No. pages 14
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, 1999
----------------------------
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,
1999: 9,182,559
1
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
------
Item 1: Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Income - Three months and nine
months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3: Quantitative and Qualitative Disclosure about Market Risk 11
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports 13
Signature: 14
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Bell Microproducts Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 3,412 $ 4,082
Accounts receivable, net 158,682 106,609
Inventories 138,247 105,330
Deferred income taxes 4,072 4,072
Prepaid expenses 2,742 1,154
Assets of discontinued operations -- 47,790
-------- --------
Total current assets 307,155 269,037
Property and equipment, net 6,097 3,355
Goodwill, net 16,214 12,362
Other assets 1,003 826
-------- --------
Total assets $330,469 $285,580
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $128,709 $ 72,002
Other accrued liabilities 9,057 8,429
Liabilities related to discontinued
operations -- 16,240
-------- --------
Total current liabilities 137,766 96,671
Borrowing under the line of credit 99,500 102,400
Other liabilities 37 33
-------- --------
Total liabilities 237,303 199,104
-------- --------
Shareholders' equity:
Common Stock, $0.01 par value, 20,000 shares
authorized; 9,183 and 8,914 issued and outstanding 58,155 56,181
Retained earnings 34,725 30,247
Accumulated other comprehensive income 286 48
-------- --------
Total shareholders' equity 93,166 86,476
-------- --------
Total liabilities and shareholders' equity $330,469 $285,580
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
3
Bell Microproducts Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
-------------------------- ---------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net sales $ 283,359 $ 148,815 $ 734,585 $ 389,875
Cost of sales 259,384 133,085 670,387 344,820
--------- --------- --------- ---------
Gross profit 23,975 15,730 64,198 45,055
Selling general and administrative expenses 18,253 11,373 49,134 33,211
--------- --------- --------- ---------
Income from continuing operations 5,722 4,357 15,064 11,844
Interest expense 1,676 748 4,456 2,124
Foreign exchange remeasurement gain (123) -- (481) --
--------- --------- --------- ---------
Income from continuing operations before
income taxes 4,169 3,609 11,089 9,720
Provision for income taxes 1,813 1,516 4,719 4,082
--------- --------- --------- ---------
Income from continuing operations 2,356 2,093 6,370 5,638
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit -- (42) (2,946) (1,950)
Gain on sale of contract manufacturing division,
net of income tax benefit -- -- 1,054 --
--------- --------- --------- ---------
Net income $ 2,356 $ 2,135 $ 4,478 $ 3,688
========= ========= ========= =========
Earnings per share
Basic
Continuing operations $ 0.26 $ 0.24 $ 0.71 $ 0.64
Discontinued operations -- -- (0.21) (0.22)
--------- --------- --------- ---------
Total $ 0.26 $ 0.24 $ 0.50 $ 0.42
========= ========= ========= =========
Earnings per share
Diluted
Continuing operations $ 0.26 $ 0.24 $ 0.70 $ 0.64
Discontinued operations -- -- (0.21) (0.22)
--------- --------- --------- ---------
Total $ 0.26 $ 0.24 $ 0.49 $ 0.42
========= ========= ========= =========
Shares used in per share calculation
Basic 9,096 8,831 8,991 8,774
--------- --------- --------- ---------
Diluted 9,211 8,874 9,068 8,841
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
4
Bell Microproducts Inc.
Condensed Consolidated Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
Nine months ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------- --------
Cash flows from operating activities:
Income from continuing activities $ 6,370 $ 5,637
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,575 746
Change in allowance for doubtful accounts (340) 1,984
Change in deferred income taxes -- 13
Changes in assets and liabilities:
Accounts receivable (40,323) (14,832)
Inventories (30,528) (4,232)
Prepaid expenses 1,217 (148)
Other assets (177) (17)
Accounts payable 35,408 15,251
Other accrued liabilities (1,317) 2,912
-------- --------
Net cash (used in) provided by continuing operating activities (28,115) 7,314
Net cash used in discontinued operations (1,765) (10,083)
-------- --------
Net cash used in operating activities (29,880) (2,769)
-------- --------
Cash flows from investing activities:
Acquisition of property, equipment and other, net (2,602) (1,332)
Acquisition of business (2,196) --
Proceeds from sale of business 34,665 --
-------- --------
Net cash provided by (used in) investing activities 29,867 (1,332)
-------- --------
Cash flows from financing activities:
Net (repayments)/borrowings under line of credit agreement (2,900) 4,500
Proceeds from issuance of Common Stock 1,974 990
Principal payments on long term liabilities 4 11
-------- --------
Net cash (used in) provided by financing activities (922) 5,501
-------- --------
Effect of exchange rate changes on cash 265 --
-------- --------
Net (decrease) increase in cash (670) 1,400
Cash at beginning of period 4,082 6,325
-------- --------
Cash at end of period $ 3,412 $ 7,725
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation:
The Company operates in one operating segment. The Company markets and
distributes a broad range of semiconductor and computer products primarily to
industrial OEM's, hardware integrators, VARs and other resellers.
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 1998 Annual Report on Form 10-K. The operating results for
the period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999.
Recently Issued Accounting Statement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes and
amends a number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
is not expected to have a material effect on the Company's financial statements.
The standard is effective for the Company in fiscal 2000.
Note 2 - Acquisitions:
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, FTI was a
leading value-added distributor of computer components to markets of Latin
America and the Caribbean. FTI distributes products from AMD, Canon, Maxtor,
NEC, Quantum and other leading manufacturers, and manufactures and markets its
proprietary Markvision-branded products.
The acquisition was accounted for as a purchase. The 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 closing date.
The purchase price was allocated to the acquired assets and liabilities
based upon management's estimate of their fair market values as of the
acquisition date as follows (in thousands):
6
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
========
The results of operations of FTI have been included with those of the
Company for periods subsequent to the date of acquisition. Set forth below is
the unaudited proforma combined summary of operations of the Company for three
months and nine months ended September 30, 1999 and 1998, as if the acquisition
had been made on January 1, 1998 (in thousands).
Nine Months Ended
September 30,
---------------------
Net sales $807,313 $524,536
Net income $ 1,348 $ 1,018
Earnings per share
Basic $ 0.15 $ 0.12
======== ========
Diluted $ 0.15 $ 0.12
======== ========
Shares used in per share
calculation
Basic 8,991 8,774
======== ========
Diluted 9,068 8,841
======== ========
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.
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
Net income $2,356 $2,135 $4,478 $3,688
====== ====== ====== ======
Weighted average common shares outstanding
(Basic) 9,096 8,831 8,991 8,774
Effect of dilutive warrants and options 115 43 77 67
------ ------ ------ ------
Weighted average common shares outstanding
(Diluted) 9,211 8,874 9,068 8,841
====== ====== ====== ======
7
Note 4 - Property and Equipment:
A summary of property and equipment follows (in thousands):
September 30, 1999 December 31, 1998
------------------ -----------------
Computer and other equipment $ 4,931 $ 3,121
Furniture and fixtures 2,246 1,761
Leasehold improvements 925 476
Warehouse and other equipment 1,433 484
------- -------
9,535 5,842
Accumulated depreciation (3,438) (2,487)
------- -------
Total $ 6,097 $ 3,355
======= =======
Note 5 - Line of Credit:
On November 12, 1998, the Company entered into a Third Amended and
Restated Syndicated Credit Agreement, arranged by California Bank & Trust as
Agent, which was further amended in October 1999. The Third Amended and Restated
Syndicated Credit Agreement increased the Company's $100 million revolving line
of credit to $130 million. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted LIBOR rate plus 1.85%. At September 30, 1999, the prime interest rate
was 8.25%. The balance outstanding on the revolving line of credit at September
30, 1999 was $99.5 million. The revolving line of credit has a final payment due
date of October 31, 2000. Obligations of the Company under the revolving line of
credit are secured by substantially all of the Company's assets. The revolving
line of credit requires the Company to meet certain financial tests and to
comply with certain other covenants on a quarterly basis, including restrictions
on incurrence of debt and liens, restrictions on mergers, acquisitions, asset
dispositions, declaration of dividends, repurchases of stock, making investments
and profitability. At September 30, 1999 the Company was not in compliance with
one of its covenants in its Third Amended and Restated Syndicated Credit
Agreement. In conjunction with the October 1999 amendment, the Company received
a waiver from its banks regarding this non-compliance.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information Regarding Forward-Looking Statements
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, 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, potential year 2000 costs, potential interest rate fluctuations as
described below and the other risk factors detailed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
Securities and Exchange Commission. 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.
8
Three months ended September 30, 1999 compared to three months ended September
30, 1998
Sales were $283.4 million for the quarter ended September 30, 1999,
which represented an increase of $134.6 million, or 90% compared to the same
quarter in 1998. Computer product sales increased by $116.9 million primarily
due to the expansion of the customer base related to the acquisitions of the
Computer Products Division of Almo Corporation ("Almo CPD") and Tenex Data
Division of Axidata, Inc. ("Tenex Data") in November 1998, the acquisition of
FTI in July 1999 and to the growth in unit sales in existing product lines and
the addition of new lines. Semiconductor sales increased by $18.0 million
primarily due to the acquisition of FTI, growth in unit sales in existing
product lines and the addition of new lines.
The Company's gross profit for the third quarter of 1999 was $24.0
million, an increase of $8.3 million, or 53% from the third quarter of 1998. The
increase in gross profit was primarily the result of increased sales volume. As
a percentage of sales, overall gross margins were 8.5% compared to 10.6% in the
same period last year. This decrease was primarily due to increased competitive
pricing in the industry and the increase in the proportion of computer product
sales, which typically have lower margins than semiconductors.
Selling, general and administrative expenses increased to $18.3 million
in the third quarter of 1999 from $11.4 million in the third quarter of 1998, an
increase of $6.9 million, or 61%. This increase in expenses was attributable to
the acquisitions of Almo CPD, Tenex Data and FTI, the Company's continuing
effort to strengthen its financial and administrative support, and increased
sales volume.
Interest expense was $1.7 million in the third quarter of 1999 as
compared to $0.7 million in the same period last year. This increase was
primarily due to higher bank borrowings throughout the third quarter of 1999 in
relation to the comparable 1998 quarter.
In the third quarter of 1999, the Company recognized remeasurement
gains of approximately $123,000 relating to the retranslation of US dollar
denominated debt of Tenex Data.
The effective income tax rate increased to 43% in the third quarter of
1999 from 42% in the same period in 1998. This increase was primarily due to the
reduction of certain tax credits, resulting from the sale of the Company's
contract manufacturing division.
Nine Months ended September 30, 1999 compared to nine months ended September 30,
1998
Sales were $734.6 million for the nine months ended September 30, 1999,
which represented an increase of $344.7 million, or 88% over the same period in
1998. The increase in sales was attributable to growth in unit sales in existing
product lines, the addition of new lines and expansion of the customer base
related to the acquisitions of Almo CPD and Tenex Data in November 1998, and the
acquisition of FTI in July of 1999.
The Company's gross profit for the first nine months of 1999 was $64.2
million, an increase of $19.1 million or 42% over the first nine months of 1998.
As a percentage of sales, gross margin decreased to 8.7%, compared to 11.6% in
the same period last year. This decrease was primarily due to increased
competitive pricing in the industry and the increase in the proportion of
computer product sales, which typically have lower margins than semiconductors.
Selling, general and administrative expenses increased to $49.1 million
in the first nine months of 1999 from $33.2 million in the first nine months of
1998, which represented an increase of 48%. This increase was attributable to
the acquisitions of Almo CPD, Tenex Data and FTI, the Company's continuing
effort to strengthen its financial and administrative support, and increased
sales volume.
9
Interest expense was $4.5 million in the first nine months of 1999 as
compared to $2.1 million in the same period last year. This increase was
primarily due to higher bank borrowings throughout the nine month period in
relation to the comparable 1998 period.
In the first nine months of 1999, the Company recognized remeasurement
gains of approximately $481,000 relating to the retranslation of US dollar
denominated debt of Tenex Data.
The effective income tax rate increased to 43% in the first nine months
of 1999, from 42% in the same period in 1998. This increase was primarily due to
the reduction of certain tax credits resulting from the sale of the Company's
contract manufacturing division.
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.
The Company's revolving line of credit is $130 million. At the
Company's option, the borrowings under the line of credit will bear interest at
California Bank & Trust's prime rate or the adjusted LIBOR rate plus 1.85%. At
September 30, 1999, the prime interest rate was 8.25%. The balance outstanding
on the revolving line of credit at September 30, 1999 was $99.5 million. The
revolving line of credit has a final payment due date of October 31, 2000.
Obligations of the Company under the revolving line of credit are secured by
substantially all of the Company's assets. The revolving line of credit requires
the Company to meet certain financial tests and to comply with certain other
covenants on a quarterly basis, including restrictions on incurrence of debt and
liens, restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, new investments and profitability. At September
30, 1999 the Company was not in compliance with one of its covenants in its
Third Amended and Restated Syndicated Credit Agreement. In conjunction with the
October 1999 amendment, the Company received a waiver from its banks regarding
this noncompliance. 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 Third Amended and Restated Syndicated
Credit Agreement and is unable to obtain a waiver of noncompliance from its
banks, the Company's financial condition and results of operations would be
materially adversely affected. The Company intends to utilize its revolving line
of credit to fund future working capital requirements. The Company evaluates
potential acquisitions from time to time and may utilize its line of credit to
acquire complementary businesses, provided consent from its banks is obtained.
On July 21, 1999, the Company acquired certain assets and assumed
certain liabilities of FTI for a purchase price of approximately $2.2 million in
cash including acquisition costs. The acquisition, which was accounted for as a
purchase, was funded through borrowings under the Company's revolving line of
credit. On June 8, 1999 the Company sold its Contract Manufacturing Division,
Quadrus, for a total cash consideration of $34.7 million. On November 13, 1998,
the Company acquired the Computer Products Division of Almo Corporation for
approximately $20.7 million in cash and a stock warrant valued at $1.0 million.
On November 19, 1998, the Company acquired Tenex Data, a division of Axidata,
Inc. for a total consideration of approximately $5.8 million in cash. Both the
1998 acquisitions were funded through the Company's revolving line of credit.
Net cash used in operating activities for the nine months ended
September 30, 1999 was $29.9 million. The Company's net accounts receivable as
of September 30, 1999 increased to $158.7 million from $106.6 million as of
December 31, 1998. The Company's accounts payable increased to $128.7 million as
of September 30, 1999 from $72.0 million as of December 31, 1998, primarily due
to increased inventory purchases. The Company's inventories as of September 30,
1999 increased to $138.2 million from $105.3 million as of December 31, 1998,
primarily as a result of the Company's need to support anticipated future sales
requirements. Net cash provided by investing activities during the nine months
ended September 30, 1999 totaled $29.9 million, which was primarily related to
the sale of Quadrus. Net cash used in financing activities during the nine
months ended September 30,
10
1999 totaled $0.9 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
The Year 2000 issue relates to the way computer systems and programs
define calendar dates; they could fail or make miscalculations due to
interpreting a date including "00" to mean 1900, not 2000. This could result in
system failures causing disruptions in operations, including among other things,
interruptions in processing business transactions and other normal business
operations. Also, many systems and equipment that are not typically thought of
as "computer-related" (referred to as non-IT) contain embedded hardware or
software that may have a time element.
The Company's plan to address the Year 2000 issue includes three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected by the Year 2000 issue; evaluation and
development of strategies to address affected systems and equipment; and
remediation of affected systems and equipment.
The Company completed the first two phases in that it has identified
all affected systems and equipment, both IT and non-IT, and has completed its
Year 2000 compliance evaluation. The Company determined that the majority of its
affected systems (both software and hardware) required upgrade versus
replacement in order to become Year 2000 compliant. As of September 30, 1999,
the Company completed phase three, remediation of affected systems and
equipment, for its business critical systems. The Company plans to continue
testing these systems throughout the remainder of 1999 to ensure continual Year
2000 compliance. The Company has an objective for its secondary systems and
equipment to be Year 2000 compliant in the fourth quarter of 1999 and will
continue testing throughout the year. As of September 30, 1999, the Company has
incurred expenses totaling approximately $200,000, and expects to incur an
estimated additional $20,000 to complete its Year 2000 readiness.
The Company has identified and contacted its critical suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues. To the extent that responses to Year 2000 readiness are
unsatisfactory, the Company intends to change suppliers, service providers and
contractors to those who have demonstrated Year 2000 readiness but cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company does not currently have any
formal information concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance. In the event that any of the Company's significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance, and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected. In the event Year
2000 issues relating to key customers and suppliers are not successfully
resolved, based on information available to the Company at present, the Company
believes that the most likely worst case scenario is a temporary disruption in
infrastructure service, particularly power and telecommunications, which could
adversely impact supplier deliveries or customer shipments. The Company has
developed a contingency plan regarding the most reasonably likely case scenario
in the event it has not adequately addressed the Year 2000 issue. If severe
disruptions occur in these areas and are not corrected in a timely manner, a
revenue or profit shortfall may result in the year 2000.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's line of credit has an interest rate that is based on
associated rates such as LIBOR and the Prime Rate that may fluctuate over time
based on changes in the economic environment. The Company is subject to interest
rate risk, and could be subjected to increased interest payments if market
11
interest rates fluctuate. An effective increase or decrease of 10% in such
interest rate percentages would affect the Company's results from continuing
operations by approximately 3%. The potential change noted above is based on
sensitivity analysis performed by the Company as of September 30, 1999.
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 $481,000 during
the quarter ended September 30, 1999. 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 Future Tech 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.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits:
27. Financial Data Schedule for the nine months ended September 30, 1999
99. Waiver and Third Amendment to Third Amended and Restated Credit
Agreement dated as of October 15, 1999
99.1* Employment Agreement dated as of July 1, 1999 between the Registrant
and W. Donald Bell, the Registrant's Chief Executive Officer
99.2 Management Retention Agreements between the Registrant and the
following executive officers of the Registrant: W. Donald Bell and
Remo E. Canessa
* Confidential treatment has been sought for portions of this document.
Reports on Form 8-K:
On October 4, 1999 the Company filed a Form 8-K/A under Item 2.
which amended the Company's current report in Form 8-K dated August
4, 1999, regarding its acquisition of Future Tech International,
Inc.
13
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 15, 1999
BELL MICROPRODUCTS INC.
By: Remo E. Canessa
------------------------------------------
Vice President of Finance and Operations,
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
14