is unable to obtain a waiver of
noncompliance from its subordinated lenders, the Company's financial condition
and results of operations would be materially adversely affected.
Effective as of July 6, 2000, the Company amended its existing senior
credit facility to decrease the size of the line of credit to $50 million
provided solely by California Bank & Trust. The Company is contemplating
establishing a larger senior credit facility, but there is no assurance that
such arrangements can be made. The Company intends to utilize its revolving line
of credit and its subordinated debt financing to fund future working capital
requirements. The Company evaluates potential acquisitions from time to time and
may utilize its line of credit (provided consent from its senior lender is
obtained) and its subordinated debt financing to acquire complementary
businesses.
Note 5 - Commitments and Contingencies
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.
During 1999, the Company filed suit against American Credit Indemnity
("ACI"), its former credit insurer, for recovery of amounts due under claim made
by the Company. ACI has counter sued for rescission of the credit insurance
contract for repayment of claims previously paid. Management has reviewed and
investigated the claims, and while no assurance can be given regarding the
outcome of this matter, management believes that the final outcome of the matter
will not have a material impact on consolidated financial position or results of
operations. However, because of the nature and inherent uncertainties of
litigation, should the outcome of this matter be unfavorable, the Company may be
required to pay damages and other expenses, which could have a material adverse
effect on its financial position and results of operations.
Note 6 - 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, including foreign currency translation adjustments.
Comprehensive income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2000 1999 2000 1999
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 3,974 $ 892 $ 7,184 $ 2,122
Other comprehensive income (loss):
Foreign currency translation
adjustments (383) 146 (408) 222
-------------- ------------ ------------- --------------
Total comprehensive income (loss) $ 3,591 $ 1,038 $ 6,776 $ 2,344
============== ============ ============= ==============
</TABLE>
Accumulated other comprehensive income (loss) presented in the
accompanying consolidated condensed balance sheets consists of cumulative
foreign currency translation adjustments.
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Note 7 - Subsequent Events
On August 3, 2000, the Company completed the acquisition of Ideal
Hardware Limited ("Ideal"), a wholly owned subsidiary of InterX plc. for a total
purchase price of approximately $29.0 million including acquisition costs.
Approximately $20 million was paid in cash on August 3, 2000 and the remaining
$9 million will be paid within the next twelve months in accordance with the
purchase agreement. Ideal is a United Kingdom based value-added, storage-centric
distributor which reported sales of approximately $500 million and $350 million
for the year ended July 31, 1999 and the six months ended January 31, 2000,
respectively, the most recent periods for which information was available.
The Company acquired all the outstanding shares of Ideal's Common Stock
and will account for the transaction in accordance with the purchase accounting
method. The principal assets acquired include accounts receivable and
inventories; the principal liabilities assumed include trade obligations and
bank borrowings outstanding. Management's preliminary allocation of the purchase
price will result in recognizing goodwill and other intangible assets of
approximately $15 million. Allocation of the purchase price over the estimated
fair value of the assets acquired and liabilities assumed and proforma
consolidated income and revenue will be disclosed by amendment to Form 8-K
within the time prescribed by Item 7 (a) (4) of Form 8-K.
On July 31, 2000 the Company declared a 3-for-2 split of its Common
Stock. The stock split will be in the form of a 50% Common Stock dividend
payable at the close of business on August 31, 2000 to shareholders of record on
August 11, 2000.
Note 8 - Recently Issued Accounting Statements
In April 2000, the Financial Accounting Standards Board issued FASB
interpretation of No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25 ("FIN44"). Among other
issues, FIN 44 clarifies (a) the definition of employees for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in the
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpreation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
Company is currently reviewing stock grants to determine the impact, if any,
that may arise from implementation of FIN 44, although management does not
expect the impact, if any, to be material to the financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. The Company believes its revenue
recognition policies comply with the requirements of SAB 101.
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In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 amends Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments including
standalone instruments, such as forward currency exchange contracts and interest
rate swaps or embedded derivatives and requires that these instruments be
marked-to-market on an ongoing basis. These market value adjustments are to be
included either in the income statement or stockholders' equity, depending on
the nature of the transaction. The Company is required to adopt SFAS 133 in the
first quarter of its fiscal year 2001. The effect of SFAS 133 is not expected to
be material to the Company's financial statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Information Regarding Forward-Looking Statements
Information in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this quarterly
report 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. Forward-looking statements provide current expectations or forecasts of
future events and can be identified by the use of terminoloty such as "believe,"
"estimate," "expect," "intend," "may," "could," "will," and similar words or
expressions. This forward looking information generally relates to growth,
financial results, and financing and acquisition activities, among others.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including the
timing of delivery of products from suppliers, the product mix sold by the
Company, the integration of acquired businesses, customer demand, the Company's
dependence on a small number of customers that account for a significant portion
of revenues, availability of products from suppliers, cyclicality in the disk
drive and other industries, price competition for products sold by the Company,
management of growth, the Company's ability to collect accounts receivable,
price decreases on inventory that is not price protected, ability to negotiate a
new senior credit facility, potential interest rate fluctuations as described
below and the other risk factors detailed in the Company's filings with the SEC,
including its Annual Report on Form 10-K for the year ended December 31, 1999.
The Company assumes no obligation to update such forward-looking statements or
to update the reasons actual results could differ materially from those
anticipated in such forward-looking statements.
Three months ended June 30, 2000 compared to three months ended June 30, 1999
Sales were $382.4 million for the quarter ended June 30, 2000, which
represented an increase of $150.8 million, or 65% compared to the same quarter
in 1999. This increase in sales was attributable to the growth in unit sales in
existing product lines, the expansion of the customer base related to the
acquisition of FTI in July of 1999 and the addition of new lines.
The Company's gross profit for the second quarter of 2000 was $35.1
million, an increase of $14.3 million, or 69% from the second quarter of 1999.
The increase in gross profit was primarily the result of increased sales volume.
As a percentage of sales, overall gross margins were 9.2% compared to 9.0% in
the same period last year. This increase was primarily due to customer and
product mix, and the acquisition of RDI.
Selling, general and administrative expenses increased to $25.5 million
in the second quarter of 2000 from $15.9 million in the second quarter of 1999,
an increase of $9.5 million, or 60%. This increase in expenses was attributable
to the acquisitions of FTI and RDI, increased sales volume and the Company's
continuing effort to expand its sales and marketing organization and strengthen
its financial and administrative support. As a percentage of sales, selling,
general and administrative expenses decreased in the second quarter of 2000 to
6.7% from 6.9% in the second quarter of 1999.
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Interest expense was $3.0 million in the second quarter of 2000 as
compared to $1.6 million in the same period last year. This increase was
primarily due to increased interest rates and higher bank borrowings throughout
the second quarter of 2000 in relation to the comparable 1999 quarter.
In the second quarter of 2000, the Company recognized remeasurement
gains of $133,000 relating to the translation of US dollar denominated debt of
its Canadian subsidiary and subsidiaries of FTI.
The effective income tax rate remained the same, 42%, during both
periods.
Six Months ended June 30, 2000 compared to six months ended June 30, 1999
Sales were $748.7 million for the six months ended June 30, 2000, which
represented an increase of $297.5 million, or 66% over the same period in 1999.
The increase in sales was attributable to the growth in unit sales in existing
product lines, the expansion of the customer base related to the acquisition of
FTI in July of 1999 and the addition of new lines.
The Company's gross profit for the first six months of 2000 was $64.4
million, an increase of $24.2 million or 60% over the first six months of 1999.
The increase in gross profit was primarily the result of increased sales volume.
As a percentage of sales, gross margin decreased to 8.6%, compared to 8.9% in
the same period last year. This decrease is primarily due to customer mix and
product mix, and competitive pricing in the first half of the six month period.
Selling, general and administrative expenses increased to $46.8 million
in the first six months of 2000 from $30.9 million in the first six months of
1999, which represented an increase of 52%. This increase in expenses was
attributable to the acquisitions of FTI and RDI, increased sales volume and the
Company's continuing effort to expand its sales and marketing organization and
strengthen its financial and administrative support. As a percentage of sales,
selling, general and administrative expenses decreased in the second quarter of
2000 to 6.3% from 6.8% in the second quarter of 1999.
Interest expense was $5.3 million in the first six months of 2000 as
compared to $2.8 million in the same period last year. This increase was
primarily due to increased interest rates and higher bank borrowings throughout
the six month period in relation to the comparable 1999 period.
In the first six months of 1999, the Company recognized remeasurement
gains of $131,000 relating to the translation of US dollar denominated debt of
its Canadian subsidiary and subsidiaries of FTI.
The effective income tax rate remained the same, 42%, during both
periods.
LIQUIDITY AND CAPITAL RESOURCES
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, and the financing of certain acquisitions.
On May 15, 2000 and on June 22, 2000 the Company entered into
amendments to its Third Amended and Restated Credit Agreement arranged by
California Bank & Trust, as Agent (the "CBT Facility"). The May 15th amendment
allows the Company to include certain of the Company's subsidiaries' accounts
receivable and inventory in the calculation of the amount available for
borrowing under its $160 million line of credit. The June 22nd amendment permits
the TCFC financing described below. At the Company's option, the borrowings
under the line of credit bear interest at California Bank & Trust's prime rate
(9.5% at June 30, 2000) or the adjusted LIBOR rate plus a maximum of 2.75%. The
balance outstanding on the revolving line of credit at June 30, 2000 was $127.4
million. Obligations of the Company under the revolving line of credit are
secured by substantially all of the Company's and its subsidiaries' 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
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<PAGE>
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, declaration of dividends, repurchase of stock,
making investments and profitability. The Company was in compliance with its
bank covenants at June 30, 2000; 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 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.
On June 20, 2000, the Company entered into an agreement with
Transamerica Commercial Finance Corporation ("TCFC") to provide $15 million in
short term financing to the Company. The loan has a maturity date of June 20,
2001, and bears interest at 10.5%. On July 6, 2000, the Company repaid the loan
with proceeds received from the RSA facility described below.
On July 6, 2000, the Company entered into a Securities Purchase
Agreement with The Retirement Systems of Alabama and certain of its affiliated
funds (the "RSA facility"), under which the Company borrowed $180 million of
subordinated debt financing. The proceeds from the financing were used to repay
in full $123.9 million outstanding under the CBT facility and $15 million of
borrowings from TCFC. This subordinated debt financing is comprised of $80
million with interest at 9.125%, due June 30, 2001, and $100 million with
interest at 9.0%, payable in semi-annual principal and interest installments
commencing December 31, 2000, and a final maturity date of June 30, 2010. The
RSA facility is secured by a second lien on the Company's and its subsidiaries'
North American and South American assets. The Company must meet certain
financial tests on a quarterly basis, and comply with certain other covenants,
including restrictions on incurrence of debt and liens, restrictions on asset
dispositions, declaration of dividends, and repurchase of stock. The Company is
in compliance with its subordinated debt financing covenants; however, there can
be no assurance that the Company will be in compliance with such covenants in
the future. If the Company does not remain in compliance with the covenants in
the Securities Purchase Agreement and is unable to obtain a waiver of
noncompliance from its subordinated lenders, the Company's financial condition
and results of operations would be materially adversely affected.
Effective as of July 6, 2000, the Company amended its existing senior
credit facility to decrease the size of the line of credit to $50 million
provided solely by California Bank & Trust. The Company is contemplating
establishing a larger senior credit facility, but there is no assurance that
such arrangements can be made. The Company intends to utilize its revolving line
of credit and its subordinated debt financing to fund future working capital
requirements. The Company evaluates potential acquisitions from time to time and
may utilize its line of credit (provided consent from its senior lender is
obtained) and its subordinated debt financing to acquire complementary
businesses.
On May 15, 2000, the Company acquired Rorke Data, Inc. ("RDI") and
its European subsidiary for a purchase price of approximately $2.5 million in
cash and 179,612 shares of the Company's common stock. Rorke option holders
received approximately $335,000, and the minority shareholders of Rorke's
European subsidiary received approximately $1.3 million in cash. The acquisition
was funded through borrowings under the Company's revolving line of credit.
On April 27, 2000, the Company acquired substantially all of the assets
and assumed certain liabilities of Hammer Storage Solutions ("Hammer") for
$463,000 cash. The acquisition was funded through borrowings under the Company's
revolving line of credit.
Net cash used in operating activities for the six months ended June 30,
2000, was $31.1 million. The Company's net accounts receivable as of June 30,
2000 increased to $217.0 million from $168.9 million as of December 31, 1999.
The Company's accounts payable increased to $150.3 million as of June 30, 2000
from $143.6 million as of December 31, 1999, primarily due to increased
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inventory purchases as well as timing of inventory receipts and payments related
thereto. Net cash used in investing activities during the six months ended June
30, 2000 totaled $9.7 million, which was primarily related to the acquisitions
of Hammer and RDI. Net cash provided by financing activities during the six
months ended June 30, 2000 totaled $36.8 million, which was primarily related to
the borrowings under the Company's line of credit. The Company's future cash
requirements will depend on numerous factors, including potential acquisitions
and the rate of growth of its sales. The Company may, in the future, seek
additional debt or equity financing to fund continued growth.
YEAR 2000 COMPLIANCE
Thus far, the Company has not experienced any significant problems
related to Year 2000 issues associated with products distributed, or with the
Company's internal computer systems. However, the Company cannot guarantee that
the Year 2000 problem will not adversely affect its business, operating results
or financial condition at some point in the future.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Effective July 6, 2000, the Company borrowed $100 million at a fixed
interest rate of 9% per annum; the borrowing is payable over ten years. An
additional $80 million, payable June 30, 2001, was borrowed at a fixed rate of
9.125%. Concurrent with these financings, the Company amended its existing
credit facility, reducing the facility to $50 million. Through August 11, 2000,
no amounts were outstanding. 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. Assuming maximum borrowing under
the line of credit, an increase of 1% in such interest rate percentages would
increase the quarterly interest expense by $125,000.
Substantially all of the Company's revenue and capital expenditure are
transacted in US Dollars. As a result of transactions in other currencies, the
Company has recognized foreign currency remeasurement gain of $133,000 during
the quarter ended June 30, 2000. The Company is likely to be subject to
increased foreign currency transactions and associated risks of depreciation of
value and volatility of cashflows following the acquisitions of RDI, FTI and
Tenex Data. To the extent the Company is unable to manage these risks, the
Company's results and financial position could be materially adversely affected.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Registrant held its Annual Meeting of Shareholders on May 22, 2000.
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.
<TABLE>
<CAPTION>
For Against Abstention Nonvotes
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
W. Donald Bell 4,836,674 -- 718,120 --
Gordon A. Campbell 4,837,674 -- 717,120 --
Glenn E. Penisten 4,837,674 -- 717,120 --
Edward L. Gelbach 4,837,674 -- 717,120 --
James Ousley 4,827,074 -- 727,120 --
Eugene B. Chaiken 4,837,674 -- 717,120 --
</TABLE>
2. Approval of an amendment to the Company's Employee Stock Purchase Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 800,000 shares.
<TABLE>
<CAPTION>
For Against Abstention Nonvotes
------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C>
3,932,196 1,611,388 11,210 --
</TABLE>
3. Approval of an amendment to the Company's Amended and Restated Articles
of Incorporation to increase the total number of authorized shares of
Common Stock from 20,000,000 to 40,000,000.
<TABLE>
<CAPTION>
For Against Abstention Nonvotes
------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C>
5,370,153 169,341 15,300 --
</TABLE>
4. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the current fiscal year ending
December 31, 2000.
<TABLE>
<CAPTION>
For Against Abstention Nonvotes
------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C>
5,546,924 7,560 310 --
</TABLE>
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<PAGE>
Item 6. Exhibits and Reports
(a) Exhibits:
10.1 Office and warehouse lease, dated March 21, 1991, as amended
by Amendment No. 1, Amendment No. 2, Amendment No. 3,
Amendment No. 4 and Amendment No. 5 relating to Rorke Data
facilities in Eden Prairie, Minnesota.
10.2 Lease, dated June 16, 2000, relating to Bell Microproducts
- Future Tech facilities in Miami, Florida.
10.3 Management Retention Agreement dated March 20, 2000, between
the Company and Lawrence Leong.
10.4 Management Retention Agreement dated April 17, 2000,
between the Company and Henri Richard.
27. Financial Data Schedule for the six months ended
June 30, 2000.
(b) Reports on Form 8-K:
Date Filed Item No. Description
7/11/00 5 Press release re subordinated debt financing
7/21/00 5 Securities Purchase Agreement with The
Retirement Systems of Alabama
7/21/00 5 Press release re agreement to acquire Ideal
Hardware Limited.
17
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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, 2000
BELL MICROPRODUCTS INC.
By: /s/ Remo E. Canessa
Vice President of Finance and Operations,
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
