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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: MARCH 31, 2001
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 [ ]
COMMON STOCK, $.01 PAR VALUE -- NUMBER OF SHARES OUTSTANDING AT
MAY 9, 2001: 15,878,798
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BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
Number
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets - March
31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash
Flows - Three months ended March 31, 2001 and 5
2000
Notes to Condensed Consolidated Financial 6
Statements
Item 2: Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosure 12
about Market Risk
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports 13
Signatures 14
Exhibit Index 15
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BELL MICROPRODUCTS INC.
Condensed Consolidated Balance Sheets
(in thousands)
March 31,
2001 December 31,
(unaudited) 2000
---------- ------------
ASSETS
Current assets:
Cash $ 5,043 $ 7,465
Accounts receivable, net 299,654 295,572
Inventories 216,756 246,671
Prepaid expenses and other current assets 11,709 11,906
---------- ----------
Total current assets 533,162 561,614
Property and equipment, net 44,641 44,436
Goodwill and other intangibles, net 45,946 46,439
Deferred debt issuance costs and other assets 8,583 8,718
---------- ----------
Total assets $ 632,332 $ 661,207
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 211,708 $ 231,132
Borrowings under lines of credit 52,831 52,633
Short-term note payable and current portion
of long-term notes payable to RSA 88,107 90,500
Other accrued liabilities 45,120 50,539
---------- ----------
Total current liabilities 397,766 424,804
Borrowings under line of credit 202 249
Long-term notes payable to RSA and mortgage
payable 100,736 101,640
Other long-term liabilities 4,815 4,982
---------- ----------
Total liabilities 503,519 531,675
---------- ----------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 40,000
shares authorized; 15,877 and 15,793
issued and outstanding 75,661 75,154
Retained earnings 54,598 54,472
Accumulated other comprehensive income (1,446) (94)
---------- ----------
Total shareholders' equity 128,813 129,532
---------- ----------
Total liabilities and shareholders' equity $ 632,332 $ 661,207
========== ==========
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)
----------------------------
Three months ended March 31,
2001 2000
--------- ----------
Net sales $ 535,523 $ 366,270
Cost of sales 490,101 337,012
--------- ---------
Gross profit 45,422 29,258
Selling, general and administrative expenses 39,626 21,355
--------- ---------
Income from operations 5,796 7,903
Interest expense (5,579) (2,369)
--------- ---------
Income before income taxes 217 5,534
Provision for income taxes 91 2,324
--------- ---------
Net income $ 126 $ 3,210
========= =========
Earnings per share
Basic $ 0.01 $ 0.23
========= =========
Diluted $ 0.01 $ 0.21
========= =========
Shares used in per share calculation
Basic 15,842 13,964
========= =========
Diluted 17,417 14,981
========= =========
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)
Three months
ended March 31,
- -------------------------------------------------------------------------------
2001 2000
-------- --------
Cash flows from operating activities:
Income from operations: $ 126 $ 3,210
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,558 532
Provision for bad debts 2,277 2,072
Changes in assets and liabilities:
Accounts receivable (6,359) (33,342)
Inventories 29,915 25,422
Prepaid expenses and deferred income taxes 197 (967)
Other assets 135 (68)
Accounts payable (19,424) (2,032)
Other accrued liabilities (5,573) 1,344
-------- --------
Net cash provided by/(used in) operating activities 3,852 (3,829)
-------- --------
Cash flows from investing activities:
Acquisition of property, equipment and other, net (3,903) (1,534)
-------- --------
Net cash used in investing activities (3,903) (1,534)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit agreements 151 9,300
Repayment of long-term notes payable to RSA (3,500) --
Proceeds from issuance of Common Stock 507 1,056
Net borrowings on other long term liabilities 190 1,754
-------- --------
Net cash (used in)/provided by financing activities (2,652) 12,110
-------- --------
Effect of exchange rate changes on cash 281 (20)
Net increase/(decrease) in cash (2,422) 6,727
Cash at beginning of period 7,465 5,103
-------- --------
Cash at end of period $ 5,043 $ 11,830
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,261 $ 3,128
Income taxes $ 2,275 $ 758
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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 2000 Annual Report on Form 10-K. The operating results for the period
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2001. Prior year amounts have
been reclassified to conform with current presentation.
The Company operates in one business segment as a distributor of storage
products and systems as well as semiconductor and computer products and
peripherals to original equipment manufacturers (OEMs), value-added resellers
(VARs) and dealers in the United States, Canada, Europe and Latin America.
Computer products include disk, tape and optical drives and subsystems, drive
controllers, computers and board-level products. Semiconductor products include
memory, logic microprocessor, peripheral and specialty components. The Company
also provides a variety of value-added services to its customers, consisting of
computer storage solutions and services, including subsystem testing, software
loading, mass storage and computer systems integration, disk drive formatting
and testing, and the packaging of component kits to customer specifications.
Note 2 - Acquisitions and Divestitures:
All acquisitions below have been accounted for using the purchase method.
Accordingly, the results of operations of the acquired businesses are included
in the consolidated financial statements from the dates of acquisition.
Ideal Hardware Limited Acquisition
On August 3, 2000, the Company acquired all the capital stock of Ideal
Hardware Limited ("Ideal"), a wholly owned subsidiary of InterX plc. Ideal is a
United Kingdom-based, storage-centric distributor offering value-added programs
and services.
Ideal was acquired for a total purchase price of approximately $28.9
million which included cash paid of $19.9 million, UK tax liabilities assumed of
$4.5 million, deferred purchase price payable of $3.0 million and estimated
acquisition costs of $1.5 million. The deferred purchase price was paid on March
31, 2001.
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 subsidiaries in The Netherlands and Italy. 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 $7.0 million,
which included cash of $4.1 million, the issuance of 269,418 shares of the
Company's Common Stock and acquisition costs.
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 resulting from
stock options using the treasury stock method.
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On July 31, 2000 the Company declared a 3-for-2 split of its Common Stock.
The stock split was 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. Accordingly, the Basic and Diluted weighted average common shares
outstanding has been adjusted for all prior periods.
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
March 31,
-----------------------
2001 2000
------- -------
Net income $ 126 $ 3,210
======= =======
Weighted average common shares outstanding (Basic) 15,842 13,964
Effect of dilutive options 1,575 1,017
------- -------
Weighted average common share outstanding (Diluted) 17,417 14,981
======= =======
In the three months ended March 31, 2001 and 2000, the numbers of common
stock warrants and options excluded from diluted income per share calculations
because they were antidilutive were 852,383 and 0, respectively.
Note 4 - Lines of Credit and Term Loan:
On June 20, 2000, the Company entered into an agreement with Transamerica
Commercial Finance Corporation to provide $15 million in short-term financing to
the Company. The loan is secured by the Company's accounts receivable, has a
maturity date of June 20, 2001, and bears interest at 10.5%. The loan does not
require the Company to meet financial covenants. The loan balance outstanding at
March 31, 2001 was $10 million.
On July 6, 2000, the Company repaid in full its borrowings outstanding
under the California Bank and Trust line of credit (the "CBT Facility"), and
effective as of that date, the Company amended its agreement to decrease the
size of the line of credit to $50 million provided solely by California Bank &
Trust. At the Company's option, the borrowings under the amended line of credit
bear interest at California Bank & Trust's prime rate (8.0% at March 31, 2001)
or the adjusted LIBOR rate plus 1.75%. The balance outstanding on the revolving
line of credit at March 31, 2001 was $6.4 million. Obligations of the Company
under the revolving line of credit are secured by certain assets of the Company
and its subsidiaries. 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, payment of dividends,
repurchases of stock, investments and covenants regarding profitability. The
Company was in compliance with its bank covenants at March 31, 2001; 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 and is unable to obtain a waiver of noncompliance from its bank, the
Company's financial condition and results of operations would be materially
adversely affected.
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 at July 6, 2000 under the CBT Facility, $15 million
of borrowings outstanding at July 6, 2000 from Transamerica Commercial Finance
Corporation, and to finance the acquisition of Ideal. This subordinated debt
financing is comprised of $80 million bearing interest at
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9.125%, due June 30, 2001, and $100 million bearing interest at 9.0%, payable in
semi-annual principal installments of $3.5 million plus interest commencing
December 31, 2000, and in semi-annual principal installments of $8.5 million
commencing December 31, 2007. 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, asset dispositions, payment of dividends, and repurchases of stock. The
Company is also required to be in compliance with the covenants of all other
borrowing agreements. The Company is in compliance with its subordinated debt
financing covenants at March 31, 2001; 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.
On August 3, 2000, in connection with the acquisition of Ideal, the
Company assumed a $43 million borrowing facility with Lombard NatWest Limited
which is secured by substantially all of Ideal's accounts receivable, bears
interest at NatWest's base rate plus 1.5 % and expires on June 26, 2001. This
facility was increased to $60 million in October 2000. There are no financial
covenant requirements. At March 31, 2001, approximately $29 million was
outstanding under the NatWest borrowing facility. The acquisition of Ideal was
funded through borrowings under the RSA facility.
The Company is currently negotiating to refinance the $80 million RSA note
payable maturing on June 30, 2001, the CBT Facility maturing May 31, 2001, the
NatWest facility maturing on June 26, 2001 and to finance future growth. If the
Company is unable to obtain this financing, the Company's financial condition
and results of operations could be materially adversely affected.
On October 16, 2000, the Company entered into a $13.3 million mortgage
agreement with Lombard NatWest Limited related to the acquisition of a building
for Ideal. The mortgage has a term of five years, bears interest at LIBOR plus
1.5%. The Company has an interest rate swap agreement that effectively converts
the variable interest payable on the mortgage to a fixed rate of 7.42% for a
two-year period.
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.
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):
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
Net income $ 126 $ 3,210
Other comprehensive loss:
Foreign currency translation adjustments (1,352) (25)
-------- --------
Total comprehensive income/(loss) $ (1,226) $ 3,185
======== ========
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Accumulated other comprehensive income/(loss) presented in the
accompanying consolidated condensed balance sheets consists of cumulative
foreign currency translation adjustments.
Note 7 - Recently Issued Accounting Statements
Effective January 1, 2001 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative instruments
and Hedging Activities." SFAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The adoption of SFAS 133 on
January 1 did not have a material effect on the Company's financial position or
results of operation.
Note 8 - Geographic Information
The Company operates in one industry segment and markets its products
worldwide through its own direct sales force. The Company attributes revenues
from customers in different geographic areas based on the location of the
customer. Sales in the U.S. were 41% and 84% of total sales for the three months
ended March 31, 2001 and 2000, respectively.
(In thousands)
Three Months Ended March 31,
----------------------------
Geographic information consists of the following: 2001 2000
---------- -----------
Net sales:
North America $ 276,755 $ 307,288
Latin America 68,684 58,982
Europe 190,084 --
---------- -----------
Total $ 535,523 $ 366,270
========== ===========
March 31,
----------------------------
2001 2000
---------- -----------
Long-lived assets:
United States $ 49,792 $ 25,330
United Kingdom 49,029 --
Other foreign countries 349 20
---------- -----------
Total $ 99,170 $ 25,350
========== ===========
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 terminology 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 but not
limited to 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 storage 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,
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including its Annual Report on Form 10-K for the year ended December 31, 2000.
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. Because many factors are
unforeseeable, the foregoing should not be considered an exhaustive list.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Sales were $535.5 million for the quarter ended March 31, 2001, compared
to sales of $366.3 million for the quarter ended March 31, 2000, which
represented an increase of $169.2 million, or 46%. The increase in sales was
primarily attributable to the expansion of the customer base related to the
acquisitions of Ideal Hardware Limited ("Ideal") in August 2000, and Rorke Data,
Inc. ("RDI"), acquired in May 2000, offset by a decrease in sales in the U.S.
The Company's gross profit for the quarter ended March 31, 2001 was $45.4
million compared to $29.3 million for the quarter ended March 31, 2000, which
represented an increase of $16.1 million, or 55%. The increase in the dollar
amount of gross profit was primarily the result the acquisitions of Ideal and
RDI. As a percentage of sales, overall gross margins were 8.5% compared to 8.0%
in the same period last year. The favorable gross margin percentage increase was
primarily due to customer and product mix in North America and the acquisition
of RDI, partially offset by lower gross margin percentages for Ideal and FTI.
Selling, general and administrative expenses increased to $39.6 million
for the quarter ended March 31, 2001 from $21.4 million for the quarter ended
March 31, 2000, an increase of $18.2 million, or 85%. As a percentage of sales,
selling, general and administrative expenses increased in the first quarter of
2001 to 7.4% from 5.8% in the first quarter of 2000. The increase in expenses
was attributable to the acquisitions of Ideal and RDI, investments in strategic
programs and the Company's continuing effort to expand its sales and marketing
organization and strengthen its financial and administrative support.
Interest expense was $5.6 million for the quarter ended March 31, 2001 as
compared to $2.4 million in the same period last year. This increase was
primarily due to increased overall borrowings during the quarter for worldwide
working capital purposes and cash payments for the acquisitions of Ideal and
RDI. Interest rates on combined borrowings were also higher during the first
quarter of 2001 compared to the same quarter last year.
The effective income tax rate was 42.0% for the quarters ended March 31,
2001 and 2000.
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.
Net cash provided by operating activities for the three months ended March
31, 2001, was $3.9 million. The Company's inventories decreased as of March 31,
2001 to $216.8 million from $246.7 million as of December 31, 2000, primarily as
a result of reduced inventory purchases and receipts. The Company's accounts
payable decreased to $211.7 million as of March 31, 2001 from $231.1 million as
of December 31, 2000. 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.
On June 20, 2000, the Company entered into an agreement with Transamerica
Commercial Finance Corporation to provide up to $15 million in short-term
financing to the Company. The loan is secured by the Company's accounts
receivable, has a maturity date of June 20, 2001, and bears interest at 10.5%.
The loan does not require the Company to meet financial covenants. The loan
balance outstanding at March 31, 2001
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was $10 million.
On July 6, 2000, the Company repaid in full its borrowings outstanding
under the California Bank & Trust line of credit (the "CBT Facility"), and
effective as of that date, the Company amended its agreement to decrease the
size of the line of credit to $50 million provided solely by California Bank &
Trust. At the Company's option, the borrowings under the amended line of credit
bear interest at California Bank & Trust's prime rate (8.0% at March 31, 2001),
or the adjusted LIBOR rate plus 1.75%. The line of credit expires on May 31,
2001. The balance outstanding on the revolving line of credit at March 31, 2001
was $6.4 million. Obligations of the Company under the revolving line of credit
are secured by certain assets of the Company and its subsidiaries. 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, payment of dividends, repurchase of stock, and investments and
covenants regarding profitability. The Company is also required to be in
compliance with the covenants of all other borrowing agreements. The Company was
in compliance with its bank covenants at March 31, 2001; 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 and
is unable to obtain a waiver of noncompliance from its bank, the Company's
financial condition and results of operations would be materially adversely
affected.
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 at July 6, 2000 under the CBT Facility, $15 million
of borrowings outstanding at July 6, 2000 from Transamerica Commercial Finance
Corporation, and to finance the acquisition of Ideal. This subordinated debt
financing is comprised of $80 million bearing interest at 9.125%, due June 30,
2001, and $100 million bearing interest at 9.0%, payable in semi-annual
principal installments of $3.5 million plus interest installments commencing
December 31, 2000 and in semi-annual principal installments of $8.5 million
commencing December 31, 2007. 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, payment of dividends, and repurchase
of stock. The Company is also required to be in compliance with the covenants of
all other borrowing agreements. 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.
On August 3, 2000, the Company acquired Ideal Hardware Limited ("Ideal"),
for a combination of cash, assumption of liabilities and notes payable totaling
approximately $28.9 million, including acquisition costs. Liabilities assumed
included a $43 million borrowing facility with Lombard NatWest Limited (the
"NatWest" facility) which is secured by substantially all of Ideal's accounts
receivable, bears interest at NatWest's base rate plus 1.5% and expires on June
26, 2001. This facility was increased to $60 million in October 2000. There are
no financial covenant requirements. At March 31, 2000, approximately $29 million
was outstanding under the NatWest borrowing facility. The acquisition of Ideal
was funded through borrowings under the RSA facility.
On October 16, 2000, the Company exercised the option to purchase the
buildings occupied by Ideal for approximately $24.0 million. The purchase was
funded through existing cash resources under the NatWest borrowing facility of
approximately $11.0 million and a five-year mortgage of approximately $13.0
million bearing interest at LIBOR plus 1.5%. The mortgage is payable in
quarterly installments of approximately $290,000, plus interest, with a balloon
payment of approximately $7.2 million due November 2005.
On May 15, 2000, the Company acquired Rorke Data, Inc. ("RDI") and its
European subsidiaries for
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approximately $4.1 million in cash and 269,418 shares of the Company's common
stock. The acquisition was funded through borrowings under the Company's
revolving line of credit and newly issued shares of common stock.
The Company's future cash requirements will depend on numerous factors,
including potential acquisitions and the rate of growth of its sales. The
Company is focused on improving its capital structure and addressing its
financing needs. The Company is currently in negotiations with a financial
institution to obtain additional borrowing capacity in an amount up to $175
million to refinance the $80 million RSA note payable maturing June 30, 2001 and
the CBT Facility maturing May 31, 2001 and to finance future growth. The Company
also expects to refinance our NatWest facility that matures on June 26, 2001.
The Company believes these facilities will be sufficient to conduct its current
operations for the next 12 months. If the Company is unable to obtain these
financing facilities, the Company's financial condition and results of
operations could be materially adversely affected.
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% but will need to be paid and/or refinanced at or before its due date, and
any such refinancing may be at a different interest rate, including a
fluctuating rate. Upon the acquisition of Ideal, the Company assumed Ideal's
Lombard NatWest borrowing facility. Borrowings under this line averaged $38
million for the quarter ended March 31, 2001. In addition, the Company entered
into a $13.3 million variable rate mortgage with NatWest and also entered into
an interest rate swap agreement that fixed the interest on the mortgage at 7.42%
for a two-year period. Average borrowings outstanding on the variable rate
credit facility with California Bank and Trust were $6 million for the quarter
ended March 31, 2001. The CBT Facility and the NatWest Facility have interest
rates that are based on associated rates such as LIBOR and base or prime rates
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 refinancing of
the Company's short-term borrowing and based on actual borrowings under the CBT
Facility and NatWest Facility, an increase of 1% in such interest rate
percentages would increase the annual interest expense by approximately $1.2
million.
A substantial part of the Company's revenue and capital expenditures are
transacted in U.S. dollars, but the functional currency for foreign subsidiaries
is not the U.S. dollar. As a result of the Company or its subsidiaries entering
into transactions denominated in currencies other than their functional
currency, the Company recognized a foreign currency remeasurement loss of
$167,000 during the quarter ended March 31, 2001. The Company enters into
foreign forward exchange contracts to hedge certain balance sheet exposures
against future movements in foreign exchange rates. The gains and losses on the
forward exchange contracts are largely offset by gains or losses on the
underlying transactions and, consequently, a sudden or significant change in
foreign exchange rates should not have a material impact on future net income or
cash flows. 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 Ideal, 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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PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS
(a) Exhibits:
See Exhibit Index on page following Signatures.
Reports on Form 8-K:
None
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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: March 11, 2001
BELL MICROPRODUCTS INC.
BY: BENEDICTUS BORSBOOM
---------------------------------------
EXECUTIVE VICE PRESIDENT OF FINANCE
AND M&A
(PRINCIPAL FINANCIAL OFFICER)
BY: REMO E. CANESSA
---------------------------------------
VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
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BELL MICROPRODUCTS INC.
EXHIBIT INDEX
Form 10-Q
for
Quarter Ended March 31, 2001
Exhibit Number Description
10.1 Amendment dated October 19, 2000, to Employment
Agreement between the Company and W. Donald Bell
dated July 1, 1999
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