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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
( MARK ONE )
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ____________
COMMISSION FILE NUMBER 0-21528
--------------
BELL MICROPRODUCTS INC.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3057566
- ------------------------------------ ----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1941 RINGWOOD AVENUE, SAN JOSE, CALIFORNIA 95131-1721
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 451-9400
- -------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
-------------- ---------------
COMMON STOCK, $.01 PAR VALUE -- NUMBER OF SHARES OUTSTANDING AT AUGUST 9, 2002:
- ---------------------------- 19,607,680
1
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1: Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 2002 and December
31, 2001 3
Condensed Consolidated Statements of Income - Three months and six
months ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3: Quantitative and Qualitative Disclosure about Market Risk 18
PART II - OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 6: Exhibits and Reports 19
Signatures 20
2
PART I - FINANCIAL INFORMATION
- --------------------------------
ITEM 1: FINANCIAL STATEMENTS
BELL MICROPRODUCTS INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, December 31,
2002 2001
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,122 $ 1,308
Accounts receivable, net 304,383 299,108
Inventories 191,062 195,791
Prepaid expenses and other current assets 18,144 29,234
--------- ---------
Total current assets 518,711 525,441
Property and equipment, net 49,450 50,706
Goodwill 53,520 53,307
Intangibles 6,211 6,602
Deferred debt issuance costs and other assets 7,366 7,631
--------- ---------
Total assets $ 635,258 $ 643,687
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 222,490 $ 231,715
Borrowings under lines of credit 115,250 37,266
Short-term note payable and current portion
of long-term notes payable 28,358 23,431
Other accrued liabilities 43,118 49,065
--------- ---------
Total current liabilities 409,216 341,477
Borrowings under line of credit -- 86,650
Long-term notes payable 79,000 85,052
Other long-term liabilities 4,339 4,739
--------- ---------
Total liabilities 492,555 517,918
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 40,000 shares
authorized; 19,607 and 17,578
issued and outstanding 113,981 94,553
Retained earnings 26,676 32,365
Accumulated other comprehensive income 2,046 (1,149)
--------- ---------
Total shareholders' equity 142,703 125,769
--------- ---------
Total liabilities and shareholders' equity $ 635,258 $ 643,687
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
BELL MICROPRODUCTS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
----------------------------- ---------------------------
Three months ended Six months ended
June 30, June 30,
----------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $ 497,713 $ 455,686 $ 1,020,641 $ 991,209
Cost of sales 457,715 422,826 933,222 912,927
----------- ----------- ----------- -----------
Gross profit 39,998 32,860 87,419 78,282
Operating expenses:
Selling, general and administrative expenses 42,096 39,018 84,792 78,644
Restructuring costs and special charges 2,283 1,540 2,283 1,540
----------- ----------- ----------- -----------
Total operating expenses 44,379 40,558 87,075 80,184
Income (loss) from operations (4,381) (7,698) 344 (1,902)
Interest expense (4,408) (5,098) (8,471) (10,677)
----------- ----------- ----------- -----------
Loss before income tax benefit (8,789) (12,796) (8,127) (12,579)
Income tax benefit (2,716) (5,123) (2,438) (5,032)
----------- ----------- ----------- -----------
Net loss $ (6,073) $ (7,673) $ (5,689) $ (7,547)
=========== =========== =========== ===========
Loss per share
Basic $ (0.31) $ (0.47) $ (0.30) $ (0.47)
=========== =========== =========== ===========
Diluted $ (0.31) $ (0.47) $ (0.30) $ (0.47)
=========== ============ =========== ===========
Shares used in per share calculation
Basic 19,327 16,173 18,713 16,008
=========== =========== =========== ===========
Diluted 19,327 16,173 18,713 16,008
=========== =========== =========== ===========
The accompanying notes are an integral part of these 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,
- -------------------------------------------------------------------------------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss from operations: $ (5,689) $ (7,547)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,510 5,374
Provision for bad debts 5,830 5,827
Gain on disposal of property, equipment and other (234) (1)
Changes in assets and liabilities:
Accounts receivable 11,649 27,869
Inventories 13,732 47,856
Prepaid expenses and deferred income taxes 11,191 (7,794)
Other assets 272 412
Accounts payable (27,171) (57,078)
Other accrued liabilities (12,626) (6,989)
-------- --------
Net cash provided by operating activities 2,464 7,929
-------- --------
Cash flows from investing activities:
Acquisition of property, equipment and other (4,394) (9,458)
Proceeds from sale of property, equipment and other 2,005 73
Acquisition of new businesses -- (3,313)
-------- --------
Net cash used in investing activities (2,389) (12,698)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit agreements (13,548) 78,533
Repayment of long-term notes payable to RSA (3,500) (83,500)
Proceeds from issuance of Common Stock and warrants 19,428 2,094
Borrowings on notes and leases payable 9,545 2,928
Repayments of notes and leases payable (8,188) (957)
-------- --------
Net cash provided by (used in) financing activities 3,737 (902)
-------- --------
Effect of exchange rate changes on cash 2 14
-------- --------
Net increase (decrease) in cash 3,814 (5,657)
Cash at beginning of period 1,308 7,465
-------- --------
Cash at end of period $ 5,122 $ 1,808
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,976 $ 12,217
Income taxes $ 42 $ 3,362
Supplemental non-cash financing activities:
Common Stock issued for acquisition (Note 2) $ -- $ 8,277
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 -- Basis of Presentation:
The condensed consolidated financial statements presented in this
Quarterly Report are unaudited. It is management's opinion that all adjustments,
consisting of normal recurring items, have been included for a fair basis of
statement. This Quarterly Report on Form 10-Q should be read in conjunction with
the Company's 2001 Annual Report on Form 10-K. The operating results for the
period ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2002. Certain prior year
amounts have been reclassified to conform with current presentation.
The Company operates in one business segment as a distributor of
storage products and systems as well as semiconductor and computer products and
peripherals to original equipment manufacturers (OEMs), value-added resellers
(VARs) and dealers in the United States, Canada, Europe and Latin America.
Computer products include disk, tape and optical drives and subsystems, drive
controllers, computers and board-level products. Semiconductor products include
memory, logic microprocessor, peripheral and specialty components. The Company's
Total Tec division markets computer and storage systems to end user and VAR
customers in the eastern USA. The Company also provides a variety of value-added
services to its customers, consisting of computer storage solutions and
services, including subsystem testing, software loading, mass storage and
computer systems integration, disk drive formatting and testing, and the
packaging of component kits to customer specifications.
Note 2 -- Acquisitions:
The results of operations of the acquired businesses as described below
are included in the consolidated financial statements from the dates of
acquisition.
Total Tec Systems, Inc. Acquisition
On November 13, 2001, the Company acquired all the capital stock of
Total Tec Systems Inc. ("Total Tec"), a privately held company headquartered in
Edison, New Jersey, with offices in the eastern and southern United States.
Total Tec is an enterprise computing and storage solutions provider focused on
providing comprehensive IT solutions to address key business data concerns
including availability, reliability, performance, scalability and manageability.
Total Tec was acquired for a total purchase price of approximately
$14.2 million which included cash of approximately $9 million, the issuance of
400,000 shares of the Company's Common Stock that include a certain share price
guarantee and acquisition costs. The share price guarantee provides for the
issuance of additional consideration if the market value of the Company's Common
Stock is less than $12.50 per share on the first anniversary of the closing date
of the acquisition. As a result of this guarantee, the Common Stock issued as
part of the acquisition has been valued at the $12.50 guaranteed amount. The
purchase price was allocated to the acquired assets and liabilities assumed,
based upon management's estimate of their fair market values as of the
acquisition date, as follows (in thousands):
Cash $ 3,014
Accounts receivable 16,229
Inventories 7,006
Equipment and other assets 2,841
Goodwill 3,124
Other intangibles 2,500
Accounts payable (7,100)
Other accrued liabilities (3,792)
Notes payable (9,630)
----------
Total consideration $ 14,192
==========
6
Other intangibles include trade name, supplier relationships and a
non-compete agreement, with estimated useful lives for amortization of 20 years,
ten years and three years, respectively.
Results of operations of Total Tec were not material to the Company.
Touch The Progress Group BV Acquisition
On May 22, 2001, the Company acquired all the capital stock of Touch
The Progress Group BV ("TTPG"), a privately held company headquartered in the
Netherlands, with offices in Belgium, Germany and Austria. TTPG designs,
manufactures, markets and supports high performance and tailor made storage
solutions, critical to success in high availability, midrange and high-end
enterprise computing environments.
TTPG was acquired for a total purchase price of approximately $10.5
million which included cash of $2.5 million, the issuance of 560,000 shares of
the Company's Common Stock valued at $7.5 million that include a one-year share
price guarantee and acquisition costs. The Common Stock issued was valued in
accordance with EITF Issue No. 99-12, "Determination of the Measurement Date for
the Market Price of Acquirer Securities Issued in a Purchase Business
Combination," using the average of the closing prices of the Company's Common
Stock for the two days prior to the acquisition date and the closing price of
the Company's Common Stock on the date of acquisition. The share price guarantee
provides for the issuance of additional consideration if the market value of the
Company's Common Stock is less than $12.50 per share on the first anniversary of
the closing date of the acquisition. This was a below-market share price
guarantee and was accounted for in accordance with ETIF Issue No. 97-15,
"Accounting for Contingency Arrangements Based on Security Prices in a Purchase
Business Combination." In June, 2002, the Company issued an additional 74,714
shares of the Company's Common Stock as a result of the share price guarantee.
The purchase price was allocated to the acquired assets and assumed liabilities
based upon management's estimate of their fair market values as of the
acquisition date, as follows (in thousands):
Accounts receivable 6,182
Inventories 7,397
Equipment and other assets 661
Goodwill 9,293
Accounts payable (9,915)
Other accrued liabilities (1,928)
Notes payable (998)
----------
Total consideration $ 10,692
==========
Results of operations of TTPG were not material to the Company.
Forefront Graphics Corporation Acquisition
On May 24, 2001, the Company acquired all the capital stock of
Forefront Graphics ("FFG"), a privately held company headquartered in Toronto,
Canada with offices in Ottawa, Montreal, Calgary and Vancouver. FFG is a leading
distributor of high performance computer graphics, digital audio and video,
storage and multimedia products to both the computer reseller and the video
production reseller marketplaces.
FFG was acquired for a total purchase price of approximately $2.2
million which included cash of $1.1 million, the issuance of 60,324 shares of
the Company's Common Stock valued at $800,000 and acquisition costs. The Common
Stock issued was valued in accordance with EITF Issue No. 99-12, "Determination
of the Measurement Date for the Market Price of Acquirer Securities Issued in a
Purchase Business Combination," using the average of the closing prices of the
Company's Common Stock for the two days prior to the acquisition date and the
closing price of the Company's Common Stock on the date of acquisition. The
Company is obligated to pay up to an additional $325,000 in cash within three
years of the closing date as a contingent incentive payment to be based upon
earnings achieved during certain periods,
7
up to March 31, 2003. The purchase price was allocated to the acquired assets
and liabilities assumed, based upon management's estimate of their fair market
values as of the acquisition date, as follows (in thousands):
Accounts receivable $ 1,069
Inventories 1,033
Equipment and other assets 42
Goodwill and other intangibles 1,526
Accounts payable (775)
Other accrued liabilities (401)
Notes payable (294)
-------------
Total consideration $ 2,200
=============
Results of operations of FFG were not material to the Company.
Note 3 -- Change in Accounting for Goodwill and Certain Other Intangibles:
In accordance with SFAS No. 142, goodwill amortization was discontinued
as of January 1, 2002. SFAS No. 142 prescribes a two-phase process for
impairment testing of goodwill. The first phase screens for impairment; while
the second phase (if necessary), measures the impairment. The Company completed
its first phase impairment analysis during the first quarter of 2002 and found
no instances of impairment of its recorded goodwill; accordingly, the second
testing phase, absent future indicators of impairment, is not necessary during
2002.
In accordance with SFAS No. 142, the effect of this accounting change
is reflected prospectively. The Company has one reporting unit and supplemental
comparative disclosure as if goodwill had not been amortized in the prior year
period is as follows (in thousands, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
--------- ---------- ---------- ---------
Reported net loss $ (6,073) $ (7,673) $ (5,689) $ (7,547)
Add back: Goodwill amortization -- 402 -- 764
--------- --------- --------- ---------
Adjusted net loss $ (6,073) $ (7,271) $ (5,689) $ (6,783)
========= ========= ========= =========
Basic loss per share:
Reported loss per share $ (0.31) $ (0.47) $ (0.30) $ (0.31)
Goodwill amortization -- 0.02 -- 0.04
--------- --------- --------- ---------
Adjusted net loss per share $ (0.31) $ (0.45) $ (0.30) $ (0.27)
========= ========= ========= =========
Diluted loss per share:
Reported net loss per share $ (0.31) $ (0.47) $ (0.30) $ (0.31)
Goodwill amortization -- 0.02 -- 0.04
--------- --------- --------- ---------
Adjusted net loss per share $ (0.31) $ (0.45) $ (0.30) $ (0.27)
========= ========= ========= =========
The Company has acquired certain intangible assets through acquisitions
which include non-compete agreements, a trademark, a tradename and supplier
relationships, with estimated useful lives for amortization of three years, 40
years, 20 years and ten years, respectively. The carrying values and accumulated
amortization of these assets at June 30, 2002 are as follows (in thousands):
8
As of June 30, 2002
------------------------------------
Gross Carrying Accumulated
Amortized Intangible Assets Amount Amortization
--------------------------- -------------- ------------
Non-compete agreements $ 2,137 $ (953)
Trademark 3,770 (181)
Tradename 300 (7)
Supplier relationships 1,200 (60)
------------- ------------
Total $ 7,407 $ (1,201)
============= ============
The expected amortization of these balances over the next five fiscal
years are as follows (in thousands):
Aggregate Amortization Expense
------------------------------
For year ended 12/31/01 $ 330
------------------------------
Estimated Amortization Expense
------------------------------
For year ending 12/31/02 $ 790
For year ending 12/31/03 $ 755
For year ending 12/31/04 $ 575
For year ending 12/31/05 $ 248
For year ending 12/31/06 $ 238
Note 4 -- Earnings (loss) 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. Due to net losses incurred for
the periods presented, weighted average basic and diluted shares outstanding for
the respective periods are the same.
For the three months ended June 30, 2002 and 2001, all outstanding
options, grants and warrants to purchase 5,801,757 and 4,781,608 shares of
common stock, respectively were excluded from the computation of diluted net
loss per share because they were antidilutive.
Note 5 -- Lines of Credit:
On May 14, 2001, the Company entered into a syndicated Loan and
Security Agreement arranged by First Union National Bank ("First Union
Facility"), as principal agent, to provide a $175 million revolving line of
credit facility. The First Union Facility refinanced the Company's $50 million
credit facility with California Bank & Trust that matured May 31, 2001, and the
$80 million short-term loan with the RSA that matured June 30, 2001. The
syndicate includes Bank of America N.A. and Congress Financial Corporation
(Western), as co-agents and other financial institutions, as lenders. Borrowings
under the line of credit bear interest at First Union National Bank's prime rate
plus a margin of 0.0% to 0.5%, based on borrowing 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 2.25% to 2.75%, based on borrowing levels. The average interest rate
on outstanding borrowings under the revolving line of credit during the quarter
ended June 30, 2002, was 4.6%, and the balance outstanding at June 30, 2002 was
$77.3 million. Obligations of the Company under the revolving line of credit are
secured by certain assets of the Company and its North and South American
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 and investments. The Company was in compliance with its
bank covenants at June 30, 2002; 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
9
in compliance with the covenants, and is unable to obtain a waiver of
noncompliance from its bank, the Company's financial condition and results of
operations would be materially adversely affected. The First Union Facility
matures May 13, 2003, and accordingly has been reclassified as a short term
liability. The Company has initiated negotiations to renew its borrowing
facility with its current lenders, and is currently exploring additional and
alternative financing arrangements to fund the Company's working capital needs.
If the Company is unable to renew its existing line of credit, or otherwise
obtain financing equivalents, the Company's financial condition and results of
operations would be materially adversely affected.
On July 6, 2000, the Company entered into a Securities Purchase
Agreement with The Retirement Systems of Alabama and certain of its affiliated
funds (the "RSA facility"), under which the Company borrowed $180 million of
subordinated debt financing. 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 installments commencing December 31, 2000 and in
semi-annual principal installments of $8.5 million commencing December 31, 2007,
with a final maturity date of June 30, 2010. The RSA facility is secured by a
second lien on the Company's and its subsidiaries' North American and South
American assets. The Company must meet certain financial tests on a quarterly
basis, and comply with certain other covenants, including restrictions 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 Company
is in compliance with its subordinated debt financing covenants; however, there
can be no assurance that the Company will be in compliance with such covenants
in the future. If the Company does not remain in compliance with the covenants
in the Securities Purchase Agreement and is unable to obtain a waiver of
noncompliance from its subordinated lenders, the Company's financial condition
and results of operations would be materially adversely affected. The balance
outstanding at June 30, 2002 was $89.5 million.
On November 13, 2001, in connection with the acquisition of Total Tec,
the Company assumed a $17.5 million short-term borrowing facility with Summit
Business Capital Corporation ("SBCC"). This facility is secured by substantially
all of Total Tec's assets, bears interest at SBCC's base rate or LIBOR plus
2.25% and matures April 30, 2003. At June 30, 2002, there were no borrowings
outstanding under the SBCC facility.
On August 3, 2000, in connection with the acquisition of Ideal, the
Company assumed a $43 million borrowing facility with Lombard NatWest Limited,
which was increased to $60 million in October 2000. This facility is secured by
substantially all of Ideal's accounts receivable, bears interest at NatWest's
base rate plus 1.5% and continues indefinitely subject to termination by NatWest
or the Company with three months notice. There are no financial covenant
requirements. At June 30, 2002, approximately $38.0 million was outstanding
under the NatWest borrowing facility. The Company believes that if NatWest were
to terminate the facility, alternative financing could be obtained or additional
funds could be obtained under other existing lines to replace the funding
provided by NatWest. Currently the Company is seeking an increased line of
credit with a number of European financial institutions that will enable the
Company to fund its forecasted growth. If the Company were not able to replace
the facility or obtain an increased line of credit, the Company's liquidity and
financial position may be adversely affected.
On October 16, 2000, the Company exercised the option to purchase land
and buildings occupied by Ideal for approximately $24.0 million. The purchase
was funded through existing cash resources under the NatWest borrowing facility
of approximately $11.0 million and a five-year mortgage of approximately $13.0
million bearing interest at LIBOR plus 1.5%. There are no cross default
provisions within this agreement and the NatWest facility. The mortgage has a
term of five years, bears interest at LIBOR plus 1.5% and is payable in
quarterly installments of approximately $290,000, plus interest, with a balloon
payment of approximately $7.5 million due November 2005. The Company has an
interest rate swap agreement that effectively converts the variable interest
payable on the mortgage to a fixed rate of 7.42% until January 2003. In the
first quarter of 2002, the Company sold a portion of the property for $1.7
million, and recorded a net gain on the sale of approximately $270,000. Proceeds
were used to reduce the balance on the mortgage. At June 30, 2002, the
10
balance outstanding was $9.9 million. The Company was not in compliance with a
financial ratio covenant related to this facility at June 30, 2002. The Company
has received a waiver from NatWest regarding this non-compliance, however the
Company does not expect to be in compliance with the same quarterly covenant at
September 30, 2002. As a result, the balance of the mortgage continues its
classification as a current liability. If the Company does not remain in
compliance with the bank covenants in future periods, and is unable to obtain a
waiver of noncompliance, NatWest has the option to demand full and immediate
payment of the debt. The Company believes it has adequate financing available
and can obtain alternative financing to repay the loan if NatWest were to demand
immediate repayment.
Note 6 -- Common Stock:
In March 2002, the Company received proceeds of approximately $16.5
million from a private placement of 1,500,000 shares of Common Stock. The
Company also issued to the purchasers warrants to purchase an additional 750,000
shares of Common Stock at an exercise price of $11.00 per share. The Company
valued the warrants at $3,858,000 using the Black-Scholes option pricing model
applying an expected life of 18 months, a risk free interest rate of 6.59% and a
volatility of 69%. The warrants were recorded as a component of equity.
Note 7 -- Commitments and Contingencies:
The Company is subject to legal proceedings and claims that arise in
the normal course of business. Management believes that the ultimate resolution
of such matters will not have a material adverse effect on the Company's
financial position or results of operations.
Note 8 -- Comprehensive Income:
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments.
Comprehensive income (loss) is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
------- -------- -------- --------
Net loss $(6,073) $(7,673) $(5,689) $(7,547)
Other comprehensive income (loss):
Foreign currency translation
adjustments 4,216 (7) 3,195 (1,359)
------- ------- ------- -------
Total comprehensive loss $(1,857) $(7,680) $(2,494) $(8,906)
======= ======= ======= =======
Accumulated other comprehensive income (loss) presented in the
accompanying consolidated condensed balance sheets consists of cumulative
foreign currency translation adjustments.
Note 9 -- Recently Issued Accounting Statements:
On July 20, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141, ("SFAS 141"),
Business Combinations, and Statement of Financial Accounting Standards No. 142,
("SFAS 142"), Goodwill and Other Intangible Assets. These statements made
significant changes to the accounting for business combinations, goodwill, and
intangible assets.
11
SFAS 141 established new standards for accounting and reporting
requirements for business combinations and requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 142 established new standards for goodwill acquired in a business
combination, eliminates amortization of goodwill and instead sets forth methods
to periodically evaluate goodwill for impairment. Intangible assets with a
determinable useful life will continue to be amortized over that period. The
Company adopted the provisions of SFAS 142 on January 1, 2002. As a result, the
Company has ceased amortization of $53.5 million in goodwill.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and develops a single accounting method under which long-lived assets that are
to be disposed of by sale are measured at the lower of book value or fair value
less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001.
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and
Technical Corrections. SFAS 145 rescinds FASB Statement No. 4, Reporting Gains
and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements, as well as FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of SFAS
145 will be adopted during fiscal year 2003. We do not anticipate that adoption
of this statement will have a material impact on our consolidated balance sheets
or consolidated statements of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities'" ("SFAS 146"). SFAS 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146
also includes costs related to terminating a contract that is not a capital
lease and termination benefits that employees who are involuntarily terminated
receive under the terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation contract. SFAS 146
will be effective for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. We will adopt SFAS 146
for our fiscal year beginning January 1, 2003 and do not expect that the
adoption will have a material impact on our financial position, results of
operations, or cashflows.
Note 10 -- Restructuring Costs and Special Charges:
In the second quarter of 2002, the Company recorded special charges of
$2.3. These costs consisted primarily of provisions for certain Latin American
receivables of $1.7 million, and costs related to the closure of the Rorke Data
Europe facilities, whose operations were consolidated into the Company's TTP
division in Almere, Netherlands. The special charges related to Rorke Data
Europe included accrued costs for future lease obligations for non-cancelable
lease payments of $338,000, other facility closure costs of $77,000 and
severance and benefits of $29,000 for involuntary employee terminations.
12
In the second and third quarters of 2001, the Company accrued
restructuring costs of $4.8 million. These costs consisted primarily of the
discontinuance and non-cash write-off of certain fixed assets valued at $2.4
million, severance and benefits of $2.2 million related to involuntary employee
terminations and estimated lease costs of $238,000 pertaining to future lease
obligations for non-cancelable lease payments for excess facilities.
At June 30, 2002, outstanding liabilities related to these charges are
summarized as follows (in thousands):
Restructuring
Total Cash Liabilities
Charges Payments at June 30, 2002
------- -------- ----------------
Severance costs $2,228 $2,199 $ 29
Lease costs 576 181 395
Other facility closure costs 77 -- 77
------ ------ ------
Total $2,881 $2,380 $ 501
====== ====== ======
Note 11 -- 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 45% of total sales for the six months ended
June 30, 2002 and 2001.
(In thousands)
Six Months Ended June 30,
--------------------------------
Geographic information consists of the following: 2002 2001
---------- ----------
Net sales:
North America $ 509,201 $ 499,935
Latin America 104,665 130,684
Europe 406,776 360,590
---------- ----------
Total $1,020,642 $ 991,209
========== ==========
June 30,
--------------------------------
Long-lived assets: 2002 2001
---------- ---------
United States $ 49,354 $ 49,615
United Kingdom 52,986 59,162
Other foreign countries 14,207 4,012
---------- ----------
Total $ 116,547 $ 112,789
========== ==========
Note 12 -- Derivative Financial Instruments:
The Company generates a substantial portion of its revenues in
international markets, which subjects its operations and cash flows to the
exposure of currency exchange fluctuations. The Company seeks to minimize the
risk associated with currency exchange fluctuations by entering into forward
exchange contracts to hedge certain foreign currency denominated assets or
liabilities. These derivatives do not qualify for SFAS 133 hedge accounting
treatment. Accordingly, changes in the fair value of these hedges are recorded
immediately in earnings to offset the changes in the fair value of the assets or
liabilities being hedged.
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Information in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this quarterly
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements provide current expectations or forecasts of
future events and can be identified by the use of terminology such as "believe,"
"estimate," "expect," "intend," "may," "could," "will," and similar words or
expressions. This forward-looking information generally relates to growth,
financial results, and financing and acquisition activities, among others.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including but not
limited to the timing of delivery of products from suppliers, the product mix
sold by the Company, the integration of acquired businesses, customer demand,
the Company's dependence on a small number of customers that account for a
significant portion of revenues, availability of products from suppliers,
cyclicality in the storage disk drive and other industries, price competition
for products sold by the Company, management of growth, the Company's ability to
collect accounts receivable, price decreases on inventory that is not price
protected, ability to negotiate credit facilities, potential interest rate
fluctuations as described below and the other risk factors detailed in the
Company's filings with the SEC, including its Annual Report on Form 10-K for the
year ended December 31, 2001. The Company assumes no obligation to update such
forward-looking statements or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements. Because
many factors are unforeseeable, the foregoing should not be considered an
exhaustive list.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Net sales were $497.7 million for the quarter ended June 30, 2002,
compared to sales of $455.7 million for the quarter ended June 30, 2001, which
represented an increase of $42.0 million, or 9%. Of the total increase in sales,
$34.7 million was attributable to the expansion of the customer base related to
the acquisitions of Touch The Progress Group BV ("TTPG") in May 2001 and Total
Tec Systems, Inc. ("Total Tec") in November 2001, and the remaining amount was
primarily due to growth in unit sales to existing and new customers in Europe
and North America.
The Company's gross profit for the quarter ended June 30, 2002 was
$40.0 million compared to $32.9 million for the quarter ended June 30, 2001,
which represented an increase of $7.1 million, or 22%. The increase in the
dollar amount of gross profit was primarily due to the inventory charge of $8.2
million taken in the second quarter 2001, as discussed below. Excluding the
prior year inventory charge, gross profit decreased to $40.0 million from $41.1
million in the quarter ended June 30, 2001, a decrease of $1.1 million, or 3%.
Excluding the inventory charge, gross profit increases of $5.1 million
contributed through the acquisitions of TTPG and Total Tec were offset by
decreases of $6.2 million in the Americas and Europe. Excluding the inventory
charge, the overall gross margin was 8.0% compared to 9.0% in the same period
last year. The decrease in gross margin percentage was primarily due to intense
price competition in computer components.
Selling, general and administrative expenses increased to $42.1 million
for the quarter ended June 30, 2002 from $39.0 million for the quarter ended
June 30, 2001, an increase of $3.1 million, or 8%. The increase in expenses was
primarily attributable to the acquisitions of TTPG and Total Tec. As a
percentage of sales, selling, general and administrative expenses decreased in
the second quarter of 2002 to 8.5% from 8.6% in the second quarter of 2001.
Interest expense was $4.4 million for the quarter ended June 30, 2002
as compared to $5.1 million in the same period last year. This decrease was
primarily due to decreased interest rates on combined borrowings during the
second quarter and overall decreased borrowings during the quarter for worldwide
14
working capital purposes. Interest rates on combined borrowings were 7.6% for
the quarter ended 2002 compared to 8.4% in the same period last year.
Our effective tax benefit rate of 31% for the quarter ended June 30,
2002 compared to an effective tax benefit rate of 40% for the quarter ended June
30, 2001. The lower tax benefit rate was primarily caused by the impact of
non-deductible expenses in relation to the level of losses in each period.
Restructuring Costs and Special Charges
In the second quarter of 2002, the Company recorded special charges of
$2.3. These costs consisted primarily of provisions for certain Latin American
receivables of $1.7 million, and costs of $583,000 related to the closure of the
Rorke Data Europe facilities whose operations were consolidated into the
Company's TTP division in Almere, the Netherlands.
In the second quarter of 2001, the Company accrued special charges of
$1.5 million consisting primarily of severance and benefits of $1.3 million
related to involuntary employee terminations and lease costs of $238,000
pertaining to estimated future obligations for non-cancelable lease payments for
excess facilities in Minnesota that were vacated due to the reductions in
workforce. The Company also recorded a provision for inventory of $8.2 million
related to additional excess inventory and a $300,000 provision included in
selling, general and administrative expenses. The additional provisions resulted
from the decision to discontinue certain product lines and the impact of current
market conditions.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Net sales were $1,020.6 million for the six months ended June 30, 2002,
compared to sales of $991.2 million for the six months ended June 30, 2001,
which represented an increase of $29.4 million, or 3%. Of the total increase in
sales, $62.2 million was attributable to the increase in the customer base
related to the acquisitions of TTPG and Total Tec, $16.4 million was due to
growth in unit sales to existing and new customers in Europe and these increases
were offset by a decrease of $49.2 million in sales in the Americas.
The Company's gross profit for the six months ended June 30, 2002 was
$87.4 million compared to $78.3 million for the six months ended June 30, 2001,
which represented an increase of $9.1 million, or 12%. The increase in the
dollar amount of gross profit was primarily due to the inventory charge of $8.2
million taken in the second quarter 2001, as discussed below. Excluding the
prior year inventory charge, gross profit increased to $87.4 million compared to
$86.5 million for the six months ended June 30, 2001, an increase of $900,000,
or 1%. Excluding the inventory charge, gross profit increases of $8.9 million
contributed through the acquisitions of TTPG and Total Tec were largely offset
by decreases of $8.0 million in Europe and the Americas. Excluding the inventory
charge, the overall gross margin was consistent at 8.6% compared to 8.7% in the
same period last year.
Selling, general and administrative expenses increased to $84.8 million
for the six months ended June 30, 2002 from $78.6 million for the six months
ended June 30, 2001, an increase of $6.2 million, or 8%. As a percentage of
sales, selling, general and administrative expenses increased in the first six
months of 2002 to 8.3% from 7.9% in the first six months of 2001. The increase
in expenses was primarily attributable to the acquisitions of TTPG and Total
Tec, and as storage solutions providers, selling, general and administrative
expenses as a percentage of sales are typically higher than those of
distribution operations.
Interest expense was $8.5 million in the six months ended June 30,
2002, as compared to $10.7 million in the same period last year. This decrease
was primarily due to decreased interest rates on combined borrowings during the
first six months of 2002, and overall decreased borrowings during the
15
period for worldwide working capital purposes. Interest rates on combined
borrowings were 7.4% in the first six months of 2002 compared to 8.9% in the
same period last year.
Our effective tax benefit rate of 30% for the six months ended June 30,
2002 compared to an effective tax benefit rate of 40% for the six months ended
June 30, 2001. The lower tax benefit rate was primarily caused by the impact of
non-deductible expenses in relation to the level of losses in each period.
Restructuring Costs and Special Charges
In the second quarter of 2002, the Company recorded special charges of
$2.3 million. These costs consisted primarily of provisions for certain Latin
American receivables of $1.7 million, and costs of $583,000 related to the
closure of the Rorke Data Europe facilities whose operations were consolidated
into the Company's TTP division in Almere, the Netherlands.
In the second quarter of 2001, the Company accrued special charges of
$1.5 million consisting primarily of severance and benefits of $1.3 million
related to involuntary employee terminations and lease costs of $238,000
pertaining to estimated future obligations for non-cancelable lease payments for
excess facilities in Minnesota that were vacated due to the reductions in
workforce. The Company also recorded a provision for inventory of $8.2 million
related to additional excess inventory and a $300,000 provision included in
selling, general and administrative expenses. The additional provisions resulted
from the decision to discontinue certain product lines and the impact of current
market conditions.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company has funded its working capital
requirements principally through borrowings under 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.
In March 2002, the Company received proceeds of approximately $16.5
million from a private placement of 1,500,000 shares of Common Stock. The
Company also issued to the purchasers, warrants to purchase an additional
750,000 shares of Common Stock at an exercise price of $11.00 per share.
Net cash provided by operating activities for the six months ended June
30, 2002, was $2.5 million. The Company's inventories decreased as of June 30,
2002 to $191.1 million from $195.8 million as of December 31, 2001, and the
Company's accounts payable decreased to $222.5 million as of June 30, 2002 from
$231.7 million as of December 31, 2001. The decreases in inventories and
accounts payable are primarily a result of reduced inventory purchases. The
Company's future cash requirements will depend on numerous factors, including
potential acquisitions and the rate of growth of its sales.
On May 14, 2001, the Company entered into a syndicated Loan and
Security Agreement arranged by First Union National Bank ("First Union
Facility"), as principal agent, to provide a $175 million revolving line of
credit facility. The First Union Facility refinanced the Company's $50 million
credit facility with California Bank & Trust that matured May 31, 2001, and the
$80 million short-term loan with the RSA that matured June 30, 2001. The
syndicate includes Bank of America N.A. and Congress Financial Corporation
(Western), as co-agents and other financial institutions, as lenders. Borrowings
under the line of credit bear interest at First Union National Bank's prime rate
plus a margin of 0.0% to 0.5%, based on borrowing 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 2.25% to 2.75%, based on borrowing levels. The average interest rate
on outstanding borrowings under the revolving line of credit during the quarter
ended June 30, 2002, was 4.6%, and the balance outstanding at June 30, 2002 was
$77.3 million. Obligations of the Company under the revolving line of credit are
secured
16
by certain assets of the Company and its North and South American 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
and investments. The Company was in compliance with its bank covenants at June
30, 2002; 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 bank, the Company's financial condition and results of operations would
be materially adversely affected. The First Union Facility matures May 13, 2003,
and accordingly has been reclassified as a short term liability. The Company has
initiated negotiations to renew its borrowing facility with its current lenders,
and is currently exploring additional and alternative financing arrangements to
fund the Company's working capital needs. If the Company is unable to renew its
existing line of credit, or otherwise obtain financing equivalents, the
Company's financial condition and results of operations would be materially
adversely affected.
On July 6, 2000, the Company entered into a Securities Purchase
Agreement with The Retirement Systems of Alabama and certain of its affiliated
funds (the "RSA facility"), under which the Company borrowed $180 million of
subordinated debt financing. 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 installments commencing December 31, 2000 and in
semi-annual principal installments of $8.5 million commencing December 31, 2007,
with a final maturity date of June 30, 2010. The RSA facility is secured by a
second lien on the Company's and its subsidiaries' North American and South
American assets. The Company must meet certain financial tests on a quarterly
basis, and comply with certain other covenants, including restrictions 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 Company
is in compliance with its subordinated debt financing covenants; however, there
can be no assurance that the Company will be in compliance with such covenants
in the future. If the Company does not remain in compliance with the covenants
in the Securities Purchase Agreement and is unable to obtain a waiver of
noncompliance from its subordinated lenders, the Company's financial condition
and results of operations would be materially adversely affected. The balance
outstanding at June 30, 2002 on this long-term debt was $89.5 million.
On November 13, 2001, in connection with the acquisition of Total Tec,
the Company assumed a $17.5 million short-term borrowing facility with Summit
Business Capital Corporation ("SBCC"). This facility is secured by substantially
all of Total Tec's assets, bears interest at SBCC's base rate or LIBOR plus
2.25% and matures April 30, 2003. At June 30, 2002, there were no borrowings
outstanding under the SBCC facility.
On August 3, 2000, in connection with the acquisition of Ideal, the
Company assumed a $43 million borrowing facility with Lombard NatWest Limited,
which was increased to $60 million in October 2000. This facility is secured by
substantially all of Ideal's accounts receivable, bears interest at NatWest's
base rate plus 1.5% and continues indefinitely subject to termination by NatWest
or the Company with three months notice. There are no financial covenant
requirements. At June 30, 2002, approximately $38.0 million was outstanding
under the NatWest borrowing facility. The Company believes that if NatWest were
to terminate the facility, alternative financing could be obtained or additional
funds could be obtained under other existing lines to replace the funding
provided by NatWest. Currently the Company is seeking an increased line of
credit with a number of European financial institutions that will enable the
Company to fund its forecasted growth. If the Company were not able to replace
the facility or obtain an increased line of credit, the Company's liquidity and
financial position may be adversely affected.
On October 16, 2000, the Company exercised the option to purchase land
and buildings occupied by Ideal for approximately $24.0 million. The purchase
was funded through existing cash resources under the NatWest borrowing facility
of approximately $11.0 million and a five-year mortgage of approximately $13.0
million bearing interest at LIBOR plus 1.5%. There are no cross default
provisions within this agreement and
17
the NatWest facility. The mortgage has a term of five years, bears interest at
LIBOR plus 1.5% and is payable in quarterly installments of approximately
$290,000, plus interest, with a balloon payment of approximately $7.5 million
due November 2005. The Company has an interest rate swap agreement that
effectively converts the variable interest payable on the mortgage to a fixed
rate of 7.42% until January 2003. In the first quarter of 2002, the Company sold
a portion of the property for $1.7 million, and recorded a net gain on the sale
of approximately $270,000. Proceeds were used to reduce the balance on the
mortgage. At June 30, 2002, the balance outstanding was $9.9 million. The
Company was not in compliance with a financial ratio covenant related to this
facility at June 30, 2002. The Company has received a waiver from NatWest
regarding this non-compliance, however the Company does not expect to be in
compliance with the same quarterly covenant at September 30, 2002. As a result,
the balance of the mortgage continues its classification as a current liability.
If the Company does not remain in compliance with the bank covenants in future
periods, and is unable to obtain a waiver of noncompliance, NatWest has the
option to demand full and immediate payment of the debt. The Company believes it
has adequate financing available and can obtain alternative financing to repay
the loan if NatWest were to demand immediate repayment.
The Company's future cash requirements will depend on numerous factors,
including potential acquisitions and the rate of growth of its sales. The
Company believes its short term borrowing facilities will be renewed, or that
alternate financing will be available to provide sufficient working capital to
conduct its current operations for the next 12 months.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to interest rate risk on its variable rate
credit facilities and could be subjected to increased interest payments if
market interest rates fluctuate. Average borrowings outstanding on the variable
rate credit facilities with First Union National Bank were $85 million for the
quarter ended June 30, 2002 and average borrowings under Ideal's borrowing
facility with Lombard NatWest were $36 million for the quarter ended June 30,
2002. The First Union facility and the NatWest Facility have interest rates that
are based on associated rates such as Eurodollar, LIBOR and base or prime rates
that may fluctuate over time based on changes in the economic environment. Based
on actual borrowings throughout the quarter under the First Union facility and
NatWest Facility, an increase of 1% in such interest rate percentages would
increase the annual interest expense by approximately $1.2 million.
The Company purchases forward exchange contracts to hedge certain
existing and anticipated foreign currency denominated transactions expected to
occur during the year. Gains and losses on these contracts are recognized in
income when the related transactions being hedged are recognized. Because the
effect of movements in currency exchange rates on forward exchange and currency
option contracts generally offsets the related effect on the underlying items
being hedged, these financial instruments are not expected to subject the
Company to risks that would otherwise result from changes in currency exchange
rates. Net foreign currency gains and losses were not material for the three
months ended June 30, 2002.
18
PART II - OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
Effective June 4, 2002, the Registrant issued 74,714 shares to two
Netherlands entities. The shares were issued pursuant to an agreement entered
into in May 2001 which guaranteed the Registrant's stock price on the first
anniversary of the Registrant's acquisition of Touch The Progress Group BV. The
Registrant relied on the exemption from registration provided by Regulation S
under the Securities Act of 1933. The certificates representing the shares
contain a restrictive securities legend and stock transfer restrictions were
contained in the acquisition agreement among the parties.
Item 4: Submission of Matters to a Vote of Security Holders
Registrant held its Annual Meeting of Shareholders on May 16, 2002.
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 nonvotes, 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 Against Withheld Nonvotes
---------- ------- -------- --------
W. Donald Bell 12,266,838 -- 2,727,089 --
Gordon A. Campbell 14,888,381 -- 105,546 --
Glenn E. Penisten 14,781,921 -- 212,006 --
Edward L. Gelbach 14,782,128 -- 211,799 --
James Ousley 14,783,326 -- 210,601 --
Eugene B. Chaiken 14,784,726 -- 209,201 --
2. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the current fiscal year ending
December 31, 2002.
For Against Abstention Nonvotes
---------- ------- ---------- --------
14,483,719 484,023 26,185 --
Item 6: Exhibits and Reports
(a) Exhibits:
None
Reports on Form 8-K:
None
19
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 14, 2002
BELL MICROPRODUCTS INC.
BY: BENEDICTUS BORSBOOM
--------------------------------
EXECUTIVE VICE PRESIDENT AND CFO
(PRINCIPAL FINANCIAL OFFICER)
20