Bell Micro Final Fiscal 2005 and 2006 Results

Bell Microproducts, Inc. has completed its previously-announced restatement of its financial statements for 2005, 2004 and prior years and has filed its Annual Report on Form 10-K for the year ended December 31, 2006 with the Securities and Exchange Commission (SEC).

"We are pleased to have accomplished this important goal in December as planned," said W. Donald Bell, President and Chief Executive Officer. "This is a major step to becoming current with our SEC reporting obligations. We appreciate the continued support of our many customers, vendors, lenders, employees and shareholders who have supported us throughout this challenging process. While we still have work ahead of us, we are pleased to move forward with a focus on our competencies gained in 20 years of industry leadership."

Fiscal 2006 Results and Restatement Summary
Revenues for the fourth quarter of 2006 were a then-current record $984 million, a 27% increase sequentially and a 21% increase over the fourth quarter of 2005. The Company generated a net loss for the fourth quarter of $22.1 million, or $(0.69) per share, as compared to net income of $0.3 million, or $0.01 per share, in the third quarter of 2006 and a net loss of $11.9 million, or $(0.40) per share, in the fourth quarter of 2005.

Included in the loss in the fourth quarter of 2006 was an income tax provision of $23.1 million, or $(0.72) per share, to record an allowance against certain deferred tax assets.

Revenues for the full year 2006 also reached a then-current record of $3.37 billion, an increase of 7% over 2005 revenues of $3.14 billion. Including the tax provision in the fourth quarter, the Company recorded a 2006 net loss of $23.1 million, or $(0.75) per share, as compared to a net loss of $15.6 million, or $(0.53) per share, in 2005. Our operating results in 2005 included a charge of $7.3, million or $(0.24) per share, for the impairment of goodwill and other intangible assets.

The components of the restatement are outlined in detail in the Company’s 2006 Annual Report on Form 10-K. Following are the key adjustments the Company recorded through June 30, 2006, most of which have been previously announced:

• Non-cash goodwill impairment charges of $33.2 million, substantially all of which were recorded in the year ended December 31, 2002, lower than the previously-announced estimate of $50 to $70 million;
• Non-cash compensation costs and related payroll tax effect of approximately $8.8 million in connection with the Company’s review of its historical stock option practices for the period from 1996 through the second quarter of 2006;
• Reversals of certain accounts receivable adjustments of $12.8 million, which were previously recorded as reductions of operating expenses in the period January 1, 1997 through June 30, 2006;
• Changes in the classification of certain acquisition-related earnout payments of approximately $5.8 million from additional purchase price to compensation expense, which reduced previously-reported pretax income in the years ended December 31, 2004 and 2005;
• Reversals of vendor allowances of $8.2 million in connection with certain transactions over the period January 1, 2002 through June 30, 2006. We have received agreements from the vendors and anticipate recognizing these related vendor allowances in the quarter we entered into such agreement;
• Various other accounting adjustments, including adjustments related to the review of reserves, accruals and other accounting estimates, that reduced pre-tax income by $13.1 million during the period from January 1, 1999 to June 30, 2006; and
• Aggregate income tax benefits of $14.7 million over the period from January 1, 1999 to June 30, 2006.

The Company has incurred total outside audit, legal and consultant fees and expenses in connection with the restatement of approximately $69.8 million through November 30, 2008. In addition, we incurred $11.1 million in fees related to obtaining covenant waivers due to the late filing of the Company’s financial statements, which included an 8.5% special interest payment of $9.4 million paid in early 2007 under our convertible notes. With the completion of the restatement, the Company expects these expenses to decline significantly in 2009.

Fourth Quarter 2008

Changes in foreign currency exchange rates have been unprecedented in the latter part of 2008. During the first two months of the fourth quarter, the foreign currencies in which the Company primarily does business have declined relative to the U.S. dollar, in the aggregate, by approximately 18%. As a result, although the Company hedges its foreign currency exposure, it experienced currency losses of approximately $6 million in this same period. In addition, changes in currency exchange rates are expected to result in lower reported international sales in the fourth quarter.

In the U.S., for the fourth quarter, the Company’s distribution business has experienced sales declines, while the Company’s total single tier enterprise businesses are expected to experience flat sales compared to the same period in 2007.

Due to the changes in foreign currency exchange rates described above and market weakness in most geographies, the Company presently expects to report fourth quarter sales in the range of approximately $750 million to $800 million. Due to the lower sales volumes, the Company has taken actions to reduce operating expenses by approximately 7%, or $22 million per year, from that incurred in the third quarter of 2008. The reduction in operating expenses was accomplished through a reduction in personnel levels and other cost-reduction programs.