No. pages 11
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: September 30, 1997
------------------
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
- ---------------------------- September 30, 1997: 8,619,594
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Balance Sheets - September 30, 1997 and December 31, 1996
3
Condensed Statements of Operations - Three months and nine months
ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows - Nine months ended September
30, 1997 and 1996 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 6. Exhibits and Reports 10
Signature 11
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Bell Microproducts Inc.
Condensed Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30, December 31,
1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 8,144 $ 5,682
Accounts receivable, net 84,608 70,686
Inventories 97,216 78,659
Deferred and refundable income taxes 3,714 3,714
Prepaid expenses 1,540 885
-------- --------
Total current assets 195,222 159,626
Property and equipment, net 10,834 9,006
Goodwill 6,450 6,685
Other assets 422 363
-------- --------
Total assets $212,928 $175,680
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 83 $ 294
Accounts payable 60,122 45,725
Other accrued liabilities 7,257 6,271
Current portion of capitalized lease
obligations 1,676 1,378
-------- --------
Total current liabilities 69,138 53,668
Line of credit 62,000 45,900
Capitalized lease obligations, less current portion 4,912 4,985
-------- --------
Total liabilities 136,050 104,553
-------- --------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 20,000 shares
authorized; 8,620 and 8,445 issued and outstanding 52,812 51,644
Retained earnings 24,066 19,483
-------- --------
Total shareholders' equity 76,878 71,127
-------- --------
Total liabilities and shareholders' equity $212,928 $175,680
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
3
Bell Microproducts Inc.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months ended September 30, Nine Months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Sales $ 138,003 $ 118,018 $ 394,107 $ 347,093
Cost of sales 124,375 103,855 350,706 304,684
--------- --------- --------- ---------
Gross profit 13,628 14,163 43,401 42,409
Selling, general and
administrative expenses 11,587 9,896 32,307 30,173
--------- --------- --------- ---------
Income from operations 2,041 4,267 11,094 12,236
Interest expense (1,122) (767) (3,192) (2,671)
--------- --------- --------- ---------
Income before income taxes 919 3,500 7,902 9,565
Provision for income taxes (386) (1,470) (3,319) (4,018)
--------- --------- --------- ---------
Net income $ 533 $ 2,030 $ 4,583 $ 5,547
========= ========= ========= =========
Earnings per share $ .06 $ .24 $ .51 $ .65
========= ========= ========= =========
Weighted average common
shares and equivalents 8,886 8,531 8,933 8,498
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
4
Bell Microproducts Inc.
Condensed Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
Nine months ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 4,583 $ 5,547
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,096 1,903
Change in allowance for doubtful accounts (936) 823
Change in deferred and refundable income taxes -- 383
Changes in assets and liabilities:
Accounts receivable (12,986) (6,207)
Inventories (18,557) (7,285)
Prepaid expenses (655) (136)
Other assets (59) (191)
Accounts payable 14,397 25,444
Other accrued liabilities 986 4,016
-------- --------
Net cash provided by (used in) operating activities (11,131) 24,297
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (2,356) (403)
-------- --------
Cash flows from financing activities:
Net borrowings/(repayments) under line of credit agreement 16,100 (22,500)
Net borrowings/(repayments) on current portion of long term (211) 132
liabilities
Proceeds from issuance of Common Stock 1,168 343
Principal payments on long term liabilities (1,108) (1,447)
-------- --------
Net cash provided by (used in) financing activities 15,949 (23,472)
-------- --------
Net increase in cash 2,462 422
Cash at beginning of period 5,682 2,489
-------- --------
Cash at end of period $ 8,144 $ 2,911
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 3,178 $ 2,601
Income taxes $ 2,678 $ 2,146
Obligations incurred under capital leases $ 1,333 $ 2,280
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
5
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 1996 Annual Report on Form 10-K. The operating results for the period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
Recently Issued Accounting Statements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
statement is effective for the Company's year ending December 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. If the Company had adopted this Statement for the
three and nine months ended September 30, 1997 and for the comparable periods in
the prior year, the Company's proforma earnings per share would have been as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
Basic earnings per share $0.06 $0.24 $0.54 $0.66
Diluted earnings per share $0.06 $0.24 $0.51 $0.65
In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This Statement requires the
Company to report additional information on comprehensive income to supplement
the reporting of income. SFAS No. 130 is effective for both interim and annual
periods beginning after December 15, 1997. Comparative financial statements
provided for earlier periods are required to be reclassified so that
comprehensive income is displayed in a comparative format for all periods
presented. SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes standards for reporting information about
operating segments in annual and interim financial statements. This Statement
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will adopt
SFAS No. 130 for the first quarter of 1998 and does not expect its provisions to
have a material effect on the Company's presentation of its consolidated
financial statements. The Company will adopt SFAS No. 131 as of the year ending
December 31, 1998 and is currently studying its provisions.
Note 2 - Inventories:
A summary of inventories follows (in thousands):
September 30, 1997 December 31, 1996
--------------------------- ---------------------------
Purchased components and materials $ 89,694 $ 69,513
Work-in-process 7,522 9,146
--------------------------- ---------------------------
Total $ 97,216 $ 78,659
=========================== ===========================
6
Note 3 - Property and equipment:
A summary of property and equipment follows (in thousands):
September 30, 1997 December 31, 1996
--------------------------- ---------------------------
Manufacturing and test equipment $ 9,668 $ 9,070
Computer and other equipment 4,003 3,212
Furniture and fixtures 1,772 1,147
Leasehold improvements and other 1,871 195
--------------------------- ---------------------------
17,314 13,624
Accumulated depreciation (6,480) (4,618)
--------------------------- ---------------------------
Total $ 10,834 $ 9,006
=========================== ===========================
Note 4 - Line of Credit
On June 17, 1997 and September 1, 1997, the Company entered into
amendments to the Amended and Restated Syndicated Credit Agreement arranged by
Sumitomo Bank of California ("Sumitomo Bank") as Agent. The amendments increased
the Company's $80 million revolving line of credit to $100 million, extended the
maturity date to May 31, 1999 and decreased the related interest rate. 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 1.40%. At September
30, 1997 the interest rate was 8.5%. 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 a number of
factors, including the timing of delivery of products from suppliers, the
product mix sold by the Company, 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, 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, the short
history of profitability of Quadrus and the other risk factors detailed in the
Company's reports on Form 10-K for the year ended December 31, 1996 and Form
10-Q for the quarter ended March 31, 1997 filed with the Securities and Exchange
Commission.
Three months ended September 30, 1997 compared to three months ended September
30, 1996
Sales were $138.0 million for the quarter ended September 30, 1997,
which represented an increase of $20.0 million, or 17% over the same quarter in
1996. The increase in sales was attributable to increased demand for mass
storage products. For the quarter ended September 30, 1997, Quantum Corporation,
the Company's largest supplier, provided products which represented 48% of the
Company's sales, as compared to 38% in the same quarter in 1996. 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 third quarter of 1997 was $13.6
million, a decrease of $0.5 million, or 4% from the third quarter of 1996. As a
percentage of sales, gross margin was 10% in the third quarter of 1997, compared
to 12% in the same quarter of 1996. The decrease in gross margin percent was
7
primarily due to increased manufacturing overhead as a percent of sales and a
greater proportion of computer product sales, which have lower margins than
electronic components.
Selling, general and administrative expenses increased to $11.6 million
in the third quarter of 1997 from $9.9 million in the third quarter of 1996, an
increase of $1.7 million or 17%. This increase was attributable to increased
sales volume and increased personnel in the Company's sales and marketing
organization. These expenses remained flat as a percentage of sales at 8%
compared to the same quarter of 1996.
Interest expense was $1.1 million in the third quarter of 1997 as
compared to $0.8 million in the third quarter of 1996. This increase was
primarily due to higher average bank borrowings throughout the third quarter of
1997 in relation to the comparable 1996 quarter.
The Company's effective income tax rate remained the same, 42%, during
both periods.
Net income was $0.5 million in the third quarter of 1997, compared to
$2.0 million in the same period last year. The decrease in net income was
primarily the result of lower gross profits and increased operating and interest
expenses partially offset by decreased income tax expense.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
Sales were $394.1 million for the nine months ended September 30, 1997,
which represented an increase of $47.0 million, or 14% over the same period in
1996. The increase in sales was attributable to increased demand for mass
storage products.
The Company's gross profit for the first nine months of 1997 was $43.4
million, an increase of $1.0 million or 2% over the first nine months of 1996.
As a percentage of sales, gross margin decreased to 11% in the first nine months
of 1997 from 12% in the same period in 1996. The decrease in gross margin
percent was primarily due to increased manufacturing overhead as a percent of
sales and a greater proportion of computer product sales.
Selling, general and administrative expenses increased to $32.3 million
in the first nine months of 1997 from $30.2 million in the first nine months of
1996, which represented an increase of 7%, but decreased as a percentage of
sales to 8% from 9%.
Interest expense was $3.2 million in the first nine months of 1997 as
compared to $2.7 million in the same period in 1996. This increase in interest
expense was primarily due to higher average bank borrowings during the 1997
period in relation to the comparable 1996 period.
The Company's effective income tax rate remained the same, 42%, during
both periods.
Net income decreased to $4.6 million in the first nine months of 1997
compared to $5.5 million in the same period of 1996. The decrease was due
primarily to decreased gross margin as a percentage of sales, increased
operating and interest expenses partially offset by decreased income tax
expense.
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 June 17, 1997, the Company increased its revolving line of credit
from $80 million to $100 million to provide additional working capital for the
Company. The revolving line of credit, which has a final payment due date of May
31, 1999, requires the Company to meet certain financial tests and to comply
with certain
8
other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, making investments and profitability. The
Company is in compliance with its bank covenants; however, there can be no
assurance that the Company will be in compliance in the future. Obligations of
the Company under the revolving line of credit are secured by substantially all
of the Company's assets. The Company intends to utilize its revolving line of
credit to fund future working capital requirements.
Net cash used in operating activities for the nine months ended
September 30, 1997, was $11.1 million. The Company's accounts receivable as of
September 30, 1997 increased to $84.6 million from $70.7 million as of December
31, 1996, as a result of increased sales at the end of the current quarter. The
Company's inventories as of September 30, 1997 increased to $97.2 million from
$78.7 million as of December 31, 1996, primarily as a result of the Company's
need to support anticipated sales growth. The Company's accounts payable
increased to $60.1 million as of September 30, 1997 from $45.7 million as of
December 31, 1996, due to increased inventory purchases. 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 working
capital requirements for the next twelve months. However, the Company may, in
the future, seek additional debt or equity financing to fund continued growth.
9
Item 6. Exhibits and Reports
(a) Exhibits:
27. Financial Data Schedule for the nine months ended September 30, 1997.
99.1 Fourth Amendment to Second Amended and Restated Credit Agreement.
99.2 Management Retention Agreement between the Registrant and
Bruce M. Jaffe
(b) Reports on Form 8-K:
None
10
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: November 14, 1997
BELL MICROPRODUCTS INC.
By: Bruce M. Jaffe
---------------------------------------
Sr. Vice President of Finance and Operations
and Chief Financial Officer
By: Remo E. Canessa
----------------------------------------
Vice President of Finance, Corporate Controller and Secretary
(Principal Accounting Officer)
11