FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 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
----- -----
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12B-2 OF THE EXCHANGE ACT).
YES NO X
----- -----
COMMON STOCK, $.01 PAR VALUE -- NUMBER OF SHARES OUTSTANDING AT NOVEMBER 4,
2005: 29,893,028
1
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
September 30, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Operations -
Three months and nine months ended September 30,
2005 and 2004 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 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 5: Other Information 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)
September 30, December 31,
2005 2004
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,519 $ 13,294
Accounts receivable, net 394,020 376,017
Inventories 287,490 271,797
Prepaid expenses and other current assets 21,793 24,676
-------- --------
Total current assets 722,822 685,784
Property and equipment, net 37,556 42,805
Goodwill 96,810 92,605
Intangibles, net 8,575 9,407
Deferred debt issuance costs and other assets 8,930 9,988
-------- --------
Total assets $874,693 $840,589
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $321,891 $307,373
Borrowings under lines of credit 15 17,577
Short-term note payable and current portion
of long-term notes payable 8,366 12,183
Other accrued liabilities 54,021 72,164
-------- --------
Total current liabilities 384,293 409,297
Borrowings under lines of credit 100,022 42,686
Long-term notes payable 155,373 160,905
Other long-term liabilities 4,526 5,011
-------- --------
Total liabilities 644,214 617,899
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common Stock, $0.01 par value, 80,000 shares authorized; 29,851 and 28,672
issued and outstanding 175,736 167,705
Retained earnings 42,041 32,174
Accumulated other comprehensive income 12,702 22,811
-------- --------
Total shareholders' equity 230,479 222,690
-------- --------
Total liabilities and shareholders' equity $874,693 $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 Nine months ended
September 30, September 30,
------------------- -----------------------
2005 2004 2005 2004
-------- -------- ---------- ----------
Net sales $759,056 $728,731 $2,351,475 $2,019,350
Cost of sales 701,139 670,023 2,179,129 1,862,287
-------- -------- ---------- ----------
Gross profit 57,917 58,708 172,346 157,063
Selling, general and administrative expenses 48,704 49,266 140,612 135,188
-------- -------- ---------- ----------
Operating income 9,213 9,442 31,734 21,875
Interest expense and other (5,324) (4,493) (15,704) (12,161)
-------- -------- ---------- ----------
Income before income taxes 3,889 4,949 16,030 9,714
Provision for income taxes 1,573 2,175 6,163 4,177
-------- -------- ---------- ----------
Net income $ 2,316 $ 2,774 $ 9,867 $ 5,537
======== ======== ========== ==========
Income per share
Basic $ 0.08 $ 0.10 $ 0.34 $ 0.20
======== ======== ========== ==========
Diluted $ 0.08 $ 0.10 $ 0.33 $ 0.20
======== ======== ========== ==========
Shares used in per share calculation
Basic 29,496 27,990 29,096 27,418
======== ======== ========== ==========
Diluted 30,405 28,553 29,912 28,097
======== ======== ========== ==========
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)
Nine months ended September 30,
-------------------------------
2005 2004
-------- --------
Cash flows from operating activities:
Net income: $ 9,867 $ 5,537
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 8,283 10,589
Provision for bad debts 2,978 6,048
Loss on disposal of property and equipment 2 33
Deferred income taxes 21 (666)
Changes in assets and liabilities, net of effect of business
acquisitions:
Accounts receivable (28,027) (27,341)
Inventories (18,510) (1,394)
Prepaid expenses 2,919 (568)
Other assets 1,007 (3,490)
Accounts payable (23,744) (32,222)
Other accrued liabilities (18,326) 2,881
-------- --------
Net cash used in operating activities (63,530) (40,593)
-------- --------
Cash flows from investing activities:
Acquisition of property, equipment and other (3,470) (2,916)
Proceeds from sale of property, equipment and other 98 54
Acquisition of new businesses, net of cash acquired (4,169) (33,421)
-------- --------
Net cash used in investing activities (7,541) (36,283)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements 39,775 (16,578)
Changes in book overdraft 43,563 12,530
Repayment of long-term notes payable to RSA (7,000) (27,000)
Borrowings of notes and leases payable 108 110,000
Repayments of notes and leases payable (2,635) (677)
Proceeds from issuance of Common Stock 3,944 1,949
-------- --------
Net cash provided by financing activities 77,755 80,224
-------- --------
Effect of exchange rate changes on cash (459) (5)
-------- --------
Net increase in cash 6,225 3,343
Cash at beginning of period 13,294 4,904
-------- --------
Cash at end of period $ 19,519 $ 8,247
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,433 $ 14,700
Income taxes $ 11,653 $ 1,889
Supplemental non-cash financing activities:
Issuance of restricted stock $ 798 $ 1,592
Common Stock issued for acquisition $ 3,014 $ 2,365
Change in fair value of interest rate swap $ (359) $ (282)
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 nine months
ended September 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 $75.4 million and $26.1 million as of September 30,
2005 and September 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 results of operations of the acquired businesses have been included in
the Company's consolidated financial statements from their respective
acquisition dates.
On July 8, 2005, the Company acquired all of the outstanding capital stock
of Net Storage Computers, LTDA. ("Net Storage"), a privately held company
headquartered in Sao Paulo, Brazil, with sales offices in Belo Horizonte, Porto
Alegre, Recife, Rio de Janeiro and Tambore, Brazil. The acquisition of Net
Storage increases the Company's presence in the Latin America marketplace and
provides the opportunity to strengthen relationships with key suppliers and
expand overall products and services offerings. Net Storage is a distributor of
storage products and peripherals to VARs and system integrators in Brazil. Their
strategic partners include Intel, Seagate, LG, Western Digital and AMD.
Net Storage was acquired for a total purchase price of approximately $3.4
million in cash, including acquisition costs. The Company is obligated to pay up
to an additional $3.0 million based upon earnings achieved during each of the
subsequent four anniversary years. The Company has also entered into a four year
Management Service Agreement which obligates the Company to pay an additional
$1.1 million. Management is currently finalizing the valuation of assets
acquired and liabilities assumed. Accordingly, the final allocations could be
different from the amounts reflected below. The preliminary allocation of the
purchase price to acquired assets and assumed liabilities based upon
management's estimates are as follows (in thousands):
Cash $ 267
Accounts receivable 2,123
Inventories 1,950
Equipment and other assets 833
Goodwill 2,531
Intangibles 421
Accounts payable (2,943)
Other accrued liabilities (1,792)
-------
Total consideration $ 3,390
=======
Other intangibles include customer and supplier relationships and
non-compete agreements, with estimated useful lives for amortization of seven
years and six years, respectively.
Pro forma results of operations have not been presented because the effect
of the acquisition was not material to the results of prior periods presented.
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.
7
OpenPSL was acquired for a total purchase price of approximately $42.0
million which included cash of approximately $34.8 million, the issuance of
1,025,029 shares of the Company's Common Stock including consideration for all
contingent incentive payments and acquisition costs. The final allocation of the
purchase price to acquired assets and assumed liabilities based upon
management's estimates are as follows (in thousands):
Accounts receivable $ 30,721
Inventories 4,743
Equipment and other assets 2,419
Goodwill 35,123
Intangibles 3,671
Accounts payable (18,785)
Other accrued liabilities (9,203)
Notes payable (6,723)
--------
Total consideration $ 41,966
========
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 nine months ended
September 30, 2005 and 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 Nine Months Ended
September 30, September 30,
------------------- -----------------------
2005 2004 2005 2004
-------- -------- ---------- ----------
Revenue $759,056 $728,731 $2,351,475 $2,128,620
Net income $ 2,316 $ 2,774 $ 9,867 $ 6,605
Net income per share - basic $ 0.08 $ 0.10 $ 0.34 $ 0.24
Shares used in per share calculation - basic 29,496 27,990 29,096 27,418
Net income per share - diluted $ 0.08 $ 0.10 $ 0.33 $ 0.24
Shares used in per share calculation - diluted 30,405 28,553 29,912 28,097
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------- -------
(in thousands except for
per share amounts)
Net income as reported $2,316 $2,774 $ 9,867 $ 5,537
Add: Stock-based employee compensation
expense included in reported earnings, net
of tax 234 300 666 615
Deduct: Total stock-based employee
compensation expense determined
under fair value method, net of tax (863) (738) (2,492) (2,780)
------ ------ ------- -------
Pro forma net income $1,687 $2,336 $ 8,041 $ 3,372
====== ====== ======= =======
8
Net income per share as reported:
Basic $ 0.08 $ 0.10 $ 0.34 $ 0.20
Diluted $ 0.08 $ 0.10 $ 0.33 $ 0.20
Pro forma net income per share: $ 0.06 $ 0.08 $ 0.28 $ 0.12
Basic $ 0.06 $ 0.08 $ 0.27 $ 0.12
Diluted
Weighted average shares used in per share
Calculation:
Basic 29,496 27,990 29,096 27,418
Diluted 30,405 28,553 29,912 28,097
The following weighted average assumptions were used for grants in the
third quarter ended September 30, 2005 and 2004, respectively; expected
volatility of 72% and 74%, expected lives of 3.77 and 3.64 and risk free
interest rates of 4.12 and 3.0%. 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 at 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.
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 ending 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.
9
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 September 30, 2005 and December 31, 2004 are as follows (in
thousands):
As of September 30, 2005
---------------------------------
Estimated Gross
Useful Life for Carrying Accumulated Net
Amortized Intangible Assets Amortization Amount Amortization Amount
- --------------------------- ---------------- --------- ------------ ------
Non-compete agreements 2-6 years $ 1,727 $(1,354) $ 373
Trademarks 20-40 years 4,446 (539) 3,907
Trade names 20 years 400 (66) 334
Customer/supplier relationships 4-10 years 5,344 (1,383) 3,961
----------- ------- ------- ------
Total $11,917 $(3,342) $8,575
======= ======= ======
As of December 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
======= ======= =====
The estimated amortization expense of these assets in future fiscal years
is as follows (in thousands):
Estimated Amortization Expense
- ------------------------------
October 1, 2005 to December 31, 2005 $ 318
For year ending December 31, 2006 1,146
For year ending December 31, 2007 1,071
For year ending December 31, 2008 884
For year ending December 31, 2009 700
Thereafter 4,456
------
Total $8,575
======
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.
10
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
------- ------- ------- -------
Net income $ 2,316 $ 2,774 $ 9,867 $ 5,537
Weighted average common shares
outstanding (Basic) 29,496 27,990 29,096 27,418
Effect of dilutive options, restricted
stock grants and warrants 909 563 816 679
Weighted average common shares
outstanding (Diluted) 30,405 28,553 29,912 28,097
In the three months ended September 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 397,932 and 2,261,439,
respectively.
Note 6 - Lines of Credit and Term Debt:
September 30, December 31,
2005 2004
------------- ------------
LINES OF CREDIT (IN THOUSANDS)
Congress Facility $ 15,766 $ 686
Wachovia Facility 84,256 42,000
Bank of America Facility 15 17,577
IFN Financing BV -- --
-------- -------
100,037 60,263
Less: amounts included in current liabilities 15 17,577
-------- -------
Amounts included in non-current liabilities $100,022 $42,686
======== =======
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 September 30, 2005 was 6.11%, and
the balance outstanding at September 30, 2005 was $15.8 million. 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
11
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 September 30, 2005 was 4.48%, and the balance outstanding at
September 30, 2005 was $84.3 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 L75
million revolving line of credit facility, or the U.S. dollar equivalent of
approximately $132 million at September 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 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 September 30, 2005 was 5.94%, and the balance
outstanding at September 30, 2005 was $15,000. 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 borrowing facility 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 September 30, 2005 was 4.9%, and
there was no balance outstanding at September 30, 2005.
September 30, December 31,
2005 2004
------------- ------------
TERM LOANS (IN THOUSANDS)
Convertible Notes $110,000 $110,000
Note payable to RSA, net 44,150 51,509
Bank of Scotland Mortgage 8,681 10,150
HSBC Bank plc Mortgage 724 897
-------- --------
163,555 172,556
Less: amounts due in current year 8,182 11,651
-------- --------
Long-term debt due after one year $155,373 $160,905
======== ========
12
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 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
September 30, 2005 was $34.7 million. The Company initially recorded the
interest rate swap at fair value, and subsequently records changes in fair value
as an offset
13
to the related liability. At September 30, 2005, the fair value of the interest
rate swap was ($849,000). 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
September 30, 2005 on this long-term debt was $45.0 million, $3.5 million is
payable in 2005, $7 million is payable in 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 September 30, 2005 was $44.2
million.
On May 9, 2003, the Company entered into a mortgage agreement with Bank of
Scotland for L6 million, or the U.S. dollar equivalent of approximately $10.6
million, as converted at September 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 L150,000, or $264,000 USD, plus interest. The principal amount due
each year is approximately $1.1 million. The balance of the mortgage as
converted to USD at September 30, 2005 was $8.7 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
L670,000, 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 L7,600, or $13,400 U.S.
dollars. The balance on the mortgage was $724,000 at September 30, 2005.
The Company was not in compliance with one of its bank covenants for the
Wachovia Facility at September 30, 2005, however the Company obtained a waiver
for the covenant and amended the debt agreement subsequent to the end of the
quarter.
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 September 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 -- (171) (171)
----- ------ ------
Balance at September 30, 2005 $ -- $ 538 $ 538
===== ====== ======
14
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 September 30, 2005 product warranty liabilities were
approximately $1.5 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.
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 September 30, 2005 was $34.7 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 ($849,000) at September 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
15
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 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. The Company does not anticipate
material impact from this standard on the Company's consolidated financial
position, results of operations or cash flows.
On December 21, 2004, the FASB issued Staff Position No. FAS 109-2,
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 ("FSP FAS 109-2"). The
American Jobs Creation Act introduces a special one-time dividends received
deduction on the repatriation of certain foreign earnings to a U.S. taxpayer
(repatriation provision), provided certain criteria are net. FSP FAS 109-2
provides accounting and disclosure guidance for the repatriation provision. The
Company may elect to apply this provision to qualifying earnings repatriations
in fiscal 2006. The Company plans to evaluate the effects of the repatriation
provision and in particular of the limitation of the deduction to certain
qualifying expenses incurred in the United States. The Company expects to be
able to complete this evaluation in the fourth quarter of 2005 when its
qualifying expenses for the full year will be known. The Company is currently
assessing the impact of adopting FSP FAS 109-2.
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
------- -------- -------- ------
Net income $ 2,316 $ 2,774 $ 9,867 $5,537
Other comprehensive income:
Foreign currency translation
adjustments (1,843) (137) (10,109) 335
------- ------- -------- ------
Total comprehensive income (loss) $ 473 $ 2,637 $ (242) $5,872
======= ======= ======== ======
16
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 40% and 37% of total sales for the nine months
ended September 30, 2005 and 2004, respectively.
Geographic information consists of the following:
(In thousands)
Nine Months Ended September 30,
-------------------------------
2005 2004
---------- ----------
Net sales:
North America $1,033,136 $ 826,899
Latin America 298,226 256,402
Europe 1,020,113 936,049
---------- ----------
Total $2,351,475 $2,019,350
========== ==========
Long-lived assets:
September 30, December 31,
2005 2004
------------- ------------
United States $ 4,611 $ 5,877
United Kingdom 30,061 34,681
Other foreign countries 2,884 2,247
------- -------
Total $37,556 $42,805
======= =======
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 our efforts to get our European operations to an
acceptable profitability level, IT market growth, 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.
17
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
Revenues of $759 million were a record for the third quarter increasing 4%
compared to last year's third quarter revenues. We were pleased with our sales
and operating profit performance in both North America and Latin America as well
as the strong performance in our Enterprise business units, but were
disappointed in our overall third quarter financial results. The quarter was
negatively impacted by the performance of our European distribution business
which remains under competitive pressures. We are working to drive sales
increases in strategic markets in Europe while at the same time taking more
aggressive actions to reduce our expense base.
We continue to experience sales and profit momentum in North America and
Latin America and hope to translate the successes we are having in these regions
to Europe. We are committed to taking additional actions to get our European
operations to an acceptable level of profitability. We remain optimistic that
the overall IT market will continue to grow, especially in the seasonally
stronger fourth quarter, and believe Bell Microproducts is positioned to
continue to gain market share and generate significant improvements in earnings
as we move forward.
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
Net sales were $759.1 million for the quarter ended September 30, 2005
compared to net sales of $728.7 million for the quarter ended September 30,
2004, which represented an increase of $30.4 million, or 4%. The sales increase
was primarily due to an increase in Components and Peripherals sales which was
driven by growth in Components sales in North and South America. Solutions sales
were flat compared to the same period last year.
Our gross profit for the quarter ended September 30, 2005 was $57.9 million
compared to $58.7 million for the quarter ended September 30, 2004, which
represented a decrease of $0.8 million, or 1%. The decrease in gross profit was
primarily due a shift in product mix to a higher percentage of Component and
Peripherals sales which generate lower margins than Solutions sales. Also as a
result of the product mix shift, gross margin decreased to 7.6% in the current
quarter from 8.1% in the same period last year.
Selling, general and administrative expenses decreased to $48.7 million for
the quarter ended September 30, 2005, from $49.3 million for the quarter ended
September 30, 2004, a decrease of $0.6 million, or 1%. The decrease in expenses
was primarily attributable to expense reductions in Europe, partly offset by
sales volume related expense increases in North America and the acquisition of
Net Storage S.A. ("Net Storage") in July of 2005. Net Storage contributed
approximately $850,000 to our consolidated expenses during the quarter. As a
percentage of sales, selling, general and administrative expenses decreased in
the third quarter of 2005 to 6.4% from 6.8% in the third quarter of 2004.
Interest expense and other increased to $5.3 million for the quarter ended
September 30, 2005 from $4.5 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 third quarter of 2005 increased to 5.8% from 5.4%
in the same period last year.
The effective tax rate was 40% for the quarter ended September 30, 2005
compared to an effective tax rate of 44% for the quarter ended September 30,
2004. The lower effective tax rate in the third quarter of 2005 is principally
due to a changing geographic profit mix and the release of certain tax reserves
which were treated as a discreet item.
18
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
Net sales were $2,351.5 million for the nine months ended September 30,
2005 compared to sales of $2,019.4 million for the nine months ended September
30, 2004, which represented an increase of $332.1 million, or 16%. The sales
increase was driven by an increase of $201.4 million in Components and
Peripherals sales as well as an increase of $130.7 million in Solutions sales.
The increase in sales of Components and Peripherals was due to world wide growth
in Components sales, primarily 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 $176 million of our Solutions sales in the nine months
ended September 30, 2005 and $75 million in the same period last year.
The Company's gross profit for the nine months ended September 30, 2005 was
$172.3 million, compared to $157.1 million for the nine months ended September
30, 2004, which represented an increase of $15.2 million, or 10%. 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 7.3%, from to 7.8% primarily due to overall margin declines in our business
resulting from competitive market conditions.
Selling, general and administrative expenses increased to $140.6 million
for the nine months ended September 30, 2005 from $135.2 million for the nine
months ended September 30, 2004, an increase of $5.4 million, or 4%. The
increase in expenses was primarily attributable to our acquisitions of OpenPSL
and Net Storage, and the impact of sales volume increases partially offset by
expense reductions in Europe. The acquisitions added approximately $9.5 million
to our consolidated expenses. Excluding the acquisitions, in the nine months
ended September 30, 2005, expenses decreased $4.1 million as compared to the
same period last year. As a percentage of sales, selling, general and
administrative expenses decreased in the nine months ended September 30, 2005 to
6.0% from 6.7% in the same period last year.
Interest expense and other was $15.7 million in the nine months ended
September 30, 2005, as compared to $12.2 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 nine months ended September 30, 2005 increased
to 5.7% from 5.5% in the same period last year.
The effective tax rate was 38% for the nine months ended September 30, 2005
compared to an effective tax rate of 43% for the nine months ended September 30,
2004. The lower effective tax rate in the nine months ended September 30, 2005
is principally due to a changing geographic profit mix and the release of
certain tax reserves which were treated as a discreet item in the third quarter
of 2005.
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.
19
Net cash used in operating activities for the nine months ended September
30, 2005, was $63.5 million. Excluding the cash book overdraft, net cash used in
operating activities was $20.0 million. Our inventories increased as of
September 30, 2005 to $287.5 million from $271.8 million as of December 31,
2004, and our accounts payable increased to $321.9 million as of September 30,
2005 from $307.4 million as of December 31, 2004. Our accounts receivable
increased to $394.0 million as of September 30, 2005, from $376.0 million as of
December 31, 2004. Other accrued liabilities decreased to $54.0 million as of
September 30, 2005 from $72.2 million as of December 31, 2004 primarily due to
changes in VAT liabilities and income taxes payable.
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
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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 September 30, 2005 was
4.48%, and the balance outstanding at September 30, 2005 was $84.3 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
September 30, 2005 was $34.7 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 September 30, 2005, the fair value of the interest
rate swap was ($849,000). 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 September 30, 2005 on this long-term debt
was $45.0 million, $3.5 million is payable in 2005, $7 million is payable in
year 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 September 30, 2005 was $44.2 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 L75 million
revolving line of credit facility, or the U.S. dollar equivalent of
approximately $132 million at September 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 September 30, 2005 was
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5.94%, and the balance outstanding at September 30, 2005 was $15,000. 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.
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 September 30, 2005 was 6.11%, and the balance
outstanding at September 30, 2005 was $15.8 million. 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 L6 million, or the U.S. dollar equivalent of approximately $10.6 million, as
converted at September 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
L150,000, or $264,000 USD, plus interest. The principal amount due each year is
approximately $1.1 million. The balance of the mortgage as converted to USD at
September 30, 2005 was $8.7 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 L670,000, 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 L7,600, or $13,400 U.S. dollars. The
balance on the mortgage was $724,000 at September 30, 2005.
Our agreement with IFN Finance BV was amended in December 2004 to reduce
our $7.5 million borrowing facility 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 4.69%, and there was no balance
outstanding at September 30, 2005.
We were not in compliance with one of our bank covenants for the Wachovia
Facility at September 30, 2005, however we obtained a waiver for the covenant
and amended the debt agreement subsequent to the end of the quarter.
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
22
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.
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 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.
On December 21, 2004, the FASB issued Staff Position No. FAS 109-2,
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 ("FSP FAS 109-2"). The
American Jobs Creation Act introduces a special one-time dividends received
deduction on the repatriation of certain foreign earnings to a U.S. taxpayer
(repatriation provision), provided certain criteria are net. FSP FAS 109-2
provides accounting and disclosure guidance for the repatriation provision. The
Company may elect to apply this provision to qualifying earnings repatriations
in fiscal 2006. The Company plans to evaluate the effects of the repatriation
provision and in particular of the limitation of the deduction to certain
qualifying expenses incurred in the United States. The Company expects to be
able to complete this evaluation in the fourth quarter of 2005 when its
qualifying expenses for the full year will be known. The Company is currently
assessing the impact of adopting FSP FAS 109-2.
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 September 30, 2005, average borrowings
outstanding on the variable rate credit facility with Congress Financial
Corporation (Western) were $36 million, average borrowings with Wachovia Bank,
National Association and Blue Ridge Asset Funding Corporation were $86 million
and average borrowings with Bank of America, N.A. were $33 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 $1.5
million.
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
23
into transactions denominated in currencies other than the functional currency,
we recognized a foreign currency gain of $196,000 and $909,000 during the
quarter ended September 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 September 30, 2005 was $34.7 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 ($849,000) at
September 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.
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PART II - OTHER INFORMATION
Item 5: Other Information
On August 1, 2005, the Company entered into a Management Retention Agreement
with each of W. Donald Bell, James E. Illson, Philip M. Roussey, Robert J.
Sturgeon, Richard Jacquet and Graeme Watt, officers of the Company. The
agreements have three-year terms, subject to automatic one-year extensions
unless terminated by the Company. The agreements provide that, in the event the
employee's employment is involuntarily terminated within 12 months following a
change of control, the employee is entitled to receive a cash payment equal to
the employee's base annual salary, continued Company-paid employee benefits for
one year from the date of the change of control or until the date that the
employee becomes covered under another employer's benefit plans and full vesting
of unvested stock options. In the event that the employee's employment is
terminated for any reason either prior to the occurrence of a change of control
or after the 12-month period following a change of control, then the employee is
entitled only to receive severance and other benefits under established Company
severance and benefits plans and practices or pursuant to other agreements with
the Company. A form of Management Retention Agreement is filed as Exhibit 10.1
to this Form 10-Q and is incorporated by reference herin as appropriate.
On August 3, 2005, the independent directors, at the recommendation of the
Compensation Committee, increased the annual benefit to W. Donald Bell, the
Company's Chief Executive Officer, pursuant to the Supplemental Executive
Retirement Plan dated July 1, 2002 from $250,000 to $450,000. The funding for
this incremental increase is through Company-owned life insurance, with the
Company as the beneficiary of the life insurance benefits.
Item 6: Exhibits
See Exhibit Index on page following Signatures.
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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: November 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 September 30, 2005
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Form of Management Retention Agreement between the Company and
certain officers of the Company
10.2 Supplemental Retirement Plan Benefit as of August 3, 2005 for W.
Donald Bell
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