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, 2005
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 [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).
YES [X] NO [ ]
COMMON STOCK, $.01 PAR VALUE -- NUMBER OF SHARES OUTSTANDING AT AUGUST 5, 2005:
29,350,082
1
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - June 30, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Operations - Three months and
six months ended June 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3: Quantitative and Qualitative Disclosure about Market Risk 23
Item 4: Controls and Procedures 24
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 25
Item 6: Exhibits 25
Signatures 26
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
BELL MICROPRODUCTS INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
June 30, December 31,
2005 2004
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 23,010 $ 13,294
Accounts receivable, net 376,886 376,017
Inventories 266,953 271,797
Prepaid expenses and other current assets 25,754 24,676
-------- --------
Total current assets 692,603 685,784
Property and equipment, net 38,428 42,805
Goodwill 90,719 92,605
Intangibles, net 8,512 9,407
Deferred debt issuance costs and other assets 9,386 9,988
-------- --------
Total assets $839,648 $840,589
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $300,146 $307,373
Borrowings under lines of credit 17,814 17,577
Short-term note payable and current portion
of long-term notes payable 12,893 12,183
Other accrued liabilities 58,051 72,164
-------- --------
Total current liabilities 388,904 409,297
Borrowings under lines of credit 65,228 42,686
Long-term notes payable 156,204 160,905
Other long-term liabilities 4,218 5,011
-------- --------
Total liabilities 614,554 617,899
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common Stock, $0.01 par value, 80,000 shares
authorized; 29,247 and 28,672 issued and outstanding
170,824 167,705
Retained earnings 39,725 32,174
Accumulated other comprehensive income 14,545 22,811
-------- --------
Total shareholders' equity 225,094 222,690
-------- --------
Total liabilities and shareholders' equity $839,648 $840,589
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
BELL MICROPRODUCTS INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 788,471 $ 630,288 $ 1,592,419 $ 1,290,619
Cost of sales 731,341 581,220 1,477,990 1,192,264
----------- ----------- ----------- -----------
Gross profit 57,130 49,068 114,429 98,355
Selling, general and administrative expenses 46,463 43,191 91,908 85,922
----------- ----------- ----------- -----------
Operating income 10,667 5,877 22,521 12,433
Interest expense and other (5,562) (3,830) (10,380) (7,668)
----------- ----------- ----------- -----------
Income before income taxes 5,105 2,047 12,141 4,765
Provision for income taxes 1,930 996 4,590 2,002
----------- ----------- ----------- -----------
Net income $ 3,175 $ 1,051 $ 7,551 $ 2,763
=========== =========== =========== ===========
Income per share
Basic $ 0.11 $ 0.04 $ 0.26 $ 0.10
=========== =========== =========== ===========
Diluted $ 0.11 $ 0.04 $ 0.25 $ 0.10
=========== =========== =========== ===========
Shares used in per share calculation
Basic 28,999 27,194 28,897 27,131
=========== =========== =========== ===========
Diluted 29,696 27,659 29,665 27,869
=========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
BELL MICROPRODUCTS INC.
Condensed Consolidated Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
Six months ended June 30,
--------------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net income: $ 7,551 $ 2,763
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,536 6,001
Provision for bad debts 1,326 4,540
Loss on disposal of property, equipment and other 1 26
Deferred income taxes (148) (192)
Changes in assets and liabilities, net of effect of business
acquisitions:
Accounts receivable (14,062) (20,015)
Inventories 122 36,531
Prepaid expenses (1,044) 768
Other assets 573 (3,123)
Accounts payable (42,579) (39,733)
Other accrued liabilities (11,953) 7,460
--------- ---------
Net cash used in operating activities (54,677) (4,974)
--------- ---------
Cash flows from investing activities:
Acquisition of property, equipment and other (2,244) (1,830)
Proceeds from sale of property, equipment and other 81 26
Acquisition of new business, net of cash acquired - (33,101)
--------- ---------
Net cash used in investing activities (2,163) (34,905)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements 23,999 (60,678)
Changes in book overdraft 45,256 12,530
Repayment of long-term notes payable to RSA (3,500) (23,500)
Borrowings of notes and leases payable 108 110,395
Repayments of notes and leases payable (827) (612)
Proceeds from issuance of Common Stock 2,436 1,709
--------- ---------
Net cash provided by financing activities 67,472 39,844
--------- ---------
Effect of exchange rate changes on cash (916) (4)
--------- ---------
Net increase (decrease) in cash 9,716 (39)
Cash at beginning of period 13,294 4,904
--------- ---------
Cash at end of period $ 23,010 $ 4,865
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,037 $ 8,818
Income taxes $ 7,675 $ 1,137
Supplemental non-cash financing activities:
Issuance of restricted stock $ 798 $ 400
Common Stock issued for acquisition $ - $ 2,365
Change in fair value of interest rate swap $ 15 $ (952)
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation:
The accompanying interim condensed consolidated financial statements of
Bell Microproducts Inc. ("the Company") have been prepared in conformity with
accounting principles generally accepted in the United States of America (U.S.),
consistent in all material respects with those applied in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004. The preparation of
financial statements in conformity with accounting principles generally accepted
in the U.S. requires management to make estimates and judgments that affect the
amounts reported in the financial statements and accompanying notes. The
accounting estimates that require management's judgment of the most difficult
and subjective estimates include: revenue recognition; the assessment of
recoverability of goodwill and property, plant and equipment; the valuation of
inventory and accounts payable; estimates for the allowance for doubtful
accounts and sales return reserve; and the recognition and measurement of income
tax assets and liabilities. Interim results are subject to significant
variations and the results of operations for the three months and six months
ended June 30, 2005 are not necessarily indicative of the results to be expected
for the full year.
Year end condensed balance sheet data included in this interim report is
derived from audited financial statements. All other interim financial
information is unaudited, but reflects all normal adjustments, which are, in the
opinion of management, necessary to provide a fair statement of results for the
interim periods presented. The interim financial statements should be read in
connection with the financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 2004.
Certain prior year amounts have been reclassified to conform to the fiscal
2005 financial statement presentation. These reclassifications had no impact on
total assets, operating income or net income.
Cash book overdrafts of $77.1 million and $18.1 million as of June 30,
2005 and June 30, 2004, respectively, are included in accounts payable.
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. The
Company is one of the world's largest storage-centric value-added distributors
and a specialist in storage products and solutions. The Company's concentration
on data storage systems and products allows it to provide greater technical
expertise to its customers, form strategic relationships with key manufacturers
and provide complete storage solutions to its customers at many levels of
integration. The Company's storage products include:
- high-end computer and storage subsystems;
- Fibre Channel connectivity products;
- complete storage systems such as storage area networks (SAN), network
attached storage (NAS) and direct attached storage (DAS);
- storage management software;
- disk, tape and optical drives; and
- a broad selection of value-added services.
In addition, the Company has developed a proprietary LDI software
licensing system, which facilitates the sale and administration of software
licenses.
6
Note 2 - Acquisitions:
The acquisition below has been accounted for using the purchase method.
Accordingly, the results of operations of the acquired business is included in
the consolidated financial statements from the date of acquisition.
OpenPSL Holdings Limited Acquisition
On June 22, 2004, the Company acquired all of the outstanding capital
stock of OpenPSL Holdings Limited ("OpenPSL"), a privately held Company
headquartered in Manchester, United Kingdom, with branch offices in Dublin,
Ireland and Leeds, Bracknell and Nottingham, United Kingdom. The acquisition of
OpenPSL allows the Company to broaden its product offerings in a strategic
geography. OpenPSL is a leading value added distributor of enterprise, storage
and security products and related professional services to VARs, system
integrators and software companies in the UK and Ireland. Their line card of
franchised suppliers includes Hewlett Packard, IBM, Oracle, Veritas, Allied
Telesyn, Microsoft and others.
OpenPSL was acquired for a total purchase price of approximately $37.9
million which included cash of approximately $33.8 million, the issuance of
664,970 shares of the Company's Common Stock including Common Stock issued as
consideration for the first of two contingent incentive payments and acquisition
costs. The Company is obligated to pay up to an additional $4.0 million within
one year of the closing date as an additional contingent incentive payment to be
based upon earnings achieved during the first twelve months after acquisition.
The final allocation of the purchase price to acquired assets and assumed
liabilities based upon management estimates are as follows (in thousands):
Accounts receivable $ 30,721
Inventories 4,743
Equipment and other assets 2,419
Goodwill 31,059
Intangibles 3,671
Accounts payable (18,785)
Other accrued liabilities (9,203)
Notes payable (6,723)
--------
Total consideration $ 37,902
========
Other intangibles include customer and supplier relationships and
non-compete agreements with estimated useful lives of 4 years, 7 years and 2
years, respectively.
Pro forma disclosure (in thousands, except per share data):
Pro forma combined amounts for the three months and six months ended June
30, 2004 give effect to the acquisition of OpenPSL as if the acquisition had
occurred on January 1, 2004. The pro forma amounts do not purport to be
indicative of what would have occurred had the acquisition been made as of the
beginning of the period.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenue $ 788,471 $ 678,938 $1,592,419 $1,399,889
Net Income $ 3175 $ 849 $ 7,551 $ 3,832
Net income per share - basic $ 0.11 $ 0.03 $ 0.26 $ 0.14
Shares used in per share calculation - basic 28,999 27,194 28,897 27,131
Net income per share - diluted $ 0.11 $ 0.03 $ 0.25 $ 0.14
Shares used in per share calculation - diluted 29,696 27,659 29,665 27,869
7
Note 3 - Stock-Based Compensation Plans:
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, as amended, to options granted under the stock option plans and rights
to acquire stock granted under the Company's Stock Participation Plan,
collectively called "options." For purposes of this pro-forma disclosure, the
value of the options is estimated using a Black-Scholes option pricing model and
amortized ratably to expense over the options' vesting periods. Because the
estimated value is determined as of the date of grant, the actual value
ultimately realized by the employee may be significantly different.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
(in thousands except for per share amounts)
------------------------------------------------
2005 2004 2005 2004
-------- -------- -------- ---------
Net income as reported $ 3,175 $ 1,051 $ 7,551 $ 2,763
Add: Stock-based employee compensation
expense included in reported earnings, net
of tax 228 156 423 315
Deduct: Total stock-based employee
compensation expense determined
under fair value method, net of tax (806) (1,089) (1,600) (1,991)
-------- -------- -------- --------
Pro forma net income $ 2,597 $ 118 $ 6,374 $ 1,087
======== ======== ======== ========
Net income per share as reported:
Basic $ 0.11 $ 0.04 $ 0.26 $ 0.10
Diluted $ 0.11 $ 0.04 $ 0.25 $ 0.10
Pro forma net income per share: $ 0.09 $ 0.00 $ 0.22 $ 0.04
Basic $ 0.09 $ 0.00 $ 0.21 $ 0.04
Diluted
Weighted average shares used in per share Calculation:
Basic 28,999 27,194 28,897 27,131
Diluted 29,696 27,659 29,665 27,869
The following weighted average assumptions were used for grants in the
second quarter ended June 30, 2005 and 2004, respectively; expected volatility
of 72 and 74%, expected lives of 3.41 and 3.56 and risk free interest rates of
3.6% and 3.5%. The Company has not paid dividends and assumed no dividend yield.
The fair value of each purchase right issued under the Company's employee stock
purchase plan is estimated on the beginning of the offering period using the
Black-Scholes option-pricing model with substantially the same assumptions as
the option plans but with expected lives of .5 years.
SFAS No. 123 requires the use of option pricing models that were not
developed for use in valuing employee stock options. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
short-lived exchange traded options that have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including the option's expected life and the
price volatility of the underlying stock. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair value of
employee stock options.
8
Because additional stock options and stock purchase rights are expected to
be granted at varying times during the year, the above pro forma disclosures are
not considered by management to be representative of pro forma effects on
reported financial results for the year ended December 31, 2005, or for other
future periods.
OPTION EXCHANGE
On November 25, 2002, the Company made an exchange offer (the "Exchange")
to current officers and employees of the Company to exchange stock options held
by these employees for rights to receive shares of the Company's Common Stock
("Restricted Units"). The offer period ended December 31, 2002 and the
Restricted Units were issued on January 3, 2003 (the "Exchange Date"). Employee
stock options eligible for the Exchange had a per share exercise price of $11.75
or greater, whether or not vested ("Eligible Options"). The offer provided for
an exchange ratio of three option shares surrendered for each Restricted Unit to
be received subject to vesting terms.
The Restricted Units vest in one-fourth increments. If the employment of
an employee who participated in the Exchange terminates prior to the vesting,
the employee will forfeit the unvested shares of Restricted Units. As a result
of the Exchange, the Company issued 744,802 rights to receive Restricted Units
in return for 2,234,250 stock options. The total non-cash deferred compensation
charge over the vesting period of four years is approximately $4 million
computed based on the share price at the date of approval of $5.42 per share.
Actual compensation charges will be adjusted accordingly for forfeitures of
unvested shares related to subsequent employee terminations.
Note 4 - Intangible Assets:
The Company has acquired certain intangible assets through acquisitions
which include non-compete agreements, trademarks, trade names and customer and
supplier relationships. The carrying values and accumulated amortization of
these assets at June 30, 2005 and December 31, 2004 are as follows (in
thousands):
As of June 30, 2005
---------------------------------
Estimated Gross
Useful Life for Carrying Accumulated Net
Amortized Intangible Assets Amortization Amount Amortization Amount
- --------------------------- --------------- -------- ------------ -------
Non-compete agreements 2-6 years $ 1,620 $ (1,300) $ 320
Trademarks 20-40 years 4,518 (510) 4,008
Trade names 20 years 400 (61) 339
Customer/supplier relationships 4-10 years 5,023 (1,178) 3,845
------- --------- -------
Total $11,561 $ (3,049) $ 8,512
======= ========= =======
As of June 31, 2004
----------------------------------
Estimated Gross
Useful Life for Carrying Accumulated Net
Amortized Intangible Assets Amortization Amount Amortization Amount
- --------------------------- --------------- -------- ------------ --------
Non-compete agreements 2-6 years $ 1,623 $ (1,207) $ 416
Trademarks 20-40 years 4,835 (449) 4,386
Trade names 20 years 400 (51) 349
Customer/supplier relationships 4-10 years 5,023 (767) 4,256
------- -------- -------
Total $11,881 $ (2,474) $ 9,407
======= ======== =======
9
The estimated amortization expense of these assets in future fiscal years
is as follows (in thousands):
Estimated Amortization Expense
July 1, 2005 to December 31, 2005 $ 575
For year ending December 31, 2006 1,084
For year ending December 31, 2007 1,008
For year ending December 31, 2008 821
For year ending December 31, 2009 638
Thereafter 4,386
------
Total $8,512
======
Note 5 - 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. In computing diluted EPS, the
average stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options.
Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods presented below (in
thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
------- -------- ------- --------
Net income $ 3,175 $ 1,051 $ 7,551 $ 2,763
Weighted average common shares
outstanding (Basic) 28,999 27,194 28,897 27,131
Effect of dilutive options, restricted
stock grants and warrants 697 465 768 738
Weighted average common shares
outstanding (Diluted) 29,696 27,659 29,665 27,86
In the three months ended June 30, 2005 and 2004, total common stock
options, restricted stock grants and warrants excluded from diluted income per
share calculations because they were antidilutive were 1,189,675 and 2,270,757,
respectively.
Note 6 - Lines of Credit and Term Debt:
June 30, December 31,
LINES OF CREDIT (IN THOUSANDS) 2005 2004
-------- -----------
Congress Facility $ 228 $ 686
Wachovia Facility 65,000 42,000
Bank of America Facility 16,266 17,577
IFN Financing BV 1,548 -
------- -------
83,042 60,263
Less: amounts included in current liabilities 17,814 17,577
------- -------
Amounts included in non-current liabilities $65,228 $42,686
======= =======
10
On September 13, 2004, the Company entered into an amendment to its
syndicated Loan and Security Agreement with Congress Financial Corporation
(Western) ("Congress"), an affiliate of Wachovia Bank, N.A. ("Wachovia"), as
administrative, collateral and syndication agent for the lenders of the
revolving line of credit (the "Congress Facility"). The amendment reduced the
Congress Facility from $160 million to $125 million, and extended the maturity
date to July 31, 2007. The syndicate includes Bank of America N.A. as co-agent
and other financial institutions as lenders. Borrowings under the Congress
Facility bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%,
based on unused availability levels. At the Company's option, all or any portion
of the outstanding borrowings may be converted to a Eurodollar rate loan, which
bears interest at the adjusted Eurodollar rate plus a margin of 1.50% to 2.00%,
based on unused availability levels. The Company also pays an unused line fee
equal to 0.375% per annum of the unused portion of the facility, subject to
certain adjustments. The average interest rate on outstanding borrowings under
the Congress Facility during the quarter ended June 30, 2005 was 5.83%, and the
balance outstanding at June 30, 2005 was $228,000. Obligations of the Company
under the Congress Facility are collateralized by certain assets of the Company
and its North and South American subsidiaries. The Congress Facility 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, capital contributions, payment of
dividends, repurchases of stock and investments.
On September 20, 2004, and as further amended in January 2005, Bell
Microproducts, (the parent company only) ("Bell") entered into a securitization
program with Wachovia Bank, National Association ("Wachovia") and Blue Ridge
Asset Funding Corporation ("Blue Ridge"), an affiliate of Wachovia, which
expires on September 20, 2007 ("Wachovia Facility"). Under the program, Bell
will sell or contribute all of its receivables to a newly created special
purpose bankruptcy remote entity named Bell Microproducts Funding Corporation
("Funding"), a wholly-owned subsidiary of Bell. Funding will obtain financing
from Blue Ridge or Wachovia and other liquidity banks collateralized by the
receivables to pay a portion of the purchase price for the receivables. The
balance of the purchase price will be paid by advances made by Bell to Funding
under a subordinated note of Funding payable to Bell and by capital
contributions from Bell to Funding. The maximum principal amount available for
Funding's credit facility is $90 million. The interest rate on advances made by
Blue Ridge shall be the cost of Blue Ridge's commercial paper. In addition,
Funding pays a program fee in the amount of 95 basis points per annum on the
portion of the advances funded by Blue Ridge's commercial paper. The interest
rate on advances made by Wachovia and other liquidity banks shall be either an
alternate base rate (which is the higher of the "prime rate" as announced by
Wachovia, or 0.50% above the federal funds effective rate), or a rate based on
an adjusted LIBO rate plus 1.50%. Funding also pays an unused line fee ranging
from 0.20% to 0.25% per annum of the unused portion of the facility. Bell acts
as a servicer for Funding and will collect all amounts due under, and take all
action with respect to, the receivables for the benefit of Funding and its
lenders. In exchange for these services, Bell receives a servicing fee
determined on an arms-length basis. The cash flow from the collections of the
receivables will be used to purchase newly generated receivables, to pay amounts
to Funding's lenders, to pay down on the subordinated note issued to Bell and to
make dividend distributions to Bell (subject at all times to the required
capital amount being left in Funding). Including the program fee, the average
interest rate on outstanding borrowings under the securitization program for the
quarter ended June 30, 2005 was 3.97%, and the balance outstanding at June 30,
2005 was $65 million. Obligations of Funding under the Wachovia Facility are
collateralized by all of Funding's assets. The Wachovia Facility requires
Funding (and in certain circumstances, Bell) to meet certain financial tests and
to comply with certain other covenants including restrictions on changes in
structure, incurrence of debt and liens, payment of dividends and distributions,
and material modifications to contracts and credit and collections policy.
On December 2, 2002, as further amended in December 2004, the Company
entered into a Syndicated Credit Agreement arranged by Bank of America, National
Association ("Bank of America facility"), as principal agent, to provide a
(pound)75 million revolving line of credit facility, or the U.S. dollar
equivalent of approximately $134 million at June 30, 2005. The Bank of America
facility matures on July 15, 2006. The syndicate includes Bank of America as
agent and security trustee and other banks and financial institutions, as
lenders. Borrowings under the line of credit bear interest at Bank of America's
base rate plus a margin of 2.25% to 2.50%, based on certain financial
measurements. At the Company's option, all or any portion of the
11
outstanding borrowings may be converted to a LIBOR Revolving Loan, which bears
interest at the adjusted LIBOR rate plus a margin of 2.25% to 2.50%, based on
certain financial measurements. The average interest rate on the outstanding
borrowings under the revolving line of credit during the quarter ended June 30,
2005 was 6.8%, and the balance outstanding at June 30, 2005 was $16.3 million.
Obligations of the Company under the revolving line of credit are collateralized
by certain assets of the Company's European subsidiaries. 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, capital
contributions, payment of dividends, repurchases of stock, repatriation of cash
and investments.
The Company's agreement with IFN Finance BV was amended in December 2004
to reduce its $7.5 million in short-term financing to $4.7 million. The loan is
collateralized by certain European accounts receivable and inventories, bears
interest at 5.5%, and continues indefinitely until terminated by either party
upon 90 days notice. The average interest rate on the outstanding borrowings
under this facility during the quarter ended June 30, 2005 was 5.5%, and the
balance outstanding at June 30, 2005 was $1.5 million.
June 30, December 31,
TERM LOANS (IN THOUSANDS) 2005 2004
-------- -----------
Convertible Notes $110,000 $110,000
Note payable to RSA, net 48,025 51,509
Bank of Scotland Mortgage 9,043 10,150
HSBC Bank plc Mortgage 837 897
-------- --------
167,905 172,556
Less: amounts due in current year 11,701 11,651
-------- --------
Long-term debt due after one year $156,204 $160,905
======== ========
On March 5, 2004, the Company completed a private offering of $110 million
aggregate principal amount of 3 3/4% convertible subordinated notes due 2024
(the "Old Notes"). On December 20, 2004, the Company completed its offer to
exchange its newly issued 3 3/4% Convertible Subordinated Notes, Series B due
2024 (the "New Notes") for an equal amount of its outstanding Old Notes.
Approximately $109,600,000 aggregate principal amount of the Old Notes,
representing approximately 99.6%of the total principal amount of Old Notes
outstanding, were tendered in exchange for an equal principal amount of New
Notes. The New Notes mature on March 5, 2024 and bear interest at the rate of 3
3/4% per year on the principal amount, payable semi-annually on March 5 and
September 5, beginning on March 5, 2005. Holders of the New Notes may convert
the New Notes any time on or before the maturity date if certain conversion
conditions are satisfied. Upon conversion of the New Notes, the Company will be
required to deliver, in respect of each $1,000 principal of New Notes, cash in
an amount equal to the lesser of (i) the principal amount of each New Note to be
converted and (ii) the conversion value, which is equal to (a) the applicable
conversion rate, multiplied by (b) the applicable stock price. The initial
conversion rate is 91.2596 shares of common stock per New Note with a principal
amount of $1,000 and is equivalent to an initial conversion price of
approximately $10.958 per share. The conversion rate is subject to adjustment
upon the occurrence of certain events. The applicable stock price is the average
of the closing sales prices of the Company's common stock over the five trading
day period starting the third trading day following the date the New Notes are
tendered for conversion. If the conversion value is greater than the principal
amount of each New Note, the Company will be required to deliver to holders upon
conversion, at its option, (i) a number of shares of the Company's common stock,
(ii) cash, or (iii) a combination of cash and shares of the Company's common
stock in an amount calculated as described in the prospectus filed by the
Company in connection with the exchange offer. In lieu of paying cash and shares
of the Company's common stock upon conversion, the Company may direct its
conversion agent to surrender any New Notes tendered for conversion to a
financial institution designated by the Company for exchange in lieu of
conversion. The designated financial institution must agree to deliver, in
exchange for the New Notes, (i) a number of shares of the Company's common stock
equal to the applicable conversion rate, plus cash for any fractional shares, or
(ii) cash or (iii) a combination of cash and shares of the Company's common
stock. Any New Notes
12
exchanged by the designated institution will remain outstanding. The Company may
redeem some or all of the New Notes for cash on or after March 5, 2009 and
before March 5, 2011 at a redemption price of 100% of the principal amount of
the New Notes, plus accrued and unpaid interest up to, but excluding, the
redemption date, but only if the closing price of the Company's common stock has
exceeded 130% of the conversion price then in effect for at least 20 trading
days within a 30 consecutive trading day period ending on the trading day before
the date the redemption notice is mailed. The Company may redeem some or all of
the New Notes for cash at any time on or after March 5, 2011 at a redemption
price equal to 100% of the principal amount of the New Notes, plus accrued and
unpaid interest up to, but excluding, the redemption date. The Company may be
required to purchase for cash all or a portion of the New Notes on March 5,
2011, March 5, 2014 or March 5, 2019, or upon a change of control, at a purchase
price equal to 100% of the principal amount of the new notes being purchased,
plus accrued and unpaid interest up to, but excluding, the purchase date.
On July 6, 2000, and as amended on May 3, 2004, 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. This subordinated debt financing
was comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and
$100 million bearing interest at 9.0%, payable in semi-annual principal
installments of $3.5 million plus interest and in semi-annual principal
installments of $8.5 million commencing December 31, 2007, with a final maturity
date of June 30, 2010. On August 1, 2003, the Company entered into an interest
rate swap agreement with Wachovia Bank effectively securing a new interest rate
on $40 million of the outstanding debt. The new rate is based on the six month
U.S. Libor rate plus a fixed margin of 4.99% and continues until termination of
the agreement on June 30, 2010. The notional amount of the interest rate swap
decreases ratably as the underlying debt is repaid. The notional amount at June
30, 2005 was $36.5 million. The Company initially recorded the interest rate
swap at fair value, and subsequently records changes in fair value as an offset
to the related liability. At June 30, 2005, the fair value of the interest rate
swap was ($475,000). The RSA facility is collateralized by a second lien on
certain of 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 of 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 certain other borrowing agreements. The balance outstanding at June
30, 2005 on this long-term debt was $48.5 million, $7 million is payable in
years 2005 and 2006, $7.9 million is payable in 2007 and $26.6 million
thereafter. Net of the fair value of the interest rate swap, the balance
outstanding on the RSA facility at June 30, 2005 was $48.0 million.
On May 9, 2003, the Company entered into a mortgage agreement with Bank of
Scotland for (pound)6 million, or the U.S. dollar equivalent of approximately
$10.8 million, as converted at June 30, 2005. The new mortgage agreement fully
repaid the borrowings outstanding under the previous mortgage agreement with
Lombard NatWest Limited, has a term of 10 years, bears interest at Bank of
Scotland's rate plus 1.35%, and is payable in quarterly installments of
approximately (pound)150,000, or $269,000 USD, plus interest. The principal
amount due each year is approximately $1.1 million. The balance of the mortgage
as converted to USD at June 30, 2005 was $9.0 million. Terms of the mortgage
require the Company to meet certain financial ratios and to comply with certain
other covenants on a quarterly basis.
On June 22, 2004, in connection with the acquisition of OpenPSL, the
Company assumed a mortgage with HSBC Bank plc ("HSBC") for an original amount of
(pound)670,000, or the U.S. dollar equivalent of approximately $1.2 million. The
mortgage has a term of ten years, bears interest at HSBC's rate plus 1.25% and
is payable in monthly installments of approximately (pound)7,600, or $13,617
U.S. dollars. The balance on the mortgage was $837,000 at June 30, 2005.
The Company was in compliance with its bank and subordinated debt
financing covenants at June 30, 2005; 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, and is unable to
obtain a waiver of noncompliance from its lenders, the Company's financial
condition, results of operations and cash flows would be materially adversely
affected.
13
Note 7 - Restructuring Costs and Special Charges:
In the second quarter of 2004, the Company was released from certain
contractual obligations related to excess facilities in the U.S. for which
restructuring charges had been recorded in 2002. Accordingly, the Company
released approximately $300,000 of its restructuring reserve related to that
facility. Additionally, the Company revised its estimates for future lease
obligations for non-cancelable lease payments for excess facilities in Europe
and recorded an additional $300,000 of restructuring charges.
In 2001 and continuing through 2003, the Company implemented a profit
improvement plan which included a worldwide workforce reduction, consolidation
of excess facilities, and restructuring of certain vendor relationships and
product offerings. The liability for restructuring costs is recorded in other
accrued liabilities in the Consolidated Balance Sheets.
At June 30, 2005, outstanding liabilities related to these restructuring
and special charges are summarized as follows (in thousands):
Severance Lease
Costs Costs Total
---------- -------- ---------
Balance at January 1, 2004 $ 234 $ 1,327 $ 1,561
Restructuring and special charges - 300 300
Restructuring reserve release - (300) (300)
Cash payments (234) (618) (852)
------- ------- -------
Balance at December 31, 2004 - 709 709
Restructuring and special charges - - -
Cash payments - (118) (118)
------- ------- -------
Balance at June 30, 2005 $ - $ 591 $ 591
======= ======= =======
Note 8 - Product Warranty Liabilities:
The Company accrues for known warranty claims if a loss is probable and
can be reasonably estimated, and accrues for estimated incurred but unidentified
warranty claims based on historical activity. Provisions for estimated returns
and expected warranty costs are recorded at the time of sale and are adjusted
periodically to reflect changes in experience and expected obligations. The
Company's warranty reserve relates primarily to its storage solutions and value
added businesses. Reserves for warranty items are included in other accrued
liabilities. At June 30, 2005 product warranty liabilities were approximately
$1.3 million. The provision has had no material change from December 31, 2004.
Note 9 - Commitments and Contingencies:
The Company is currently a party to various claims and legal proceedings
arising in the normal course of business. If management believes that a loss is
probable and can reasonably be estimated, the Company records the amount of the
loss, or the minimum estimated liability when the loss is estimated using a
range and no point within the range is more probable than another. As additional
information becomes available, any potential liability related to these actions
is assessed and the estimates are revised, if necessary. Based on currently
available information, management believes that the ultimate outcome of any
actions, individually and in the aggregate, will not have a material adverse
effect on the Company's financial position, results of operations and cash
flows.
14
In August 2003, the Company entered into an interest rate swap agreement
in order to gain access to the lower borrowing rates normally available on
floating-rate debt, while avoiding prepayment and other costs that would be
associated with refinancing long-term fixed-rate debt. The swap purchased has a
notional amount of $40 million, expiring in June 2010, with a six-month
settlement period and provides for variable interest at LIBOR plus a set rate
spread. The notional amount decreases ratably as the underlying debt is repaid.
The notional amount at June 30, 2005 was $36.5 million. The notional amount does
not quantify risk or represent assets or liabilities, but rather, is used in the
determination of cash settlement under the swap agreement. As a result of
entering into this swap, the Company is exposed to credit losses from
counter-party non-performance; however, the Company does not anticipate any such
losses from this agreement, which is with a major financial institution. The
agreement will also expose the Company to interest rate risk should LIBOR rise
during the term of the agreement. This swap agreement is accounted for as a fair
value hedge under Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
Under the provisions of SFAS 133, the interest rate swap was initially recorded
at fair value, and subsequently any changes in fair value were recorded as an
offset to the related liability. Fair value is determined based on quoted market
prices, which reflect the difference between estimated future variable-rate
payments and future fixed-rate receipts. The fair value of the interest rate
swap was ($475,000) at June 30, 2005.
Note 10 - Newly Issued or Recently Effective Accounting Pronouncements:
In December 2004, the FASB issued SFAS No. 123(R) ("SFAS 123(R)"),
"Share-Based Payment", which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS 123(R) supersedes APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and its related implementation
guidance. SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values. The Company currently accounts for its employee
stock options in accordance with APB 25 while disclosing the pro forma effect of
the options and restricted stock grants had they been recorded under the fair
value method. As required by the Statement as amended by the Securities and
Exchange Commission in April 2005, the Company plans to adopt the revised
Statement in its quarter ending March 31, 2006. The Company is in the process of
evaluating the impact of the adoption of this standard on their financial
statements.
On March 29, 2005, the SEC issued SAB 107, which provides guidance on the
interaction between SFAS 123(R), Shared-Based Payment, and certain SEC rules and
regulations. SAB 107 provides guidance that may simplify some of FAS 123(R)'s
implementation challenges and enhance the information that investors receive.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 153 ("SFAS 153"), "Exchanges of
Non-monetary Assets," an amendment of APB Opinion No. 29. The guidance in APB
Opinion No. 29, Accounting for Non-monetary Transactions, is based on the
principle that exchanges of non-monetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however,
included certain exceptions to that principle. SFAS 153 amends Opinion 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. This Statement is effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005, and should be applied prospectively. The adoption of SFAS 153 did not
have a material impact on the Company's consolidated financial position, results
of operations, or cash flows.
In June 2005, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 154, Accounting Changes and Error Corrections ("SFAS 154"),
which will require entities that voluntarily make a change in accounting
principle to apply that change retrospectively to prior periods' financial
statements, unless this would be impracticable. SFAS 154 supersedes Accounting
Principles Board Opinion No. 20, Accounting Changes ("APB 20"), which previously
required that most voluntary changes in accounting
15
principle be recognized by including in the current period's net income the
cumulative effect of changing to the new accounting principle. SFAS 154 also
makes a distinction between "retrospective application" of an accounting
principle and the "restatement" of financial statements to reflect the
correction of an error. Another significant change in practice under SFAS 154
will be that if an entity changes its method of depreciation, amortization, or
depletion for long-lived, non-financial assets, the change must be accounted for
as a change in accounting estimate. Under APB 20, such a change would have been
reported as a change in accounting principle. SFAS 154 applies to accounting
changes and error corrections that are made in fiscal years beginning after
December 15, 2005. The Company does not anticipate material impact from this
standard on the Company's consolidated financial position, results of operations
or cash flows.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" (FIN 47). FIN 47 requires an entity to
recognize a liability for a legal obligation to perform an asset retirement
activity in which the timing and (or) method of the settlement are conditional
on a future event. The liability must be recognized if the fair value of the
liability can be reasonably estimated. FIN 47 is effective as of December 31,
2005. The Company is in the process of evaluating the impact of the adoption of
this standard on their consolidated financial statements.
Note 11 - 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 is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2005 2004 2005 2004
------- ------- ------- ------
Net income $ 3,175 $ 1,051 $ 7,551 $2,763
Other comprehensive income:
Foreign currency translation
adjustments (5,958) (2,284) (8,266) 472
------- ------- ------- ------
Total comprehensive income (loss) $(2,783) $(1,233) $ (715) $3,235
======= ======= ======= ======
Accumulated other comprehensive income presented in the accompanying
condensed consolidated balance sheets consists of cumulative foreign currency
translation adjustments.
Note 12 - 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 39% and 37% of total sales for the six months
ended June 30, 2005 and 2004, respectively.
(In thousands)
Six Months Ended June 30,
2005 2004
---------- ----------
Geographic information consists of the following:
Net sales:
North America $ 679,136 $ 520,583
Latin America 191,195 172,107
Europe 722,088 597,929
---------- ----------
Total $1,592,419 $1,290,619
========== ==========
16
June 30, December 31,
2005 2004
-------- ------------
Long-lived assets:
United States $ 14,313 $ 18,274
United Kingdom 31,516 35,049
Other foreign countries 1,985 1,783
-------- --------
Total $ 47,814 $ 55,106
======== ========
Note 13 - Subsequent Events:
On July 8, 2005, the Company acquired Net Storage Computers, LTDA. ("Net
Storage"), for cash of approximately $3.0 million. Net Storage is a privately
held distributor of storage products and peripherals, headquartered in Sao
Paulo, Brazil, with sales offices in Belo Horizonte, Porto Alegre, Recife, Rio
de Janeiro and Tambore. Based on Net Storage's unaudited financial statements,
sales were approximately $25 million for the year ended December 31, 2004.
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. Any statement that is not a historical fact, including statements
regarding estimates, projections, future trends and the outcome of events that
have not yet occurred, is a forward-looking statement. Our forward-looking
statements generally relate to IT market growth in 2005, market share gains and
significant earnings improvements during 2005. 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 our ability to reduce and
control costs, our ability to service our debt, our ability to take advantage of
beneficial vendor pricing and rebate programs from time to time, the timing of
delivery of products from suppliers, the product mix sold by us, the integration
of acquired businesses, customer demand, our 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 us, management of growth, our
ability to collect accounts receivable in a timely manner, price decreases on
inventory that is not price protected, our ability to negotiate credit
facilities, currency exchange rates, potential interest rate fluctuations as
described below and the other risk factors detailed in our filings with the SEC,
including our Annual Report on Form 10-K for the year ended December 31, 2004.
We assume 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.
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
The second quarter of 2005 was another good quarter for our company. We
grew sales by 25% as compared to the same period last year, or more than $158
million, and posted a strong improvement in profitability. We generated revenue
improvement in all geographies and most major product categories during the
quarter as compared to the same period in 2004. We continued to demonstrate our
ability to increase sales at above-market growth rates, and we significantly
improved our operating margin to 1.35%, as compared to 0.93% in the same period
last year.
17
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
Net sales were $788.5 million for the quarter ended June 30, 2005,
compared to net sales of $630.3 million for the quarter ended June 30, 2004,
which represented an increase of $158.2 million, or 25%. The sales increase was
driven by an increase of $94.1 million in Components and Peripherals sales as
well as an increase of $64.1 million in Solutions sales. The increase in sales
of Components and Peripherals was due primarily to growth in Components sales in
North and South America. The Solutions sales increase was due to the acquisition
of OpenPSL Limited ("OpenPSL") in June of 2004, and growth in the North American
market for these products. OpenPSL contributed approximately $56 million of our
Solutions sales in the quarter ended June 30, 2005 and $23 million in the
quarter ended June 30, 2004.
Our gross profit for the quarter ended June 30, 2005 was $57.1 million
compared to $49.1 million for the quarter ended June 30, 2004, which represented
an increase of $8.0 million, or 16%. The increase in gross profit was primarily
due an increase in sales volume and the acquisition of OpenPSL in June 2004.
OpenPSL contributed approximately $6.9 million in the quarter ended June 30,
2005 and $2.1 million in the quarter ended June 30, 2004. Gross margin decreased
to 7.2% in the current quarter from 7.8% in the same period last year, primarily
due to overall margin declines in our business resulting from competitive market
conditions.
Selling, general and administrative expenses increased to $46.5 million
for the quarter ended June 30, 2005, from $43.2 million for the quarter ended
June 30, 2004, an increase of $3.3 million, or 8%. The increase in expenses was
primarily attributable to our acquisition of OpenPSL which added approximately
$4.3 million to our consolidated expenses. Excluding the OpenPSL expenses in the
second quarter of 2005, expenses decreased $1.0 million as compared to last
year. As a percentage of sales, selling, general and administrative expenses
decreased in the second quarter of 2005 to 5.9% from 6.9% in the second quarter
of 2004.
Interest expense and other increased to $5.6 million for the quarter ended
June 30, 2005 from $3.8 million in the same period last year. This increase was
primarily due to an increase in average borrowings outstanding under our credit
facilities during the quarter and an increase in interest rates. The average
interest rate in the second quarter of 2005 increased to 5.8% from 5.3% in the
same period last year.
The effective tax rate was 38% in the quarter ended June 30, 2005,
compared to an effective tax rate of 49% for the quarter ended June 30, 2004.
The decrease in the effective rate was primarily related to the implementation
of tax planning strategies and a shift to profitability in certain foreign
jurisdictions with valuation allowances.
Restructuring Costs and Special Charges
In the second quarter of 2004, the Company was released from certain
contractual obligations related to excess facilities in the U.S. for which
restructuring charges had been recorded in 2002. Accordingly, the Company
released approximately $300,000 of its restructuring reserve related to that
facility. Additionally the Company revised its estimates for future lease
obligations for non-cancelable lease payments for excess facilities in Europe
and recorded an additional $300,000 of restructuring charges.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
Net sales were $1,592.4 million for the six months ended June 30, 2005,
compared to sales of $1,290.6 million for the six months ended June 30, 2004,
which represented an increase of $301.8 million, or 23%. The sales increase was
driven by an increase of $173.7 million in Components and Peripherals sales as
well as an increase of $128.3 million in Solutions sales. The increase in sales
of Components and Peripherals was due to world wide growth in Components sales,
primarily in North America and Europe. The Solutions sales increase was due to
the acquisition of OpenPSL Limited ("OpenPSL") in June of 2004, and growth in
the North American market for these products. OpenPSL contributed approximately
$116 million of our Solutions sales in the six months ended June 30, 2005 and
$23 million in the same period last year.
18
The Company's gross profit for the nine months ended June 30, 2005 was
$114.4 million, compared to $98.4 million for the six months ended June 30,
2004, which represented an increase of $16.0 million, or 16%. The increase was
primarily attributable to the impact of sales volume increases and the
acquisition of OpenPSL, offset by a decrease in gross margins as compared to the
same period last year. As a percentage of sales, overall gross margins decreased
to 7.2%, from to 7.6% primarily due to overall margin declines in our business
resulting from competitive market conditions.
Selling, general and administrative expenses increased to $91.9 million
for the six months ended June 30, 2005 from $85.9 million for the six months
ended June 30, 2004, an increase of $6.0 million, or 7%. The increase in
expenses was primarily attributable to the impact of sales volume increases, The
increase in expenses was primarily attributable to our acquisition of OpenPSL
and the impact of sales volume increases. OpenPSL added approximately $4.3
million to our consolidated expenses. Excluding the OpenPSL expenses in the six
months ended June 30, 2005, expenses increased $1.7 million as compared to the
same period last year. As a percentage of sales, selling, general and
administrative expenses decreased in the first half of 2005 to 5.8% from 6.7% in
the same period last year.
Interest expense and other was $10.4 million in the six months ended June
30, 2005, as compared to $7.7 million in the same period last year. This
increase was primarily due to an increase in average borrowings outstanding
under our credit facilities during the period and an increase in interest rates.
The average interest rate in the first half of 2005 increased to 5.7% from 5.6%
in the same period last year.
The effective tax rate was 38% in the six months ended June 30, 2005,
compared to an effective tax rate of 42% for the six months ended June 30, 2004.
The decrease in the effective rate was primarily related to the implementation
of tax planning strategies and a shift to profitability in certain foreign
jurisdictions with valuation allowances.
Restructuring Costs and Special Charges
In the second quarter of 2004, the Company was released from certain
contractual obligations related to excess facilities in the U.S. for which
restructuring charges had been recorded in 2002. Accordingly, the Company
released approximately $300,000 of its restructuring reserve related to that
facility. Additionally the Company revised its estimates for future lease
obligations for non-cancelable lease payments for excess facilities in Europe
and recorded an additional $300,000 of restructuring charges.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, we have funded our working capital requirements
principally through borrowings under subordinated term loans and bank lines of
credit, as well as proceeds from warrants and stock option exercises. Working
capital requirements have included the financing of increases in inventory and
accounts receivable resulting from sales growth, and the financing of certain
acquisitions. Our future cash requirements will depend on numerous factors,
including potential acquisitions and the rate of growth of our sales and our
effectiveness at controlling and reducing costs.
Net cash used in operating activities for the six months ended June 30,
2005, was $54.7 million. Excluding the cash book overdraft, net cash used in
operating activities was $9.4 million. Our inventories decreased as of June 30,
2005 to $267 million from $271.8 million as of December 31, 2004, and our
accounts payable decreased to $300.1 million as of June 30, 2005 from $307.4
million as of December 31, 2004. Our accounts receivable increased to $376.9
million as of June 30, 2005, from $376.0 million as of December 31, 2004. Other
accrued liabilities decreased to $58.1 million as of June 30, 2005 from $72.2
million as of December 31, 2004 primarily due to changes in VAT liabilities and
income taxes payable.
19
On March 5, 2004, we completed a private offering of $110 million
aggregate principal amount of 3 3/4% convertible subordinated notes due 2024
(the "Old Notes"). On December 20, 2004, we completed our offer to exchange our
newly issued 3 3/4% Convertible Subordinated Notes, Series B due 2024 (the "New
Notes") for an equal amount of our outstanding Old Notes. Approximately
$109,600,000 aggregate principal amount of the Old Notes, representing
approximately 99.6% of the total principal amount of Old Notes outstanding, were
tendered in exchange for an equal principal amount of New Notes. The New Notes
mature on March 5, 2024 and bear interest at the rate of 3 3/4% per year on the
principal amount, payable semi-annually on March 5 and September 5, beginning on
March 5, 2005. Holders of the New Notes may convert the New Notes any time on or
before the maturity date if certain conversion conditions are satisfied. Upon
conversion of the New Notes, we will be required to deliver, in respect of each
$1,000 principal of New Notes, cash in an amount equal to the lesser of (i) the
principal amount of each New Note to be converted and (ii) the conversion value,
which is equal to (a) the applicable conversion rate, multiplied by (b) the
applicable stock price. The initial conversion rate is 91.2596 shares of common
stock per New Note with a principal amount of $1,000 and is equivalent to an
initial conversion price of approximately $10.958 per share. The conversion rate
is subject to adjustment upon the occurrence of certain events. The applicable
stock price is the average of the closing sales prices of our common stock over
the five trading day period starting the third trading day following the date
the New Notes are tendered for conversion. If the conversion value is greater
than the principal amount of each New Note, we will be required to deliver to
holders upon conversion, at its option, (i) a number of shares of our common
stock, (ii) cash, or (iii) a combination of cash and shares of our common stock
in an amount calculated as described in the prospectus filed by us in connection
with the exchange offer. In lieu of paying cash and shares of our common stock
upon conversion, we may direct our conversion agent to surrender any New Notes
tendered for conversion to a financial institution designated by us for exchange
in lieu of conversion. The designated financial institution must agree to
deliver, in exchange for the New Notes, (i) a number of shares of our common
stock equal to the applicable conversion rate, plus cash for any fractional
shares, or (ii) cash or (iii) a combination of cash and shares of our common
stock. Any New Notes exchanged by the designated institution will remain
outstanding. We may redeem some or all of the New Notes for cash on or after
March 5, 2009 and before March 5, 2011 at a redemption price of 100% of the
principal amount of the New Notes, plus accrued and unpaid interest up to, but
excluding, the redemption date, but only if the closing price of our common
stock has exceeded 130% of the conversion price then in effect for at least 20
trading days within a 30 consecutive trading day period ending on the trading
day before the date the redemption notice is mailed. We may redeem some or all
of the New Notes for cash at any time on or after March 5, 2011 at a redemption
price equal to 100% of the principal amount of the New Notes, plus accrued and
unpaid interest up to, but excluding, the redemption date. We may be required to
purchase for cash all or a portion of the New Notes on March 5, 2011, March 5,
2014 or March 5, 2019, or upon a change of control, at a purchase price equal to
100% of the principal amount of the new notes being purchased, plus accrued and
unpaid interest up to, but excluding, the purchase date.
On September 20, 2004, and as further amended in January 2005, Bell
Microproducts, (the parent company only) ("Bell") entered into a securitization
program with Wachovia Bank, National Association ("Wachovia") and Blue Ridge
Asset Funding Corporation ("Blue Ridge"), an affiliate of Wachovia, which
expires on September 20, 2007 ("Wachovia Facility"). Under the program, Bell
will sell or contribute all of its receivables to a newly created special
purpose bankruptcy remote entity named Bell Microproducts Funding Corporation
("Funding"), a wholly-owned subsidiary of Bell. Funding will obtain financing
from Blue Ridge or Wachovia and other liquidity banks collateralized by the
receivables to pay a portion of the purchase price for the receivables. The
balance of the purchase price will be paid by advances made by Bell to Funding
under a subordinated note of Funding payable to Bell and by capital
contributions from Bell to Funding. The maximum principal amount available for
Funding's credit facility is $90 million. The interest rate on advances made by
Blue Ridge shall be the cost of Blue Ridge's commercial paper. In addition,
20
Funding pays a program fee in the amount of 95 basis points per annum on the
portion of the advances funded by Blue Ridge's commercial paper. The interest
rate on advances made by Wachovia and other liquidity banks shall be either an
alternate base rate (which is the higher of the "prime rate" as announced by
Wachovia, or 0.50% above the federal funds effective rate), or a rate based on
an adjusted LIBO rate plus 1.50%. Funding also pays an unused line fee ranging
from 0.20% to 0.25% per annum of the unused portion of the facility. Bell acts
as a servicer for Funding and will collect all amounts due under, and take all
action with respect to, the receivables for the benefit of Funding and its
lenders. In exchange for these services, Bell receives a servicing fee
determined on an arms-length basis. The cash flow from the collections of the
receivables will be used to purchase newly generated receivables, to pay amounts
to Funding's lenders, to pay down on the subordinated note issued to Bell and to
make dividend distributions to Bell (subject at all times to the required
capital amount being left in Funding). Including the program fee, the average
interest rate on outstanding borrowings under the securitization program for the
quarter ended June 30, 2005 was 3.97%, and the balance outstanding at June 30,
2005 was $65 million. Obligations of Funding under the Wachovia Facility are
collateralized by all of Funding's assets. The Wachovia Facility requires
Funding (and in certain circumstances, Bell) to meet certain financial tests and
to comply with certain other covenants including restrictions on changes in
structure, incurrence of debt and liens, payment of dividends and distributions,
and material modifications to contracts and credit and collections policy.
On July 6, 2000, and as amended on May 3, 2004, we entered into a
Securities Purchase Agreement with The Retirement Systems of Alabama and certain
of its affiliated funds (the "RSA facility"), under which we borrowed $180
million of subordinated debt financing. This subordinated debt financing was
comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and
$100 million bearing interest at 9.0%, payable in semi-annual principal
installments of $3.5 million plus interest and in semi-annual principal
installments of $8.5 million commencing December 31, 2007, with a final maturity
date of June 30, 2010. On August 1, 2003, we entered into an interest rate swap
agreement with Wachovia Bank effectively securing a new interest rate on $40
million of the outstanding debt. The new rate is based on the six month U.S.
Libor rate plus a fixed margin of 4.99% and continues until termination of the
agreement on June 30, 2010. The notional amount of the interest rate swap
decreases ratably as the underlying debt is repaid. The notional amount at June
30, 2005 was $36.5 million. We initially recorded the interest rate swap at fair
value, and subsequently recorded changes in fair value as an offset to the
related liability. At June 30, 2005, the fair value of the interest rate swap
was ($475,000). The RSA facility is collateralized by a second lien on certain
of our North American and South American assets. We must meet certain financial
tests on a quarterly basis, and comply with certain other covenants, including
restrictions of incurrence of debt and liens, restrictions on asset
dispositions, payment of dividends, and repurchase of stock. We are also
required to be in compliance with the covenants of certain other borrowing
agreements. The balance outstanding at June 30, 2005 on this long-term debt was
$48.5 million, $7 million is payable in years 2005 and 2006, $7.9 million is
payable in 2007 and $26.6 million thereafter. Net of the fair value of the
interest rate swap, the balance outstanding on the RSA facility at June 30, 2005
was $48.0 million.
On December 2, 2002, as further amended in December 2004, we entered into
a Syndicated Credit Agreement arranged by Bank of America, National Association
("Bank of America facility"), as principal agent, to provide a (pound)75 million
revolving line of credit facility, or the U.S. dollar equivalent of
approximately $134 million at June 30, 2005. The Bank of America facility
matures on July 15, 2006. The syndicate includes Bank of America as agent and
security trustee and other banks and financial institutions, as lenders.
Borrowings under the line of credit bear interest at Bank of America's base rate
plus a margin of 2.25% to 2.50%, based on certain financial measurements. At our
option, all or any portion of the outstanding borrowings may be converted to a
LIBOR Revolving Loan, which bears interest at the adjusted LIBOR rate plus a
margin of 2.25% to 2.50%, based on certain financial measurements. The average
interest rate on the outstanding borrowings under the revolving line of credit
during the quarter ended June 30, 2005 was 6.8%, and the balance outstanding at
June 30, 2005 was $16.3 million. Our obligations under the revolving line of
credit are collateralized by certain assets of our European subsidiaries. The
revolving line of credit requires us 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,
capital contributions, payment of dividends, repurchases of stock, repatriation
of cash and investments.
21
On September 13, 2004, we entered into an amendment to its syndicated Loan
and Security Agreement with Congress Financial Corporation (Western)
("Congress"), an affiliate of Wachovia Bank, N.A. ("Wachovia"), as
administrative, collateral and syndication agent for the lenders of the
revolving line of credit (the "Congress Facility"). The amendment reduced the
Congress Facility from $160 million to $125 million, and extended the maturity
date to July 31, 2007. The syndicate includes Bank of America N.A. as co-agent
and other financial institutions as lenders. Borrowings under the Congress
Facility bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%,
based on unused availability levels. At our option, all or any portion of the
outstanding borrowings may be converted to a Eurodollar rate loan, which bears
interest at the adjusted Eurodollar rate plus a margin of 1.50% to 2.00%, based
on unused availability levels. We also pay an unused line fee equal to 0.375%
per annum of the unused portion of the facility, subject to certain adjustments.
The average interest rate on outstanding borrowings under the Congress Facility
during the quarter ended June 30, 2005 was 5.83%, and the balance outstanding at
June 30, 2005 was $228,000. Our obligations under the Congress Facility are
collateralized by certain assets of our North and South American subsidiaries.
The Congress Facility requires us 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, capital
contributions, payment of dividends, repurchases of stock and investments.
On May 9, 2003, we entered into a mortgage agreement with Bank of Scotland
for (pound)6 million, or the U.S. dollar equivalent of approximately $10.8
million, as converted at June 30, 2005. The new mortgage agreement fully repaid
the borrowings outstanding under the previous mortgage agreement with Lombard
NatWest Limited, has a term of 10 years, bears interest at Bank of Scotland's
rate plus 1.35%, and is payable in quarterly installments of approximately
(pound)150,000, or $284,000 USD, plus interest. The principal amount due each
year is approximately $1.1 million. The balance of the mortgage as converted to
USD at June 30, 2005 was $9.0 million. Terms of the mortgage require us to meet
certain financial ratios and to comply with certain other covenants on a
quarterly basis.
On June 22, 2004, in connection with the acquisition of OpenPSL, we
assumed a mortgage with HSBC Bank plc ("HSBC") for an original amount of
(pound)670,000, or the U.S. dollar equivalent of approximately $1.2 million. The
mortgage has a term of ten years, bears interest at HSBC's rate plus 1.25% and
is payable in monthly installments of approximately (pound)7,600, or $13,600
U.S. dollars. The balance on the mortgage was $837,000 at June 30, 2005.
Our agreement with IFN Finance BV was amended in December 2004 to reduce
our $7.5 million in short-term financing to $4.7 million. The loan is
collateralized by certain European accounts receivable and inventories, bears
interest at 5.5%, and continues indefinitely until terminated by either party
upon 90 days notice. The average interest rate on the outstanding borrowings
under this facility during the quarter ended June 30, 2005 was 5.5%, and the
balance outstanding at June 30, 2005 was $1.5 million.
We were in compliance with our bank and subordinated debt financing
covenants at June 30, 2005; however, there can be no assurance that we will be
in compliance with such covenants in the future. If the we do not remain in
compliance with the covenants, and are unable to obtain a waiver of
noncompliance from our lenders, our financial condition, results of operations
and cash flows would be materially adversely affected.
In December 2004, the FASB issued SFAS No. 123(R) ("SFAS 123(R)"),
"Share-Based Payment", which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS 123(R) supersedes APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and its related implementation
guidance. SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values. We currently account for our employee stock options
in accordance with APB 25 while disclosing the pro forma effect of the options
and restricted stock grants had they been recorded under the fair value method.
As required by the Statement as amended by the Securities and Exchange
Commission in April 2005, we plan to adopt the revised Statement in our quarter
ending March 31, 2006. We are in the process of evaluating the impact of the
adoption of this standard on our financial statements.
22
On March 29, 2005, the SEC issued SAB 107, which provides guidance on the
interaction between SFAS 123(R), Shared-Based Payment, and certain SEC rules and
regulations. SAB 107 provides guidance that may simplify some of FAS 123(R)'s
implementation challenges and enhance the information that investors receive.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 153 ("SFAS 153"), "Exchanges of
Non-monetary Assets," an amendment of APB Opinion No. 29. The guidance in APB
Opinion No. 29, Accounting for Non-monetary Transactions, is based on the
principle that exchanges of non-monetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however,
included certain exceptions to that principle. SFAS 153 amends Opinion 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. This Statement is effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005, and should be applied prospectively. The adoption of SFAS 153 did not
have a material impact on our consolidated financial position, results
of operations, or cash flows.
In June 2005, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 154, Accounting Changes and Error Corrections ("SFAS 154"),
which will require entities that voluntarily make a change in accounting
principle to apply that change retrospectively to prior periods' financial
statements, unless this would be impracticable. SFAS 154 supersedes Accounting
Principles Board Opinion No. 20, Accounting Changes ("APB 20"), which previously
required that most voluntary changes in accounting principle be recognized by
including in the current period's net income the cumulative effect of changing
to the new accounting principle. SFAS 154 also makes a distinction between
"retrospective application" of an accounting principle and the "restatement" of
financial statements to reflect the correction of an error. Another significant
change in practice under SFAS 154 will be that if an entity changes its method
of depreciation, amortization, or depletion for long-lived, non-financial
assets, the change must be accounted for as a change in accounting estimate.
Under APB 20, such a change would have been reported as a change in accounting
principle. SFAS 154 applies to accounting changes and error corrections that are
made in fiscal years beginning after December 15, 2005. We do not anticipate a
material impact from this standard on our consolidated financial position,
results of operations or cash flows.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" (FIN 47). FIN 47 requires an entity to
recognize a liability for a legal obligation to perform an asset retirement
activity in which the timing and (or) method of the settlement are conditional
on a future event. The liability must be recognized if the fair value of the
liability can be reasonably estimated. FIN 47 is effective as of December 31,
2005. We are in the process of evaluating the impact of the adoption of this
standard on our consolidated financial statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to interest rate risk on our variable rate credit
facilities and could be subjected to increased interest payments if market
interest rates fluctuate. For the quarter ended June 30, 2005, average
borrowings outstanding on the variable rate credit facility with Congress
Financial Corporation (Western) were $13 million, average borrowings with
Wachovia Bank, National Association and Blue Ridge Asset Funding Corporation
were $83 million and average borrowings with Bank of America, N.A. were $59
million. These facilities have interest rates that are based on associated rates
such as Eurodollar and base or prime rates that may fluctuate over time based on
changes in the economic environment. Based on actual borrowings throughout the
year under these borrowing facilities, an increase of 1% in such interest rate
percentages would increase the annual interest expense by approximately $1.6
million.
23
A substantial part of our revenue and capital expenditures are transacted
in U.S. dollars, but the functional currency for foreign subsidiaries is not the
U.S. dollar. We enter 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. As a result of the Company or its
subsidiaries entering into transactions denominated in currencies other than the
functional currency, we recognized a foreign currency loss of $350,000 and $1.9
million during the quarter ended June 30, 2005 and 2004, respectively. To the
extent we are unable to manage these risks, our results, financial position and
cash flows could be materially adversely affected.
In August 2003, we entered into an interest rate swap agreement in order
to gain access to the lower borrowing rates normally available on floating-rate
debt, while avoiding prepayment and other costs that would be associated with
refinancing long-term fixed-rate debt. The swap purchased has a notional amount
of $40 million, expiring in June 2010, with a six-month settlement period and
provides for variable interest at LIBOR plus a set rate spread. The notional
amount decreases ratably as the underlying debt is repaid. The notional amount
at June 30, 2005 was $36.5 million. The notional amount does not quantify risk
or represent assets or liabilities, but rather, is used in the determination of
cash settlement under the swap agreement. As a result of entering into this
swap, we are exposed to credit losses from counter-party non-performance;
however, we do not anticipate any such losses from this agreement, which is with
a major financial institution. The agreement will also expose us to interest
rate risk should LIBOR rise during the term of the agreement. This swap
agreement is accounted for as a fair value hedge under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). Under the provisions of SFAS 133, we initially
recorded the interest rate swap at fair value, and subsequently recorded any
changes in fair value as an offset to the related liability. Fair value is
determined based on quoted market prices, which reflect the difference between
estimated future variable-rate payments and future fixed-rate receipts. The fair
value of the interest rate swap was ($475,000) at June 30, 2005.
ITEM 4: CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. After evaluating
the effectiveness of the Company's disclosure controls and
procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act
of 1934 ("the Exchange Act") as of the end of the period covered by
this quarterly report, our chief executive officer and chief
financial officer with the participation of the Company's
management, have concluded that the Company's disclosure controls
and procedures are effective to ensure that information that is
required to be disclosed by the Company in reports that it files
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules of the
Securities Exchange Commission.
(b) Changes in internal controls. There were no changes in our internal
control over financial reporting that occurred during the period
covered by this quarterly report that have materially affected, or
are reasonably likely to materially affect, the Company's internal
control over financial reporting.
24
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
Registrant held its Annual Meeting of Shareholders on May 17, 2005.
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
non votes, as to each such matter, along with a separate tabulation with
respect to each nominee for office, is set forth below:
1. Election of directors to serve for the ensuing year and until their
successors are duly elected and qualified.
For Withheld
---------- ---------
W. Donald Bell 23,881,272 2,479,362
Gordon A. Campbell 23,581,736 2,778,898
Glenn E. Penisten 23,569,197 2,791,437
Edward L. Gelbach 23,869,272 2,491,362
James E. Ousley 23,833,876 2,526,758
Eugene B. Chaiken 23,906,923 2,453,711
David M. Ernsberger 23,602,587 2,758,047
Mark L. Sanders 23,603,377 2,757,257
Roger V. Smith 23,907,623 2,453,011
2. Amend the Company's 1998 Stock Option Plan to (i) approve certain
provisions of the 1998 Plan in order to preserve our ability to deduct in
full certain plan-related compensation under Section 162(m) of the
Internal Revenue Code and (ii) provide flexibility in granting options to
directors who are not employees.
For Against Abstention Non votes
--- ------- ---------- ---------
9,420,935 10,386,183 1,211,292 5,342,224
3. Approve an Annual Incentive Program in order to preserve our ability to
deduct in full certain plan-related compensation under Section 162(m) of
the Internal Revenue Code.
For Against Abstention Non votes
--- ------- ---------- ---------
17,227,601 2,573,384 1,217,425 5,342,224
4. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's registered accounting firm for the current fiscal year ending
December 31, 2005.
For Against Abstention Non votes
--- ------- ---------- ---------
25,806,003 539,314 15,317 --
Item 6: Exhibits
See Exhibit Index on page following Signatures.
25
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 9, 2005
BELL MICROPRODUCTS INC.
BY: /s/ JAMES E. ILLSON
--------------------------------------------------
CHIEF FINANCIAL OFFICER AND EXECUTIVE VICE PRESIDENT OF
FINANCE AND OPERATIONS
26
EXHIBIT INDEX
Form 10-Q
Quarter ended June 30, 2005
EXHIBIT NO. DESCRIPTION
- ----------- -----------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
27