SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 3 TO FORM 10-K)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
0-23494
(COMMISSION FILE NO.)
BRIGHTPOINT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1778566
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
600 EAST 96TH STREET, SUITE 575, INDIANAPOLIS, INDIANA 46240
(Address of principal executive offices including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 805-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of November 19, 2001 was approximately $179,000,000. As of
November 19, 2001, there were 55,851,401 shares of the registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference into the
parts of this Form 10-K/A as indicated herein:
Proxy Statement for Annual Meeting of Stockholders to be held in 2001 Part III
BRIGHTPOINT, INC.
INTRODUCTORY NOTE
The Company issued restated financial statements for 1998, 1999, 2000 and the
interim periods of 2001 in an amended Form 10-K for the year ended December 31,
2000 and amended Form 10-Qs for the periods ended March 31, 2001 and June 30,
2001, which it filed on November 26, 2001. The Company issued a press release on
January 31, 2002, which it filed as an exhibit to a Form 8-K on February 5,
2002, relating to its intention to further restate its annual financial
statements for 1998, 1999, 2000 and the interim periods of 2001. The cumulative
effects of these restatements on the previously issued financial statements are
presented in the following Form 10-K/A (Amendment No. 3). See Note 17 to the
Consolidated Financial Statements for discussion of the details surrounding the
restatements and reconciliations of previously reported amounts.
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PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. is a leading provider of outsourced services in the
global wireless telecommunications and data industry. Our innovative services
include customized packaging, prepaid and e-business solutions, inventory
management, distribution and other outsourced services. Our customers include
leading network operators, retailers and wireless equipment manufacturers. We
handle wireless products manufactured by such technology companies as Alcatel,
Audiovox, Ericsson, Handspring, Hewlett-Packard, Kyocera, Motorola, NEC, Nokia,
Novatel Wireless, Palm, Panasonic, Research In Motion, Samsung and Siemens. We
also provide integrated services to these manufacturers and some of the world's
leading wireless network operators along with their associated service
providers, resellers, agents and other retail channels. Our distribution
services include purchasing, marketing, selling, warehousing, picking, packing,
shipping and delivery of wireless handsets (including wireless data devices) and
accessories. Our integrated logistics services include support for prepaid
programs, inventory management, procurement, product fulfillment, programming,
telemarketing, private labeling, kitting and customized packaging, product
warranty, repair and refurbishment and end-user support services. We are one of
the largest distributors of wireless handsets and accessories in the world, with
operations centers and/or sales offices in various countries including
Australia, Brazil, the People's Republic of China (including Hong Kong),
Colombia, France, Germany, Ireland, Jordan, Mexico, the Netherlands, New
Zealand, the Philippines, South Africa, Sweden, the United Arab Emirates, the
United States, and Venezuela.
We were incorporated under the laws of the State of Indiana in August 1989
under the name Wholesale Cellular USA, Inc. and reincorporated under the laws of
the State of Delaware in March 1994. In September 1995, we changed our name to
Brightpoint, Inc.
RECENT DEVELOPMENTS AND FINANCIAL OVERVIEW
During 2000, we consolidated four Indianapolis, Indiana locations and a
location in Bensalem, Pennsylvania into a single, new facility located near the
Indianapolis International Airport. We recorded an unusual charge related to the
consolidation for moving costs, the disposal of assets that were not used in the
new facility and the estimated impact of vacating the unused facilities, net of
potential subleases. The total amount of the charge recorded in 2000 was $7.0
million ($4.2 million after applicable taxes or $0.07 per diluted share).
Additionally, during the fourth quarter of 2000, we repurchased approximately
94,000 of our zero-coupon subordinated, convertible notes for approximately $29
million ($310 per $1,000 face value convertible note). These repurchases
resulted in an extraordinary gain of approximately $10 million ($0.18 per
diluted share), net of applicable income taxes and transaction costs. The
repurchases were made pursuant to a plan approved by the Board of Directors to
purchase up to 130,000 of the convertible notes. Subsequent to December 31,
2000, we completed our repurchase plan by acquiring an additional 36,000 of
these convertible notes at prices ranging from $278 to $283 per convertible
note. These transactions resulted in an extraordinary gain in 2001 of
approximately $4.6 million ($0.09 per diluted share), net of applicable income
taxes and transaction costs.
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During 1999 we implemented a broad restructuring plan which included the
disposal of operations in the United Kingdom, Poland, Taiwan and Argentina;
termination of our investments in two joint operations in China; disposal of our
67% interest in a Hong Kong-based accessories company; and initiation of cost
reduction programs in certain areas of our business. Our execution of the
restructuring plan was substantially completed by the close of 1999. During 1999
we recorded non-recurring restructuring and other unusual charges of
approximately $79.6 million resulting from actions taken in accordance with the
restructuring plan. Adjustments to these charges subsequent to the initial
estimates have not been significant. The charges included the write-off of
goodwill investments and tax-related assets related to the eliminated or
terminated operations; the write-down of inventory and accounts receivable to
estimated net realizable values; and losses on the disposals of fixed and other
assets and cash expenses related to lease and employee terminations and other
exit costs.
Because of the significance of the restructuring plan discussed above, the
following discussion has been delineated between results from recurring
operations and results from non-recurring operations. Recurring operations
include all operations except those that have been eliminated or terminated in
accordance with our 1999 restructuring plan. Recurring operations also exclude
the impacts of the gain on debt extinguishment realized in 2000, the
non-recurring charges related to our facilities consolidation in 2000, the
cumulative effect of a change in accounting principle in 1999 and non-recurring
charges related to our restructuring plan in 1999 and 2000. For 2000, our
revenues and net income from recurring operations were $2.0 billion and $37.2
million, respectively, representing an increase in revenues of 20% and an
increase in net income of 133% when compared to 1999. Earnings per diluted share
from recurring operations were $0.66 in 2000 as compared to $0.29 in 1999. Our
growth in revenues reflects the worldwide demand for wireless products as well
as our distribution and integrated logistics services. The increased demand for
wireless products resulted from, among other things, increasing numbers of
wireless subscribers in many markets worldwide and increasing demand for
replacement or upgraded equipment. Our operating margins (income from operations
as a percent of revenue) from recurring operations increased during 2000 due to
a reduction in selling, general and administrative expenses as a percent of
revenue which was primarily the result of cost reduction programs initiated in
the second half of 1999.
On February 26, 2001, we reported that we anticipated revenues and net
income for the first half of 2001 and for the year ending December 31, 2001, to
fall below our previous expectations. We believed an economic slow-down in the
United States, which began in the fourth quarter of 2000, could be more severe
and potentially more sustained than anticipated. Lower consumer demand and
higher levels of inventories in the United States distribution channels
resulting from the unanticipated slow-down in the economy have resulted in lower
than anticipated demand for the products and services that we offer. We also
expect that our gross and operating margins during the first half of 2001 may
decrease as a result of reductions in revenues earned from accessory programs
and integrated logistics services due to the impact of the economic slow-down.
Although the factors impacting our United States demand are expected to improve
during the second half of 2001, approximately 35% of our revenues and 53% of our
operating income from recurring operations was generated in our North America
region during 2000 and a prolonged economic slow-down in the United States could
continue to negatively impact our results during the second half of 2001.
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WIRELESS TELECOMMUNICATIONS AND DATA INDUSTRY
The wireless telecommunications and data industry provides voice and data
communications utilizing various wireless terminals, including mobile
telephones, interactive pagers, personal digital assistants and other mobile
computing devices. Wireless devices are available in a variety of form factors
and using a variety of technologies including analog, digital, multi-band and
Web-enabled devices. Wireless telecommunications and data services are available
to consumers and businesses through numerous network operators who utilize
analog and digital technological standards, such as AMPS, GSM, CDMA, TDMA,
iDEN(R), as well as other new and developing technologies (such as WAP, iMode,
GPRS, EDGE and W-CDMA) to provide voice and data communication over regional,
national and multi-national networks. Developments within the wireless
telecommunications and data industry have allowed wireless subscribers to talk,
send text messages, browse the Internet and effect certain e-commerce
transactions using their wireless devices. Wireless devices and services are
also being used for monitoring services, point-of-sale transaction processing,
inter-device communications, local area networks and location monitoring. Recent
developments affecting the wireless telecommunications and data industry are
industry consolidation; the convergence of the telecommunications, data and
media domains; economic development; advances in and development of next
generation systems technology, including increasing bandwidth; the increasing
variety of terminal form factors; the proliferation of manufacturers and network
operators; and the increasing affordability of wireless airtime. These
developments have helped to grow consumer acceptance and drive increases in
worldwide demand for wireless telecommunications and data equipment and
services.
In recent years, the markets for wireless telecommunications and data
equipment and services have expanded significantly. From 1999 to 2000, the
number of worldwide wireless subscribers increased by approximately 236 million,
or 49%, to approximately 716 million. Nonetheless, at the end of 2000, wireless
penetration was estimated at slightly more than 40% of the population within the
United States and was still, on average, less than 12% of the population
globally. We believe these factors reflect worldwide opportunities for continued
growth within the wireless telecommunications and data industry. The number of
worldwide subscribers is expected to grow to approximately 1.4 billion
subscribers by the end of 2003. The percentage of handset shipments related to
replacement units has continued to grow and is forecasted to exceed 50% of total
unit sales in 2002. Additionally, the use of wireless data products, including
interactive pagers, personal digital assistants and other mobile computing
devices, has seen recent growth and wider consumer acceptance. The number of
worldwide wireless Internet subscribers is forecasted to grow from an estimated
33 million at the end of 2000 to over 100 million by the end of 2001. The
information contained in this paragraph was obtained from leading independent
industry research groups.
Although it cannot be assured that we will grow at rates comparable to
those experienced by the industry (see Business Risk Factors discussed below),
we believe that our strategies are consistent with the following major trends
taking place within the wireless telecommunications and data industry:
Industry Consolidation. Merger and acquisition activities within the
network operator community have increased significantly in recent years. In
general, this consolidation is being driven by improved economies of scale, the
opportunity to expand national or multi-national service areas and efforts to
increase revenue and profitability through additional service offerings. We
believe that this trend will continue in the near future and may lead network
operators to focus more tightly on their core business of
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providing wireless telecommunications and data services, which could in turn
increase the demand for outsourced integrated logistics services. However, these
same trends will also increase the demands placed on the providers of integrated
logistics services, as they will need to meet increasingly complex and
sophisticated customer requirements and provide services over larger geographic
regions while attempting to maintain acceptable levels of profitability. This
increased focus on profitability could cause the network operators to reduce
promotional programs which could decrease the demand for our products or
services. Additionally, this consolidation reduces the number of potential
contracts available to providers of integrated logistics services and could
reduce the degree to which members of the wireless telecommunications and data
industry rely on outsourced services such as the services that we provide. We
could also lose business in the near-term if network operators who are not our
customers acquire network operators who are our customers.
Migration to Next Generation Systems. As network operators compete to
offer anytime/anywhere telecommunications and data services to their customers
through the new technologies of third generation (3G) wireless systems (and the
transitional technologies that lie along the migration route to 3G, including
GPRS, EDGE and others), they will be increasingly focused on spectrum purchase,
infrastructure build out and customer acquisition. This could create an industry
environment in which network operators would be more likely to outsource
integrated logistics services that they do not perceive as central to these
three core activities. However, the roll-out of 3G systems could possibly
mitigate the need for some of the integrated logistics services we now offer if
the underlying technology drastically reduces or eliminates certain processes
that we currently provide to program and/or provision handsets.
New Technologies, Enhancements and Applications. First generation cellular
networks primarily used analog technologies. However, these analog technologies
presented a number of challenges for network operators and users, including
susceptibility to fraud and cloning; capacity constraints; limited battery life
and difficulty in providing enhanced features. To alleviate these concerns, new
wireless networks have increasingly been built around digital technologies,
which provide increased network capacity, more functionality, better voice
quality and greater security/privacy than analog technologies. The conversion of
subscribers from analog to digital technologies has had a positive impact on the
growth of handset demand. In addition, the emergence of new technologies is
fueling the convergence of the telecommunications, data and media domains
resulting in significant changes and opportunities in the wireless
telecommunications and data industry. As a result of this convergence, wireless
subscribers may increasingly use their wireless devices to send and receive
e-mail, browse the Internet, effect mobile commerce transactions and access
other information and services available via the Internet. This convergence is
being powered by the development of wireless Web capabilities and new standards
such as Wireless Application Protocol (WAP), Epoc, Bluetooth and 3G. Other new
wireless technologies and enhancements have also been introduced into the
wireless telecommunications and data market. These include wireless local loop
and satellite-based communications, as well as handset feature and network
enhancements, such as increased talk and standby times, smaller and lighter form
factors and multiple-band reception. All of these developments are expected to
contribute to future subscriber growth.
Proliferation of Manufacturers. With the opportunities presented by a
large market for wireless telecommunications and data equipment, many new
manufacturers are producing wireless mobile devices and accessories, including
certain manufacturers who have historically been successful in providing
consumer electronics to the mass consumer market. In addition, it appears that
manufacturers other than those that have historically produced wireless handsets
and accessories are also entering the market to
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produce wireless data devices. This greater number of manufacturers is expected
to heighten competition and may provide consumers with lower prices, broader
selection, more feature-rich products and new market channels, resulting in
higher product turnover by end users. Although the entry of new manufacturers
appears to be continuing, we believe that the three largest manufacturers of
wireless handsets--Nokia, Motorola and Ericsson--comprise approximately 56% of
the total market for wireless telecommunications equipment. We believe that
Nokia currently maintains the largest market share at approximately 31% followed
by Motorola at 15% and Ericsson at 10%.
Increasing Penetration of Markets Worldwide and New Network Operators. We
expect that the demand for wireless services may continue to drive increased
penetration of markets worldwide and the continued entry of new network
operators in certain markets. Economic growth, increased service availability or
the lower cost of service compared to conventional wireline telephony systems
(or a combination of the three) has historically driven market penetration. In
addition, certain markets characterized by higher market penetration, have also
grown, primarily as a result of increasing deregulation, the availability of
additional spectrum, increased competition and the emergence of new wireless
technologies and related applications. These developments may result in an
increased number of wireless network operators doing business in certain markets
and affect the services provided including seamless roaming, increased coverage,
improved signal quality and greater data handling capabilities through greater
bandwidth. This increase in the number of network operators, together with the
increased number of resellers of wireless communication services in certain
markets, is expected to intensify competition for new and existing subscribers,
thereby reducing prices to subscribers and driving growth in the subscriber base
and the market for wireless communications equipment.
Expanded Use of E-commerce. The ability to conduct business over the
Internet has created opportunities and challenges in many industries including
the wireless telecommunications and data industry. We believe that the continued
growth of e-commerce provides the opportunity for expanded service offerings as
well as the demand for new and innovative Internet capabilities. We also expect
both customers and suppliers may require enhanced management of these
capabilities to remain competitive. The expanded use of e-commerce is expected
to provide faster and more varied methods of delivering wireless
telecommunications and data products to the marketplace.
GROWTH STRATEGY
As (i) the variety of wireless mobile devices expands, (ii)
telecommunications, data, Internet and other technologies converge and evolve
and (iii) distribution migrates from agent/dealers to mass retailers, certain
network operators and manufacturers are finding that switching from in-house
distribution to independent distribution reduces overall costs and helps them to
meet the increasing demands of various market channels. In an effort to maintain
focus on and conserve resources for marketing, sales and customer retention,
certain new network operators are also outsourcing their handset distribution,
fulfillment and inventory management functions (as opposed to building
distribution infrastructure). At the same time, certain handset and other
wireless device manufacturers are outsourcing some of their channel management
functions and utilizing integrated logistics services as a means of simplifying
and reducing the cost of their worldwide distribution systems. They are also
increasingly outsourcing various production and manufacturing operations.
Finally, certain manufacturers and network operators are targeting the growing
consumer segment through mass retail channels, requiring greater levels of
fulfillment services in order to address the logistical challenges of supporting
mass retailers and consumer electronics retail stores. Our
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two primary strategies for building on our position as a global leader in
providing distribution and integrated logistics services to the wireless
telecommunications and data industry are as follows:
Value Migration. This strategy calls for the integration of our services
with the key processes of our customers and suppliers, thereby producing
increased value. To achieve heightened levels of integration, we will attempt to
hasten the innovation and development of logistics and other services for the
wireless telecommunications and data industry, establish ourselves as a
recognized provider of products and valued services related to wireless data,
and deploy these products and services throughout our organization.
Supply Chain Development. This strategy focuses on our efforts to expand
our supplier base and broaden our product portfolio, continually seeking to
expand and enhance key supplier relationships within the wireless
telecommunications and data industry. We will seek to accomplish this by
attempting to grow product lines, brands and technologies handled over
increasingly larger territories, thereby extending our reach to allow us to
provide services to wireless equipment manufacturers in the markets that are
critical to their success.
We intend to pursue business opportunities in areas or markets where we
believe that these strategies can be successfully implemented. We also intend to
evaluate our operations as markets evolve to determine the continued synergy of
our business activities and relationships with our core strategies.
SERVICES
We have become one of the leading suppliers of distribution and integrated
logistics services that move wireless devices and accessories through market
channels, primarily because of our understanding of the needs within each
distribution channel and our development of the knowledge and resources
necessary to create successful solutions.
Our services are intended to provide value to wireless handset
manufacturers and network operators. Through the authorized distribution of
wireless telecommunications and data products, we intend to help manufacturers
achieve their key business objectives of increasing unit sales volume, market
share and points of sale. We target our efforts at the distribution channels
identified by the manufacturers. Our integrated logistics services are intended
to provide outsourcing solutions for the network operators' mission-critical
business requirements. These integrated logistics services are designed to
support network operators in their efforts to add new subscribers and increase
system usage.
Distribution Services. Our distribution services include the purchasing,
marketing, selling, warehousing, picking, packing, shipping and delivery of a
broad selection of wireless telecommunications and data products from leading
manufacturers. We continually review and evaluate wireless telecommunications
and data products in determining the mix of products purchased for resale and
seek to acquire distribution rights for products which we believe have the
potential for significant market penetration.
The products we distribute include a variety of devices designed to work
on substantially all operating platforms (including analog platforms, such as
AMPS, N-AMPS, TACS and NMT, and digital platforms, such as CDMA, GSM, iDEN(R)
and TDMA) and feature prominent brand names such as Alcatel, Audiovox, Ericsson,
Hewlett-Packard, Kyocera, Motorola, NEC, Nokia, Novatel Wireless, Palm,
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Panasonic, Research In Motion, Samsung and Siemens. In 1999 and 2000,
approximately 76% and 79%, respectively, of our revenue from recurring
operations was derived from handset sales. In those same years, distribution
services accounted for approximately 54% and 52%, respectively, of the total
units we handled.
We also distribute related wireless accessories, such as batteries,
chargers, cases and "hands-free" kits. We purchase and resell original equipment
manufacturer (OEM) and aftermarket accessories, either prepackaged or in bulk.
Our accessory packaging services provide network operators and retail chains
with custom packaged and/or branded accessories based on the specific
requirements of that customer. Additionally, we provide end-user accessory
fulfillment and distribution pursuant to contractual arrangements with certain
network operators whereby the network operators' subscribers can order their
accessories through a call center that we manage on behalf of the network
operator. Accessories typically carry higher margins than handsets. In 1999 and
2000, sales of accessories accounted for approximately 16% and 11%,
respectively, of our revenue from recurring operations.
Integrated Logistics Services. Our integrated logistics services include,
among others, support for e-business and prepaid programs, inventory management,
procurement, product fulfillment, programming, telemarketing, private labeling,
kitting and customized packaging, product warranty, repair and refurbishment and
end-user support services. In many of our markets we have contracts with network
operators and equipment manufacturers pursuant to which we currently provide our
integrated logistics services including COMCEL, Dutchtone, Esat Digifone,
Handspring, MoviStar, Nextel, Panasonic and Telstra. We also procure wireless
mobile devices and accessories for our customers using either our own sources or
the customers' specified suppliers. We also perform packaging and kitting
functions, receiving orders--either directly from customers or from our
customers' subscribers--via various forms of electronic data transfer.
During 2000, integrated logistics services accounted for approximately 10%
of our total revenue from recurring operations as compared to approximately 8%
of total revenue from recurring operations in 1999. In 1999 and 2000, integrated
logistics services accounted for approximately 46% and 48%, respectively, of the
total units we handled. Because the fees for such services have higher margins
than those associated with distribution services, they represent a higher than
proportionate percentage of our operating profits.
CUSTOMERS
We provide our services to a customer base of more than 20,000 network
operators, manufacturers, agents, resellers, dealers and retailers. For both
1999 and 2000, aggregate revenues generated from our five largest customers
accounted for approximately 11% of our total revenue and no single customer
accounted for 10% or more of our total revenue.
We generally sell our products pursuant to customer purchase orders and
subject to our terms and conditions. We generally ship products on the same day
orders are received from the customer. Unless otherwise requested, substantially
all of our products are delivered by common carriers. Because orders are filled
shortly after receipt, backlog is generally not material to our business. Our
integrated logistics services are typically provided pursuant to agreements with
terms between one and three years that generally may be terminated by either
party subject to a short notice period.
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PURCHASING AND SUPPLIERS
We have established key relationships with leading manufacturers of
wireless telecommunications and data equipment. We generally negotiate directly
with manufacturers and suppliers in order to obtain inventories of popular brand
name products on favorable pricing terms. In 2000, we made purchases from more
than 60 wireless mobile device and accessory suppliers. We expect our number of
suppliers to grow with our December 2000 acquisition of Advanced Portable
Technologies Pty Ltd due to the number of products that the entity services.
Inventory purchases are based on quality, price, service, customer demand,
product availability and brand name recognition. Certain of our suppliers
provide favorable purchasing terms to us, including price protection,
cooperative advertising and marketing allowances. Product manufacturers
typically provide limited warranties, which we extend to our customers.
Our two largest suppliers of wireless mobile devices and accessories in
the aggregate accounted for approximately 75% and 73% of our product purchases
in 1999 and 2000, respectively. During 1999, Nokia and Ericsson accounted for
approximately 68% and 7%, respectively, of our product purchases, and in 2000
they accounted for approximately 62% and 11%, respectively, of our product
purchases. None of our other suppliers accounted for 10% or more of product
purchases in 1999 or 2000. Loss of the applicable contracts with these or other
suppliers, or failure by these or other suppliers to supply competitive products
on a timely basis and on favorable terms, or at all, would have a material
adverse effect on our revenue and operating margins and our ability to obtain
and deliver products on a timely and competitive basis. See --"Competition."
We maintain agreements with certain of our significant suppliers, all of
which relate to specific geographic areas. Our agreements may be subject to
certain conditions and exceptions including the retention by the manufacturer of
certain direct accounts. Most of our agreements with suppliers are
non-exclusive. Our supply agreements may require us to satisfy minimum purchase
requirements and can be terminated on short notice by either party. We purchase
products from manufacturers pursuant to purchase orders placed from time to time
in the ordinary course of business. We generally place orders on a regular basis
with our suppliers. Purchase orders are typically filled, subject to product
availability, and shipped to our designated warehouses by common carrier. We
believe that our relationships with our suppliers are generally good, however,
we have from time to time experienced inadequate product supply from certain
manufacturers. In 1999, we were unable to obtain sufficient product supplies
from manufacturers in many of the markets in which we operate. Any future
failure or delay by our suppliers in supplying us with products on favorable
terms would severely diminish our ability to obtain and deliver products to our
customers on a timely and competitive basis. If we lose any of our principal
suppliers, or if any supplier imposes substantial price increases and
alternative sources of supply are not readily available, it would have a
material adverse effect on our results of operations.
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SALES AND MARKETING
Our sales and marketing efforts are coordinated in each of our four
regional divisions by a president for that particular division. These executives
devote a substantial amount of their time to developing and maintaining
relationships with our customers and suppliers, in addition to managing the
overall operations of their divisions. Each division's sales and operations
centers are managed by either general or country managers who report to the
appropriate divisional president and are responsible for the daily sales and
operations of their particular location. Each division has sales associates and
telemarketers who specialize in or focus on sales to a specific customer
category (e.g., network operator, dealer, reseller, retailer, etc.). In
addition, we have dedicated a sales force to manage our network operator
relationships and to further our sales of integrated logistics services. We also
market integrated logistics services through sales directors in each of our four
regional divisions and through dedicated sales personnel. Including support
personnel, we had approximately 300 employees involved in sales and marketing at
December 31, 2000, including 60 in our Asia-Pacific division, 80 in our North
America division, 120 in our Europe, Middle East and Africa division and 40 in
our Latin America division.
We believe that product recognition by customers and consumers is an
important factor in the marketing of the products that we sell. Accordingly, we
promote our capabilities and the benefits of certain of our product lines
through advertising in trade publications and attending various international,
national and regional trade shows, as well as through direct mail solicitation,
broadcast faxing and telemarketing activities. Our suppliers and customers use a
variety of methods to promote their products and services directly to consumers,
including print and media advertising.
SEASONALITY
Our operating results are influenced by a number of seasonal factors in the
different countries and markets in which we operate. These results may fluctuate
from period to period as a result of several factors, including:
- purchasing patterns of customers in different markets;
- the timing of the introduction of new products by our suppliers
and competitors;
- variations in sales by distribution channels;
- product availability and pricing; and
- promotions and subsidies by network operators.
Consumer electronics and retail sales in many geographic markets tend to
experience increased volumes of sales at the end of the calendar year. This and
other seasonal factors contribute to the usual increase in our sales during the
fourth quarter and our operating results may continue to fluctuate significantly
in the future. In addition, if unanticipated events occur, including delays in
securing adequate inventories of competitive products at times of peak sales or
significant decreases in sales during these periods, it could have a material
adverse effect on our operating results. Because of a number of factors
adversely impacting the markets we service, including, but not limited to,
economic uncertainty in the United States, we did not experience our historical
seasonal increase in revenue in the fourth quarter of 2000.
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COMPETITION
We operate in a highly competitive business environment and in highly
competitive markets and believe that such competition may intensify in the
future. The markets for wireless telecommunications and data products are
characterized by intense price competition and significant price erosion over
the life of a product. We compete principally on the basis of value, in terms of
price, time, reliability, service and product availability. We compete with
numerous well-established manufacturers and wholesale distributors of wireless
equipment, including our customers and suppliers; wireless network operators,
including our customers; logistics service providers; electronics manufacturing
service providers and export/import and trading companies. These companies may
possess substantially greater financial, marketing, personnel and other
resources than we do. In addition, manufacturers other than those that have
historically produced wireless handsets and accessories are also entering the
market to produce various wireless mobile devices, including wireless data
devices. Their entry is creating new competitors for distribution and provision
of integrated logistics services for these new products. Certain of these
competitors have the financial resources necessary to withstand substantial
price competition and implement extensive advertising and promotional campaigns,
both generally and in response to efforts by additional competitors to enter
into new markets or introduce new products.
The wireless telecommunications and data industry has, in the past, been
characterized by relatively low barriers to entry. However, as the key market
requirement shifts from pure distribution services to a mix of distribution
services and integrated logistics services, and because of the effects of
convergence discussed above under the heading "New Technologies, Enhancements
and Applications," entry barriers are expected to rise. Increases in the cost of
entry will most likely be driven by rising infrastructure costs, the expanded
human resource requirement and the advanced management and information systems
capabilities mandated by the integrated logistics services segment of the
business. Our ability to continue to compete successfully will be largely
dependent on our ability to anticipate and respond to various competitive and
other factors affecting the industry, including new or changing outsourcing
requirements; new product introductions; inconsistent or inadequate supply of
product; changes in consumer preferences; demographic trends; international,
national, regional and local economic conditions; and discount pricing
strategies and promotional activities by competitors.
Competitors in our North America division include wireless equipment
manufacturers, network operators and other dedicated wireless distributors such
as CellStar Corporation. We also compete with logistics service providers and
electronics manufacturing service providers in our North America operations,
such as CTDI, UPS Logistics and CAT Logistics. In the Asia-Pacific market, our
primary competitors are state-owned distributors that have retail outlets with
direct end-user access as well as United States- and foreign-based exporters,
traders and distributors, including CellStar Corporation, Global Tech (Holdings)
Ltd. and Telepacific Pty Limited. In our Europe, Middle East and Africa division
our competitors include wireless equipment manufacturers that sell directly to
the region's network operators and retailers, network operators themselves, and
traders and other distributors, such as Cellstar Corporation, 20/20 Logistics
Ltd., European Telecom plc, Avenir S.A. and Banner Twin Choice plc, and
logistics and transportation companies such as Vitesse. In our Latin America
division we compete primarily with CellStar Corporation and various other
distributors.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life
11
cycles. Accordingly, our success is dependent upon our ability to anticipate
technological changes in the industry and to continually and successfully
identify, obtain or develop and market new products, including integrated
logistics services, that satisfy evolving industry and customer requirements.
The use of alternative wireless telecommunications technologies or the
convergence of wireless telecommunications and computer technologies may reduce
demand for existing wireless telecommunications products. Upon widespread
commercial introduction, new wireless communications or convergent technologies
could materially change the types of products sold by us and our suppliers and
result in significant price competition. In addition, products that reach the
market outside of normal distribution channels, such as "gray market" resales
(e.g., unauthorized resales or illegal resales, which may avoid applicable
duties and taxes), may also have an adverse impact on our operations.
INFORMATION SYSTEMS
Our operations are dependent on the functionality, design, performance and
utilization of our information systems. We have implemented multiple business
applications systems throughout the world which enable us to provide our
customers and suppliers with distribution and service capabilities. These
capabilities include e-commerce solutions; electronic data interchange;
Web-based order entry account management, reporting, product catalogue and
supply chain management; and various inventory tracking, management and
reporting capabilities. During 1998, 1999 and 2000, we invested approximately
$22.1 million, $6.1 million and $5.5 million, respectively, to install and
enhance systems in newly acquired operations, to continue to develop and enhance
our systems to provide electronic data interchange capabilities, to further
automate our customer interfaces and enhance our overall e-business
capabilities, to create solutions for our customers and to provide a flexible
service delivery system in support of our integrated logistics services. We
intend to use additional funds to further develop information systems throughout
our four divisions, in part to utilize technology to advance our base of
existing service competencies and develop new capabilities that will attempt to
meet the challenges posed by convergence and consolidation. We intend to invest
an aggregate of between $40 to $50 million in capital expenditures (related
primarily to information technology) over the next two years. At December 31,
2000, there were approximately 110 employees in our information technology
departments worldwide.
EMPLOYEES
As of December 31, 2000, we had approximately 1,800 employees; 270 in our
Asia-Pacific division, 900 in our North America division, 360 in our Europe,
Middle East and Africa division and 270 in our Latin America division. Of these
employees, approximately 9 were in executive positions, 300 were engaged in
sales and marketing, 970 were in service operations and 521 were in finance and
administration (including information technology employees). None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good. See Business Risk Factors-Our labor force
experiences a high rate of personnel turnover.
BUSINESS RISK FACTORS
Various statements, discussions and analyses throughout this Form 10-K/A
are not based on historical fact and contain forward-looking statements. These
statements are subject to certain risks and uncertainties, including those
discussed below that could cause our actual results to differ materially from
those expressed or implied in any forward-looking statements made by us. There
are many important
12
factors that have affected, and in the future could affect, our business, some
of which are beyond our control and future trends are difficult to predict.
Readers are cautioned not to place undue reliance on any forward-looking
statement contained in this Form 10-K/A and should also be aware that we
undertake no obligation to update any forward-looking information contained
herein to reflect events or circumstances after the date of this Form 10-K/A or
to reflect the occurrence of unanticipated events.
Our operations may be materially affected by fluctuations in regional
demand patterns and economic factors -- The demand for our products and services
has fluctuated and may continue to vary substantially within the regions served
by us. Economic slow-downs in regions served by us or changes in promotional
programs offered by network operators may lower consumer demand and create
higher levels of inventories in our distribution channels which results in lower
than anticipated demand for the products and services that we offer and can
decrease our gross and operating margins. We believe our operations were
adversely affected by an economic slow-down in the United States during the
fourth quarter of 2000. We also believe that this economic slow-down will
continue to impact our operations in 2001. Although the factors impacting our
United States demand are currently expected to improve during the second half of
2001, approximately 35% of our revenues and 53% of our operating income from
recurring operations was generated in our North America region during 2000. A
prolonged economic slow-down in the United States or any other regions in which
we have significant operations could negatively impact our results of
operations.
Our business may be adversely impacted by consolidation of network
operators -- The past several years has witnessed a consolidation within the
network operator community which trend is expected to continue in at least the
near future. This trend could result in a reduction or elimination of
promotional activities by the remaining network operators as they seek to reduce
their expenditures, which could, in turn result in decreased demand for our
products or services. Moreover, consolidation of network operators reduces the
number of potential contracts available to us and other providers of integrated
logistic services. We could also lose business if network operators which are
our customers are acquired by other network operators which are not our
customers.
Our business depends on the continued tendency of wireless equipment
manufacturers and network operators to outsource aspects of their business to us
in the future -- Our business depends in large part on wireless equipment
manufacturers and network operators outsourcing some or all of their business
functions to us. We fulfill functions such as customized packaging, prepaid and
e-commerce solutions, inventory management, distribution and other outsourced
services for many of these manufacturers and network operators. Certain wireless
equipment manufacturers and network operators have elected, and others may
elect, to undertake these services internally. Additionally, industry
consolidation, competition, deregulation, technological changes or other
developments could reduce the degree to which members of the wireless
telecommunications and data industry rely on outsourced integrated logistics
services such as the services we provide. Any significant change in the market
for our outsourcing services could have a material adverse effect on our
business. Our outsourced services are generally provided under multi-year
renewable contractual arrangements. Service periods under certain of our
contractual arrangements are expiring or will expire in the near future. The
failure to obtain renewal of these agreements could have a material adverse
effect on our business.
Rapid technological changes in the wireless telecommunications and data
industry could have a material adverse effect on our business -- The technology
relating to wireless telecommunications and data
13
equipment changes rapidly, and industry standards are constantly evolving,
resulting in product obsolescence or short product life cycles. We are required
to anticipate future technological changes in our industry and to continually
identify, obtain and market new products in order to satisfy evolving industry
and customer requirements. Competitors or manufacturers of wireless equipment
may market products which have perceived or actual advantages over products that
we handle or which otherwise render those products obsolete or less marketable.
We have made and continue to make significant capital investments in accordance
with evolving industry and customer requirements. These concentrations of
capital increase our risk of loss as a result of rapid technological changes in
the wireless telecommunications and data industry.
The use of emerging wireless communications technologies, including GPRS,
EDGE, W-CDMA, Bluetooth, wireless local loop, satellite-based communications
systems and other new technologies, may reduce the demand for existing cellular
and PCS products. If other companies develop and commercialize new technologies
or products in related market segments that compete with existing cellular and
PCS technology, it could materially change the types of products that we may be
required to offer or result in significant price competition for us. Product
obsolescence could result in significantly increased inventories of our unsold
products. However, if we elect to stock our inventories in the future with any
of these technologies and products, we will run the risk that our existing
customers and consumers may not be willing, for financial or other reasons, to
purchase new equipment necessary to utilize these new technologies. In addition,
the complex hardware and software contained in new wireless handsets could
contain defects which become apparent subsequent to widespread commercial use,
resulting in product recalls and returns and leaving us with additional unsold
inventory.
Our future operating results will depend on our ability to continue to
increase our sales significantly -- A large percentage of our total revenues in
recent periods has come from sales of wireless handsets, a segment of our
business that operates on a high-volume, low-margin basis. Our ability to
generate these sales is based upon our having adequate supply of products. The
gross margins that we realize on sales of wireless handsets could be reduced due
to increased competition or a growing industry emphasis on cost containment. In
addition, our operating expenses have increased significantly. We expect these
expenses to continue to increase as we expand our activities and increase our
provision of integrated logistics services. Therefore, our future profitability
will depend on our ability to increase sales to cover our additional expenses.
We may not be able to cause our sales rates to grow substantially. Even if our
sales rates do increase, the gross margins that we receive from our sales may
not be sufficient to make our future operations profitable.
A significant percentage of our revenues is generated outside of North
America in countries that may have volatile currencies or other risks -- We
maintain operations centers and sales offices in many territories and countries.
The fact that our business operations are conducted in a wide variety of
countries exposes us to increased credit risks, customs duties, import quotas
and other trade restrictions, potentially greater inflationary pressures,
shipping delays, the risk of failure or material interruption of wireless
systems and services, possible wireless product supply interruption and
potentially significant increases in wireless product prices. Changes may occur
in social, political, regulatory and economic conditions or in laws and policies
governing foreign trade and investment in the territories and countries where we
currently have operations. U.S. laws and regulations relating to investment and
trade in foreign countries could also change to our detriment. Any of these
factors could have a material adverse effect on our business and operations. We
purchase and sell products and services in a large number of foreign currencies,
many of
14
which have experienced fluctuations in currency exchange rates. On occasion, we
enter into forward exchange swaps, futures or options contracts as a means of
hedging our currency transaction and balance sheet translation exposures.
However, our management has had limited prior experience in engaging in these
types of transactions. Even if done well, hedging may not effectively limit our
exposure to a decline in operating results due to foreign currency translation.
We cannot predict the effect that future exchange rate fluctuations will have on
our operating results. During 1999, and pursuant to our restructuring plan, we
terminated or eliminated several of our foreign operations because they were not
performing to acceptable levels. These terminations resulted in significant
losses to us. We may in the future, decide to terminate certain existing foreign
operations. This could result in our incurring significant additional losses.
We buy a significant amount of our products from a limited number of
suppliers, who may not provide us with competitive products at reasonable prices
when we need them in the future -- We purchase all of the wireless handsets and
accessories that we sell from third-party wireless communications equipment
manufacturers, dealers and network operators. We depend on these suppliers to
provide us with adequate inventories of currently popular brand name products on
a timely basis and on favorable pricing terms. Our agreements with our suppliers
generally are non-exclusive, require us to satisfy minimum purchase
requirements, can be terminated on short notice and provide for certain
territorial restrictions, as is common in our industry. We generally purchase
products pursuant to purchase orders placed from time to time in the ordinary
course of business. In the future, our suppliers may not offer us competitive
products on favorable terms without delays. From time to time we have been
unable to obtain sufficient product supplies from manufacturers in many markets
in which we operate. Any future failure or delay by our suppliers in supplying
us with products on favorable terms would severely diminish our ability to
obtain and deliver products to our customers on a timely and competitive basis.
If we lose any of our principal suppliers, or if any supplier imposes
substantial price increases and alternative sources of supply are not readily
available, it would have a material adverse effect on our results of operations.
The wireless telecommunications and data industry is intensely competitive
and we may not be able to continue to compete successfully in this industry --
We compete for sales of wireless telecommunications and data equipment, and
expect that we will continue to compete, with numerous well-established wireless
network operators, distributors and manufacturers, including our own suppliers.
As a provider of integrated logistics services, we also compete with other
distributors, logistics services companies and electronic manufacturing services
companies. Many of our competitors possess greater financial and other resources
than we do and may market similar products directly to our customers. The
wireless telecommunications and data industry has generally had low barriers to
entry. As a result, additional competitors may choose to enter our industry in
the future. The markets for wireless handsets and accessories are characterized
by intense price competition and significant price erosion over the life of a
product. Many of our competitors have the financial resources to withstand
substantial price competition and to implement extensive advertising and
promotional programs, both generally and in response to efforts by additional
competitors to enter into new markets or introduce new products. Our ability to
continue to compete successfully will depend largely on our ability to maintain
our current industry relationships. We may not be successful in anticipating and
responding to competitive factors affecting our industry, including new or
changing outsourcing requirements, the entry of additional well-capitalized
competitors, new products which may be introduced, changes in consumer
preferences, demographic trends, international, national, regional and local
economic conditions and competitors' discount pricing and promotion strategies.
As the cellular markets mature and as we seek to enter into new markets and
offer new products in the future, the competition that we face may change and
grow more intense.
15
We may not be able to manage and sustain future growth at our historical
or current rates -- In recent years we have experienced domestic and
international growth. We will need to manage our expanding operations
effectively, maintain or accelerate our growth as planned and integrate any new
businesses which we may acquire into our operations successfully in order to
continue our desired growth. If we are unable to do so, particularly in
instances in which we have made significant capital investments, it could have a
material adverse effect on our operations. In addition, our growth prospects
could be adversely affected by a decline in the wireless telecommunications and
data industry generally or in one of our regional divisions, either of which
could result in reduction or deferral of expenditures by prospective customers.
Our business strategy includes entering into strategic relationships and
financings, which may provide us with minimal returns or losses on our
investments -- As part of our expansion strategy, we have entered into several
strategic relationships and joint ventures with wireless equipment manufacturers
and network operators. We intend to continue to enter into similar strategic
relationships as opportunities arise. We may enter into distribution or
integrated logistics services agreements with these strategic partners and may
provide them with equity or debt financing. Our ability to achieve future
profitability through our strategic relationships will depend in part upon the
economic viability, success and motivation of the entities we select as
strategic partners and the amount of time and resources that these partners
devote to our alliances. We may receive minimal or no business from future
relationships and joint ventures, and any business we receive may not be
significant or at the level we anticipated. The future profits we receive from
these strategic relationships, if any, may not offset possible losses on our
investments or the full amount of financings that we extend upon entering into
these relationships. Any loan to or investment in a future strategic partner
will be subject to many of the same risks faced by the strategic partner in
seeking to operate and grow its businesses. We may not achieve acceptable
returns on our future investments with strategic partners within an acceptable
period or at all. As a part of our restructuring plan in 1999 we terminated two
joint operations in China resulting in significant losses on our investments in
those operations. A failure in the establishment and operation of such
relationships could have a material adverse effect on our operations.
We have incurred significant losses during certain quarterly periods --
Although we achieved a profit during each quarter in the year ended December 31,
2000, we incurred net losses for each of the first two quarters of 1999 and a
net loss of $87.8 million for the year ended December 31, 1999. We also incurred
a net loss of $19.8 million for the three months ended December 31, 1998. The
net loss for 1999 includes approximately $79.6 million of restructuring and
other unusual charges as well as the cumulative effect of an accounting change
of $13.4 million. The net loss for the three months ended December 31, 1998
includes approximately $37.6 million of trading and other unusual charges
resulting from our decision to eliminate our trading activities and sales to
other distributors (see Note 2 to the Consolidated Financial Statements).
Several business factors appear to have contributed to our losses in these
periods including an inadequate supply of products for sale through our
distribution services, our inability to replace, during 1999, revenues which had
been generated by the trading business that we exited in the fourth quarter of
1998, the impacts of the devaluation of the Brazilian Real and price competition
from trading companies in our Asia-Pacific and Latin America divisions. We may
incur additional future losses.
We have significant outstanding indebtedness, which is secured by a large
portion of our assets and which could prevent us from borrowing additional
funds, if needed -- If we violate our loan covenants,
16
default on our obligations or become subject to a change of control, our
indebtedness could become immediately due and payable, and the banks could
foreclose on our assets. The terms of our senior credit facility substantially
prohibit us from incurring additional indebtedness, which could limit our
ability to expand our operations. Our senior credit facility also limits or
prohibits us from declaring or paying cash dividends, making capital
distributions or other payments to stockholders, merging or consolidating with
another corporation or selling all or substantially all of our assets.
There are significant amounts of our securities which are issuable upon
exercise of outstanding convertible securities as well as under other stock
plans which could affect the market price of our common stock -- The $250
million face value of our 20-year zero-coupon, subordinated, convertible notes
are convertible at the option of the holder any time prior to maturity. These
notes are convertible at the rate of 19.109 shares of common stock per $1,000
face value note, for an aggregate of 4,777,250 shares of common stock.
Additionally, we have reserved a significant number of shares of common stock
that may be issuable pursuant to our employee stock option and purchase plans,
and upon the exercise of currently outstanding warrants. These securities, when
issued and outstanding, may reduce earnings per share in periods that they are
considered dilutive under Generally Accepted Accounting Principles and, to the
extent that they are exercised and shares of common stock are issued, dilute
percentage ownership to existing stockholders which could have an adverse effect
on the market price of our common stock.
We have instituted measures to protect us against a takeover -- Certain
provisions of our by-laws, stockholders rights and option plans, certain
employment agreements and the Delaware General Corporation Law are designed to
protect us in the event of a takeover attempt. These provisions could prohibit
or delay mergers or attempted takeovers or changes in control of us and,
accordingly, may discourage attempts to acquire us.
We may have difficulty collecting our accounts receivable -- We currently
offer and intend to offer open account terms to our customers, which may subject
us to credit risks, particularly in the event that any receivables represent
sales to a limited number of customers or are concentrated in particular
geographic markets. Any delays in collecting or inability to collect our
receivables could have a material adverse effect on our business.
17
Our operating results frequently vary significantly and respond to
seasonal fluctuations in purchasing patterns -- Our operating results are
influenced by a number of seasonal factors in the different countries and
markets in which we operate. These results may fluctuate from period to period
as a result of several factors, including:
- purchasing patterns of customers in different markets;
- the timing of introduction of new products by our suppliers and
competitors;
- variations in sales by distribution channels; and
- product availability and pricing.
Consumer electronics and retail sales have historically experienced
increased volumes of sales at the end of the calendar year. This and other
seasonal factors contribute to the usual increase in our sales during the fourth
quarter of our fiscal year. However, this increase did not occur in 2000. Our
operating results may continue to fluctuate significantly in the future. In
addition, if unanticipated events occur, including delays in securing adequate
inventories of competitive products at times of peak sales or significant
decreases in sales during these periods, it could have a material adverse effect
on our operating results.
Our continued growth depends on retaining our current key employees and
attracting additional qualified personnel -- Our success depends in large part
on the abilities and continued service of our executive officers and other key
employees. Although we have entered into employment agreements with several of
our officers and employees, we may not be able to retain their services. We also
have non-competition agreements with our executive officers and some of our
existing key personnel. However, courts are sometimes reluctant to enforce
non-competition agreements. The loss of executive officers or other key
personnel could have a material adverse effect on us. In addition, in order to
support our continued growth, we will be required to effectively recruit,
develop and retain additional qualified management. If we are unable to attract
and retain additional necessary personnel, it could delay or hinder our plans
for growth.
We rely to a great extent on trade secret and copyright laws and
agreements with our key employees and other third parties to protect our
proprietary rights -- Our business success is substantially dependent upon our
proprietary business methods and software applications relating to our
information systems. We currently hold one patent relating to certain of our
business methods. Concerning other business methods and software we rely on
trade secret and copyright laws to protect our proprietary knowledge. We also
regularly enter into non-disclosure agreements with our key employees and limit
access to and distribution of our trade secrets and other proprietary
information. These measures may not prove adequate to prevent misappropriation
of our technology. Our competitors could also independently develop technologies
that are substantially equivalent or superior to our technology, thereby
eliminating one of our competitive advantages. We also have offices and conduct
our operations in a wide variety of countries outside the United States. The
laws of some other countries do not protect our proprietary rights to the same
extent as do laws in the United States. In addition, although we believe that
our business methods and proprietary software have been developed independently
and do not infringe upon the rights of others, third parties
18
might assert infringement claims against us in the future or our business
methods and software may be found to infringe upon the proprietary rights of
others.
We make significant investments in the technology used in our business and
rely on this technology to function effectively without interruptions -- We have
made significant investments in sophisticated and specialized information
systems technology and have focused on the application of this technology to
provide customized integrated logistics services to wireless communications
equipment manufacturers and network operators. Our sales and marketing efforts,
a large part of which are telemarketing based, are highly dependent on computer
and telephone equipment. We anticipate that we will need to continue to invest
significant amounts to enhance our information systems in order to maintain our
competitiveness and to develop new logistics services. Our property and business
interruption insurance may not compensate us adequately, or at all, for losses
that we may incur if we lose our equipment or systems either temporarily or
permanently through a casualty or operating malfunction. In addition, a
significant increase in the costs of additional technology or telephone services
that is not recoverable through an increase in the price of our services could
have a material adverse effect on our results of operations.
Our labor force experiences a high rate of personnel turnover -- Our
distribution and integrated logistics services are labor-intensive, and we
experience high personnel turnover and can be adversely affected by shortages in
the available labor force in geographical areas where we operate. A significant
portion of our labor force is contracted through temporary agencies, and a
significant portion of our costs consist of wages to hourly workers. Growth in
our business, together with seasonal increases in net sales, requires us to
recruit and train personnel at an accelerated rate from time to time. We may not
be able to continue to hire, train and retain a significant labor force of
qualified individuals when needed, or at all. An increase in hourly costs,
employee benefit costs, employment taxes or commission rates could have a
material adverse effect on our operations. In addition, if the turnover rate
among our labor force increased further, we could be required to increase our
recruiting and training efforts and costs, and our operating efficiencies and
productivity could decrease.
We have significant future payment obligations pursuant to certain leases
and other long-term contracts -- We lease our office and warehouse/distribution
facilities as well as certain furniture and equipment under real property and
personal equipment leases. Many of these leases are for terms that exceed one
year and require us to pay significant monetary charges for early termination or
breach by us of the lease terms. We cannot be certain of our ability to
adequately fund these lease commitments from our future operations and our
decision to modify, change or abandon any of our existing facilities could have
a material adverse effect on our operations.
We may become subject to suits alleging medical risks associated with our
wireless handsets -- Lawsuits or claims have been filed or made against
manufacturers of wireless handsets over the past years alleging possible medical
risks, including brain cancer, associated with the electromagnetic fields
emitted by wireless communications handsets. There has been only limited
relevant research in this area, and this research has not been conclusive as to
what effects, if any, exposure to electromagnetic fields emitted by wireless
handsets has on human cells. Substantially all of our revenues are derived,
either directly or indirectly, from sales of wireless handsets. We may become
subject to lawsuits filed by plaintiffs alleging various health risks from our
products. If any future studies find possible health risks associated with the
use of wireless handsets or if any damages claim against us is successful, it
could have a material adverse
19
effect on our business. Even an unsubstantiated perception that health risks
exist could adversely affect our ability or the ability of our customers to
market wireless handsets.
The market price of our common stock may continue to be volatile -- The
market price of our common stock has fluctuated significantly from time to time
since our initial public offering in April 1994. The trading price of our common
stock could experience significant fluctuations in the future in response to
certain factors, which could include actual or anticipated variations in our
quarterly operating results; the introduction of new services, products or
technologies by us, our suppliers or our competitors; changes in other
conditions or trends in the wireless telecommunications and data industry;
changes in governmental regulation; or changes in securities analysts' estimates
of our future performance or that of our competitors or our industry in general.
General market price declines or market volatility in the prices of stocks for
companies in the wireless telecommunications and data industry or in the
distribution or integrated logistics services sectors of the wireless
telecommunications and data industry could also affect the market price of our
common stock.
SEGMENT FINANCIAL INFORMATION
Financial information concerning the Company's segments is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Operating Segments" on pages A-7 and A-8 of
this Annual Report on Form 10-K/A.
20
ITEM 2. PROPERTIES.
We provide our distribution and integrated logistics services from our
sales and operations centers located in various countries including Australia,
Brazil, the People's Republic of China (including Hong Kong), Colombia, France,
Germany, Ireland, Jordan, Mexico, the Netherlands, New Zealand, the Philippines,
South Africa, Sweden, the United Arab Emirates, the United States, and
Venezuela. Substantially all of these facilities are occupied pursuant to
operating leases. The table below summarizes information about our sales and
operations centers by operating division.
NUMBER OF AGGREGATE APPROXIMATE
LOCATIONS(1) SQUARE FOOTAGE MONTHLY RENT
------------ -------------- ------------
North America............................ 3 823,410 $430,000
Asia-Pacific............................. 7 104,269 43,000
Europe, Middle East and Africa........... 10 175,428 94,000
Latin America............................ 6 218,360 50,000
---- --------- --------
26 1,321,467 $617,000
==== ========= ========
(1) Refers to geographic areas in which we maintain facilities and considers
multiple buildings located in the same area as a single geographic
location.
In 2000, the Company consolidated four Indianapolis, Indiana locations and
a location in Bensalem, Pennsylvania into a single, new facility located near
the Indianapolis International Airport and designed specifically for the Company
and its processes. We have entered into a twenty-year lease for this facility
and with 495,000 square feet of office and plant space it is our largest
operations center. In addition, we have been attempting to sublease the former
North America headquarters and distribution center located at 6402 Corporate
Drive in Indianapolis, Indiana, which is currently serving as our Corporate
headquarters. The lease term of this facility expires in 2006 and current rental
payments are approximately $80,000 per month.
We believe that our existing facilities are adequate for our current
requirements and that suitable additional space will be available as needed to
accommodate future expansion of our operations.
21
ITEM 3. LEGAL PROCEEDINGS.
We are from time to time, involved in certain legal proceedings in the
ordinary course of conducting our business. We believe there are no pending
legal proceedings in which we are currently involved which will have a material
adverse effect on our financial position.
We and certain of our executive officers, two of whom are also directors,
were named as defendants in four actions filed in June and July 1999, in the
United States District Court for the Southern District of Indiana. These actions
were subsequently consolidated by the court into a single action entitled In re
Brightpoint Securities Litigation, United States District Court, Southern
District of Indiana, Indianapolis Division, Cause No. IP 99-870-C H/G. The
action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and Rule 10b-5 of the Exchange Act, based on allegations that false
and misleading statements were rendered and/or statements were omitted
concerning the Company's then current and future financial condition and
business prospects. The action involves a purported class of purchasers of the
Company's stock during the period October 2, 1998 through March 10, 1999. The
Company and the individual defendants filed a motion to dismiss the action. The
court granted that motion on March 29, 2001. The plaintiffs have until April 26,
2001, to file a motion seeking leave to amend their complaint. If they do not do
so, the court will enter final judgment dismissing the case. The outcome of any
litigation is uncertain and it is possible that an unfavorable decision could
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is set forth in "Other Information"
on page A-46 of this Annual Report on Form 10-K/A.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in "Selected Financial
Data" on page A-47 of this Annual Report on Form 10-K/A.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth on pages A-3 to A-8,
A-10 to A-14, A-17 to A-19 and A-21 of this Annual Report on Form 10-K/A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the subsection
"Financial Market Risk Management" of Management's Discussion and Analysis on
page A-21 of this Annual Report on Form 10-K/A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Consolidated
Financial Statements of the Company on pages A-2, A-9, A-15, A-16, A-20,
A-22 to A-45 of this Annual Report on Form 10-K/A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
PART III
Certain information required by Part III is contained in the Company's
definitive Proxy Statement relating to its Annual Meeting of Stockholders for
the Annual Meeting of Stockholders held in 2001, which has been filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement")
and such information included in the Proxy Statement is incorporated herein by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is in the Proxy Statement under the
Section entitled "Election of Directors," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Proxy Statement
under the Section entitled "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the Proxy Statement
under the Section entitled "Voting Security Ownership of Certain Beneficial
Owners and Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company utilizes the services of a third party for the purchase of
corporate gifts, promotional items and standard and personalized corporate
stationery. Prior to June 1, 2000 Mrs. Judy Laikin, the mother of Robert J.
Laikin, the Company's Chief Executive Officer, owned this third party. For the
year ended December 31, 2000, the Company purchased approximately $186,400 of
services and products from this entity. The Company believes these purchases by
the Company were made on terms no less favorable than could be made from an
unrelated party.
During the fiscal year ended December 31, 2000 the Company paid Stuart's
Moving & Storage approximately $134,000 for certain moving expenses. Todd H.
Stuart, a director of the Company, is an officer of Stuart's Moving and Storage.
The Company believes that the services provided to it by Stuart's Moving &
Storage were on terms no less favorable than could have been obtained from an
unrelated party.
During 1999 the Company entered into an agreement to provide product
distribution, fulfillment and other integrated logistics services to
TelStreet.com, Inc., a privately-held company that was engaged in the
business of selling wireless communications products and related accessories
through the Internet and activating wireless service to end-user customers.
Messrs. Laikin and Howell were directors and stockholders and Messrs.
Bounsall, Fivel, Adams, Dick, Simon, Stuart and Wagner were stockholders of
TelStreet.com, Inc. Certain of Mr. Laikin's relatives were also stockholders
of TelStreet.com, Inc.
24
TelStreet.com, Inc. was acquired by Buy.com Inc. in August 2000 in exchange for
shares of common stock of Buy.com Inc. in an amount equal to approximately 1% of
Buy.com's outstanding common stock. None of the officers or directors of the
Company are, or at any time have been, officers or directors of Buy.com Inc.
During 2000 the Company's transactions with TelStreet.com, Inc. and Buy.com Inc.
accounted for approximately $563,000 and $916,000, respectively, of the
Company's revenue.
During the fiscal year ended December 31, 2000, an entity in which the
father of Robert J. Laikin is believed by the Company to be a fifty percent
(50%) equity owner, provided risk management services to the Company for which
the entity received $142,500 in consulting fees. During the fiscal year ended
December 31, 2000, the Company also paid to an insurance brokerage firm for
which the father of Robert J. Laikin acts as an independent insurance broker
$180,000 in service fees and certain insurance premiums, which premiums were
forwarded to the Company's respective insurance carriers.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements and information of the Company
are filed as a part of this report commencing on page A-1:
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 (as restated)
Consolidated Balance Sheets as of December 31, 1999 and
2000 (as restated)
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1999 and 2000 (as restated)
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000 (as restated)
Notes to the Consolidated Financial Statements (as restated)
(a)(2) The following financial statement schedule for the year ended
December 31, 2000, including the Report of Independent Auditors on
Financial Statement Schedule for the three years ended December 31,
2000, is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(a)(3) Exhibits
26
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company, as amended (6)
3.2 Amended and Restated By-Laws of the Company (6)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995 (2)
4.1 Indenture between the Company and the Chase Manhattan Bank, as
Trustee (8)
10.1 1994 Stock Option Plan, as amended (15)*
10.2 1996 Stock Option Plan, as amended (15)*
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Employee Stock Purchase Plan (13)
10.5 Amended and Restated Employment Agreement between the Company and
Robert J. Laikin dated July 1, 1999 (14)*
10.6 Amended and Restated Employment Agreement between the Company and
J. Mark Howell dated July 1, 1999 (14)*
10.7 Amended and Restated Employment Agreement between the Company and
Phillip A. Bounsall dated July 1, 1999 (14)*
10.8 Amended and Restated Employment Agreement between the Company and
Steven E. Fivel dated July 1, 1999 (14)*
10.9 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.10 Amendment to Lease Agreement between the Company and Corporate
Drive Associates, LLC, dated October 3, 1995 (3)
10.11 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (6)
27
EXHIBIT
NUMBER DESCRIPTION
10.12 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (6)
10.13 Rights Agreement, dated as of February 20, 1997, between the Company
and Continental Stock Transfer Trust Company, as Rights Agent (4)
10.14 Lease Agreement between the Company and DP Operating Partnership,
L.P., dated as of March 1, 1997 (5)
10.15 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint International
Ltd., the Subsidiary Borrowers from time to time party thereto, the
Guarantors from time to time party thereto, the Financial
Institutions from time to time party thereto as lenders, The First
National Bank of Chicago as administrative agent and Bank One,
Indiana, N.A. as syndication agent (6)
10.16 Form of Waiver and Amendment No. 1 to Credit Agreement dated as
of November 15, 1997 (7)
10.17 Third Amendment to Multicurrency Credit Agreement dated March 20,
1998 (9)
10.18 Fourth Amendment to Multicurrency Credit Agreement dated April
16, 1998 (10)
10.19 Amended and Restated Multicurrency Credit Agreement originally
dated June 24, 1997 and amended and restated as of May 13, 1998
(10)
10.20 Lease Agreement between the Company and New World Partners Joint
Venture Number Five, dated July 30, 1998 (11)
10.21 Lease Agreement between the Company and Airtech Parkway
Associates, LLC, dated September 18, 1998 (11)
10.22 Form of Indemnification Agreement of certain officers and
directors (16)
10.23 Amendment No. 1 to Amended and Restated Multicurrency Credit
Agreement dated October 19, 1998 (12)
10.24 Amendment No. 2 to Amended and Restated Multicurrency Credit
Agreement dated September 30, 1998 (12)
28
EXHIBIT
NUMBER DESCRIPTION
10.25 Amendment No. 3 to Amended and Restated Multicurrency Credit
Agreement dated January 1, 1999 (12)
10.26 Fourth Amendment to Multicurrency Agreement dated May 13, 1998
(13)
10.27 Second Amended and Restated Multicurrency Credit Agreement dated
May 13, 1998 and amended and restated as of July 27, 1999 (14)
10.28 Amendment Number 1 to the Rights Agreement (the "Agreement") by
and between Brightpoint, Inc. (the "Company") and Continental
Stock Transfer & Trust Company, as Rights Agent, dated as of
January 4, 1999 (13)
10.29 Amendment Number 1 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of March 20, 2000 (17)
10.30 Amendment Number 2 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of June 28, 2000 (18)
10.31 Amendment Number 3 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of October 27, 2000 (19)
10.32 Amendment Number 4 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of December 27, 2000 (20)
10.33 Amendment dated January 1, 2001 to the Amended and Restated
Agreement between the Company and Robert J. Laikin dated July 1,
1999 (20)*
10.34 Amendment dated January 1, 2001 to the Amended and Restated
Agreement between the Company and J. Mark Howell dated July 1,
1999 (20)*
10.35 Amendment dated January 1, 2001 to the Amended and Restated
Agreement between the Company and Phillip A. Bounsall dated July
1, 1999 (20)*
10.36 Amendment dated January 1, 2001 to the Amended and Restated
Agreement between the Company and Steven E. Fivel dated July 1,
1999 (20)*
10.37 Lease Agreement between the Company and Harbour Properties, LLC,
dated April 25, 2000 (20)
29
EXHIBIT
NUMBER DESCRIPTION
10.38 Pledge Supplement for Brightpoint North America, Inc. dated
January 1, 2001 to the Second Amended and Restated Multicurrency
Credit Agreement dated as of July 27, 1999 (20)
10.39 Pledge Supplement for Brightpoint North America L.P. dated
January 1, 2001 to the Second Amended and Restated Multicurrency
Credit Agreement dated as of July 27, 1999 (20)
10.40 Subsidiary Borrower and Guarantor Letter for Brightpoint North
America, Inc. dated January 1, 2001 under the Second Amended and
Restated Multicurrency Credit Agreement dated as of July 27, 1999
(20)
10.41 Subsidiary Borrower and Guarantor Letter for Brightpoint North
America L.P. dated January 1, 2001 under the Second Amended and
Restated Multicurrency Credit Agreement dated as of July 27, 1999
(20)
10.42 Security Agreement dated January 1, 2001 between Brightpoint
North America, Inc. and Bank One, Indiana, National Association
under the Second Amended and Restated Multicurrency Credit
Agreement dated as of July 27, 1999 (20)
10.43 Security Agreement dated January 1, 2001 between Brightpoint
North America L.P. and Bank One, Indiana, National Association
under the Second Amended and Restated Multicurrency Credit
Agreement dated as of July 27, 1999 (20)
21 Subsidiaries (20)
23 Consent of Ernst & Young LLP (21)
99 Cautionary Statements (22)
(1) Incorporated by reference to the exhibit filed with the Company's
Registration Statement (33-75148) effective April 7, 1994.
(2) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
30
(4) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated March 28, 1997.
(5) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(6) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (333-29533) effective August 6,
1997.
(7) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
(8) Incorporated by reference to the exhibit filed with the exhibit
filed with the Company's Current Report on Form 8-K dated April 1,
1998 for the event dated March 5, 1998.
(9) Incorporated by reference to the exhibit filed with the exhibit
filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
(10) Incorporated by reference to the exhibit filed with the exhibit
filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
(11) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
(12) Incorporated by reference to the exhibit filed with the Company's
Form 10-K for the fiscal year ended December 31, 1998.
(13) Incorporated by reference to Appendix A filed with the Company's
Proxy Statement dated April 15, 2000 relating to its Annual
Stockholders meeting held May 18, 2000.
(14) Incorporated by reference to the exhibit filed with the Company's
Quarterly report on Form 10-Q for the quarter ended June 30, 1999.
(15) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (333-87863) dated September 27,
1999.
(16) Incorporated by reference to the exhibit filed with the Company's
Form 10-K for the fiscal year ended December 31, 1999.
(17) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
31
(18) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(19) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000.
(20) Incorporated by reference to the exhibit filed with the Company's
Amendment No. 1 to Form 10-K/A, for the fiscal year ended
December 31, 2000.
(21) Filed as page F-2 of this report.
(22) Filed herewith.
* Denotes management compensation plan or arrangement.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K for the event dated
October 30, 2000 under Item 5 to report the plan to purchase up to
130,000 of its outstanding convertible subordinated zero-coupon
bonds due 2018.
In addition, the Company filed a Current Report on Form 8-K for the
event dated December 20, 2000 under Item 5 to report the update of
revenue and earnings estimates.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BRIGHTPOINT, INC.
Date: February 28, 2002 /s/ ROBERT J. LAIKIN
-------------------------------
By: Robert J. Laikin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ ROBERT J. LAIKIN Chairman of the Board February 28, 2002
------------------------
Robert J. Laikin Chief Executive Officer and
Director (Principal Executive Officer)
/s/ J. MARK HOWELL President, Chief Operating Officer and February 28, 2002
------------------------
J. Mark Howell Director
/s/ PHILLIP A. BOUNSALL Executive Vice President and Chief February 28, 2002
------------------------
Phillip A. Bounsall Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
/s/ JOHN W. ADAMS Director February 28, 2002
------------------------
John W. Adams
/s/ ROLLIN M. DICK Director February 28, 2002
------------------------
Rollin M. Dick
/s/ STEPHEN H. SIMON Director February 28, 2002
------------------------
Stephen H. Simon
/s. JERRE L. STEAD Director February 28, 2002
------------------------
Jerre L. Stead
/s/ TODD H. STUART Director February 28, 2002
------------------------
Todd H. Stuart
Director February 28, 2002
------------------------
Robert F. Wagner
APPENDIX A
FINANCIAL
INFORMATION
------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
Report of Independent Auditors .................................. A-2
Management's Responsibility for Financial Statements ............ A-2
Overview and Recent Developments ................................ A-3
Operating Segments .............................................. A-7
Future Operating Results ........................................ A-8
Consolidated Statements of Operations and Analysis .............. A-9
Consolidated Balance Sheets and Statements of
Cash Flows and Analysis ...................................... A-15
Consolidated Statements of Stockholders' Equity ................. A-20
Financial Market Risk Management ................................ A-21
Notes to Consolidated Financial Statements ...................... A-22
Other Information ............................................... A-46
A-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the accompanying Consolidated Balance Sheets of Brightpoint,
Inc. as of December 31, 2000 and 1999, and the related Consolidated Statements
of Operations, Stockholders' Equity and Cash Flows for each of the three years
in the period ended December 31, 2000, on pages A - 9, A - 15, A - 16, A - 20,
and A - 22 through A - 45 and the information appearing under the caption
"Operating Segments" on pages A - 7 and A - 8. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brightpoint, Inc.
at December 31, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 17 to the Consolidated Financial Statements, the Company
has restated its previously issued 2000, 1999, and 1998 Consolidated Financial
Statements.
/s/ Ernst & Young LLP
Indianapolis, Indiana
January 22, 2001, except for Notes 8 and 17,
as to which the dates are November 16, 2001 and January 31, 2002, respectively
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Brightpoint, Inc. is responsible for the preparation and
integrity of the Company's Consolidated Financial Statements and all related
information appearing in this Annual Report. The Company maintains accounting
and internal control systems which are intended to provide reasonable assurance
that assets are safeguarded against loss from unauthorized use or disposition,
transactions are executed in accordance with management's authorization and
accounting records are reliable for preparing financial statements in accordance
with accounting principles generally accepted in the United States.
The financial statements for each of the years covered in this Annual Report
have been audited by independent auditors who have provided an independent
assessment as to the fairness of the financial statements.
The Board of Directors has appointed an Audit Committee whose three members are
not employees of the Company. The Board of Directors has also adopted a written
charter that establishes the roles and responsibilities of the Audit Committee.
Pursuant to its charter, the Audit Committee meets with certain members of
management and the independent auditors to review the results of their work and
satisfy itself that their responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and have
discussions with the Audit Committee regarding appropriate matters, with and
without management present.
/s/ ROBERT J. LAIKIN /s/ J. MARK HOWELL /s/ PHILLIP A. BOUNSALL
Robert J. Laikin J. Mark Howell Phillip A. Bounsall
Chairman of the Board and President and Executive Vice President, Chief
Chief Executive Officer Chief Operating Officer Financial Officer and Treasurer
A-2
OVERVIEW AND RECENT DEVELOPMENTS
The discussion and analysis contained in the following pages should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto. All currency amounts stated within this Annual Report refer to
U.S. Dollars.
BASIS OF PRESENTATION
On November 13, 2001, the Company announced that it would restate its
annual financial statements for 1998, 1999, 2000 and the interim periods of
2001. On January 31, 2002, the Company announced that it would further restate
its financial statements for the same periods. As more fully discussed in Note
17 to the Consolidated Financial Statements, the Company entered into an
agreement with an insurance company, effective in 1998, relating to
retrospective and prospective loss occurrences. The retrospective occurrences
related primarily to previously reported losses the Company had sustained in its
trading division, an operation that the Company closed in 1998. The Company has
responded to requests for information and subpoenas from the Securities and
Exchange Commission (SEC) in connection with an investigation including the
Company's accounting treatment of the agreement with the insurance company
referenced above. In addition, certain officers or employees of the Company have
provided testimony to the SEC and the Company believes that the staff of the SEC
will subpoena additional testimony of certain officers and employees of the
Company. In connection with those responses, the Company and its independent
auditors reviewed the agreement with the insurance company and the accounting
for the related transactions. In November of 2001, the Company and its
independent auditors believed that insurance expense should have been accrued at
the date the Company entered into the agreement, rather than prospectively over
the periods covered by the agreement because the Company could not allocate the
costs of the agreement between the retrospective and prospective loss
occurrences. Accordingly, the Company's November 2001 restatement of its
financial statements included an accrual in 1998 of approximately $15 million of
insurance expense related to this agreement. In January 2002, the Company's
Board of Directors appointed an independent member of the Board to conduct an
investigation of the circumstances surrounding the procurement and accounting
treatment of the agreement with the insurance company and related matters. The
independent member of the Board retained counsel to assist in the investigation
and their report was made to the Board in February 2002. This report included
findings and recommendations concerning the investigation and the independent
members of the Board unanimously approved and adopted such findings and
recommendations. In late January 2002, the Company and its independent auditors
reviewed the results of the termination of the retrospective portion of the
agreement and determined that the appropriate accounting method for the
agreement is deposit accounting. Deposit accounting requires treating the
Company's payments under this agreement as deposits rather than as premiums and
the Company's receipts under the agreement as withdrawals rather than claims
paid by the insurance company, resulting in no income or expense recognition
during the term of the agreement. As a result of adopting this accounting
method, the Company i) wrote-off an insurance receivable of approximately $12
million during the quarter ended December 31, 1998, ii) wrote-off an insurance
premium payable of approximately $15 million during the quarter ended December
31, 1998, iii) reversed collectibility reserves that had previously been applied
to the aforementioned insurance receivables, iv) recorded the applicable income
tax impacts of the foregoing actions and v) did not recognize an anticipated
gain related to the termination of the retrospective portion of the agreement in
the quarter ended December 31, 2001. The restated financial statements also
include certain adjustments and reclassifications that were previously deemed to
be immaterial. The Company believes that the restatement had no effect on the
Company's cash flow and will have no material effect on its financial position
at any future date. See Note 17 to the Consolidated Financial Statements for
further discussion.
In the third quarter of 2000, the Emerging Issues Task Force of the Financial
Accounting Standards Board (FASB) reached a consensus on Issue No. 00-10,
Accounting for Shipping and Handling Costs. The consensus required, among other
provisions, that shipping and handling costs that are billed to customers be
classified as revenue beginning in the fourth quarter of 2000, consistent with
the implementation of Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101). Previously, the Company classified freight costs
billed to its customers as an offset to the corresponding freight expense
included in cost of revenue.
A-3
In the fourth quarter of 2000, the Company reclassified these amounts to revenue
and applied the reclassification retroactively to all periods presented. The
effects of the reclassification were immaterial and did not affect income from
operations, net income or earnings per share.
Beginning in the third quarter of 2000 and applied retroactively to all periods
presented, the Company classifies i) net foreign currency exchange gains and
losses, ii) gains and losses on sales of marketable securities and iii) net
gains and losses on the sale of assets in a separate line item entitled "Other
(income) expenses" in the Consolidated Statements of Operations. The individual
amounts reclassified were not significant.
NON-RECURRING CHARGES AND OTHER ITEMS
2000
During the fourth quarter of 2000, the Company repurchased approximately 94,000
of its zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes)
for approximately $29 million ($310 per Convertible Note). These transactions
resulted in an extraordinary gain of approximately $10.0 million ($0.18 per
diluted share), net of applicable income taxes and transaction costs. The
repurchases were made pursuant to a plan approved by the Board of Directors to
purchase up to 130,000 of the Convertible Notes. Subsequent to December 31,
2000, the Company completed its repurchase plan by acquiring an additional
36,000 Convertible Notes at prices ranging from $278 to $283 per Convertible
Note. These transactions resulted in an extraordinary gain in 2001 of
approximately $4.6 million ($0.09 per diluted share), net of applicable income
taxes and transaction costs.
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana, locations and a location in Bensalem, Pennsylvania,
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge related to the consolidation for moving costs, the
disposal of assets not used in the new facility and the estimated impact of
vacating the unused facilities, net of potential subleases. The total amount of
the charge recorded in 2000 was $7.0 million ($4.2 million after applicable
taxes or $0.07 per diluted share) and was comprised of approximately $3.2
million in non-cash fixed asset disposals and $3.8 million in moving, lease
termination and other costs paid or to be paid in cash. As a result of the
actions discussed above, the Company had approximately $3.0 million in facility
consolidation reserves at December 31, 2000 and no significant adjustments or
revisions to the charge are anticipated in future periods.
1999
In the first quarter of 1999, the Company recorded a cumulative effect
adjustment for a change in accounting principle. The change in accounting
principle resulted from the required adoption of American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting the Costs of Start-up
Activities, which required the write-off of the unamortized portion of the
Company's previously capitalized start-up costs. These costs were incurred
primarily as a part of the Company's in-country expansion and long-term contract
activities from 1996 through 1998 and were previously capitalized in accordance
with generally accepted accounting principles then in effect. The adjustment for
the write-off of these amounts of $13.4 million is shown net of applicable
taxes.
Beginning in the second quarter of 1999, the Company implemented a broad
restructuring plan (Restructuring Plan) in an effort to improve its position for
long-term success by eliminating or restructuring identified non-performing
business activities and reducing costs. The Restructuring Plan was approved by
the Company's
A-4
Board of Directors and included the disposal of operations in the United
Kingdom, Poland, Taiwan and Argentina; termination of the Company's investments
in two joint operations in China; disposal of its 67% interest in a Hong
Kong-based accessories company; and initiation of cost reduction programs in
certain areas of its business. In total, the Restructuring Plan resulted in a
reduction in headcount of approximately 350 employees. This headcount reduction
occurred in most areas of the Company, including marketing, operations and
administration; however, substantially all of the reductions occurred in the
Company's operating divisions outside of North America.
As a result of actions taken in accordance with the Restructuring Plan, the
Company recorded restructuring and other unusual charges in 1999 of
approximately $79.6 million. Adjustments to the charge subsequent to its initial
recording in 1999 have not been significant. The charges included the write-off
of goodwill and investments related to the eliminated or terminated operations,
as well as losses on the disposals of fixed and other assets and cash expenses
of approximately $5.9 million related to lease and employee terminations and
other exit costs. These amounts which total $61.3 million are recorded in the
"Trading, restructuring and other unusual charges" line in the Consolidated
Statements of Operations, as restated. The non-recurring charges also include
the write-down of inventory (totaling $9.6 million and included in the "Cost of
revenue" line) and accounts receivable (totaling $5.2 million and included in
the "Selling, general and administrative expenses" line) to their estimated net
realizable value. Tax assets totaling $3.5 million were also written off as part
of the Restructuring Plan. The Company's execution of the Restructuring Plan has
been substantially completed and no further revisions or adjustments to these
charges are expected in future periods.
1998
Through the end of the third quarter of 1998, the Company had been engaged in
the business of trading wireless handsets. Trading involves the purchase of
wireless handsets from sources other than manufacturers or network operators
(i.e., trading companies) and the sale of those handsets to purchasers other
than network operators or their representatives (also trading companies). At the
beginning of the fourth quarter of 1998, the Company decided to cease its
trading activities primarily because (i) those activities were not consistent
with its strategy of emphasizing relationships with wireless equipment
manufacturers and network operators, (ii) the margins earned on the trading
activities were rapidly decreasing and (iii) the Company had increasing concerns
about the business practices of many trading companies. Additionally, the
Company completed a strategic shift from significant sales to other distributors
to more direct relationships with network operators and their representatives in
the fourth quarter of 1998.
In connection with these actions, the Company recorded non-recurring and unusual
charges of approximately $37.6 million ($31.7 million net of related tax
benefits) in 1998. These charges included approximately $34.0 million to adjust
assets affected by these actions to their net realizable value and approximately
$3.6 million for employee termination and other costs related to the
discontinuation of the trading division. The assets impaired included accounts
receivable generated from sales to trading companies, inventory prepayments to
trading companies, inventories purchased from trading companies, accounts
receivable generated by the sale of products to other distributors and supplier
credits related to the purchase of products for these channels. These
non-recurring and unusual charges are recorded in the Company's restated
Consolidated Statements of Operations as follows (in millions):
Cost of revenue $ 21.2
Selling, general and administrative expenses 12.8
Trading, restructuring and other unusual charges 3.6
------
$ 37.6
======
A-5
ACQUISITIONS AND DIVESTITURES
The Company completed the following purchase acquisitions and divestitures
during the past three years.
2000
- Acquired Advanced Portable Technologies Pty Ltd - a provider of
distribution and other outsourced services to the wireless data and
portable computer industry in Australia and New Zealand.
1999
- Acquired Cellular Services S.A. - a provider of integrated logistics
services in the wireless communications industry in Brazil.
- Sold WAVETech Network Services Limited, a subsidiary of WAVETech
Limited in the United Kingdom.
- Pursuant to its Restructuring Plan, terminated or disposed of certain
operations in the United Kingdom, Argentina, Taiwan, China and Poland.
1998
- Acquired the business and either all of the equity interests or certain
net assets of:
- Matel-Tecnologia de Teleinformatica S.A.-Matec - a wireless products
distributor in Brazil;
- WAVETech Limited - a wireless products distributor in the United
Kingdom;
- Wireless Fulfillment Services, LLC - a provider of wireless accessory
end-user fulfillment services for North American network operators;
- Axess Communications Benelux B.V. - a provider of accessory
distribution services in the wireless communications industry with
operations in the Netherlands, Germany and Poland;
- Cell Direct Limited - a wireless products distributor in New Zealand;
- Function Communications Co., Ltd. - a wireless products distributor in
Taiwan;
- Euro-Phone Sp. z o.o. - a wireless products distributor in Poland;
- Communicaciones ASBE, S.A. de C.V. - a wireless products distributor in
Mexico;
- Eurocom Systems S.A. - a provider of distribution and integrated
logistics services in the wireless communications industry in France.
NET INVESTMENT GAIN
During the first quarter of 1998, the Company realized a net gain on the sale of
a marketable equity security, representing income of a non-recurring nature of
$0.6 million ($0.3 million after-tax).
A-6
OPERATING SEGMENTS
The Company operates in markets worldwide and has four operating segments. These
operating segments represent the Company's four divisions: North America;
Asia-Pacific; Europe, Middle East and Africa; and Latin America. These divisions
all derive revenues from sales of wireless handsets, accessory programs and fees
from the provision of integrated logistics services. However, the divisions are
managed separately because of the geographic locations in which they operate.
The Company evaluates the performance of, and allocates resources to, these
segments based on income (loss) from operations including allocated corporate
selling, general and administrative expenses. As discussed in Note 2 to the
Consolidated Financial Statements, the Company incurred trading, restructuring
and other unusual charges, which materially affected certain operating segments.
A summary of the Company's operations by segment is presented below (in
thousands), as restated (see Note 17 to the Consolidated Financial Statements):
Trading,
Revenues from Total Allocated Allocated Restructuring and
External Income (Loss) from Segment Interest Income Other Unusual
Customers Operations (1) Assets Expense (2) Taxes (2) Charges (3)
---------------------------------------------------------------------------------------------------
1998:
North America $ 480,665 $ 22,740 $247,938 $ 5,083 $ 3,078 $ --
Asia-Pacific 518,562 2,517 159,730 3,442 3,241 15,152
Europe, Middle East
and Africa 385,809 (4,887) 184,528 2,555 2,798 20,415
Latin America 199,162 8,459 107,144 1,682 2,095 2,000
-----------------------------------------------------------------------------------------------
$ 1,584,198 $ 28,829 $699,340 $12,762 $11,212 $37,567
===============================================================================================
1999:
North America $ 757,146 $ 24,722 $328,688 $ 3,616 $ 7,891 $ --
Asia-Pacific 432,821 (32,686) 104,233 3,583 2,567 34,350
Europe, Middle East
and Africa 330,872 (38,533) 103,913 3,542 2,712 38,316
Latin America 247,282 (765) 80,666 2,152 (5) 3,394
-----------------------------------------------------------------------------------------------
$ 1,768,121 $ (47,262) $617,500 $12,893 $13,165 $76,060
===============================================================================================
2000:
North America $ 697,235 $ 29,392 $308,218 $ 5,195 $ 7,659 $ 6,972
Asia-Pacific 557,475 22,110 120,386 2,790 6,055 (705)
Europe, Middle East
and Africa 444,585 13,263 146,551 2,513 2,929 (142)
Latin America 277,996 (2,628) 112,632 1,293 (1,651) --
-----------------------------------------------------------------------------------------------
$ 1,977,291 $ 62,137 $687,787 $11,791 $14,992 $ 6,125
===============================================================================================
(1) Includes $37.6 million, $76.1 million, and $6.1 million of trading,
restructuring and other unusual charges in 1998, 1999 and 2000,
respectively.
(2) These items are allocated using various methods and are not necessarily
indicative of the actual interest expense and income taxes for the
applicable divisions.
(3) In 1998 and 1999, a portion of these charges are included under the
captions "Cost of revenue" and "Selling, general and administrative
expenses," in the Consolidated Statements of Operations depending upon
their nature. See Note 2 to the Consolidated Financial Statements.
A-7
Additional segment information is as follows (in thousands):
External revenue by service line: 1998 1999 2000
----------------------------------------------
Wireless handset sales $1,345,896 $1,342,814 $1,569,777
Wireless accessory programs 147,246 266,193 221,967
Integrated logistics services 91,056 159,114 185,547
----------------------------------------------
$1,584,198 $1,768,121 $1,977,291
==============================================
DECEMBER 31
-----------------------------------------
1998 1999 2000
-----------------------------------------
Long-lived assets:
North America $ 38,571 $ 42,144 $ 41,922
Asia-Pacific 40,824 29,008 28,310
Europe, Middle East and Africa 73,200 32,806 36,134
Latin America 11,484 14,668 18,615
----------------------------------------
$164,079 $118,626 $124,981
========================================
FUTURE OPERATING RESULTS
Various statements, discussions and analyses throughout this Annual Report are
not based on historical fact and contain forward-looking statements. Actual
future results may differ materially from the forward-looking statements in this
Annual Report. Future trends for revenue and profitability are difficult to
predict due to a variety of known and unknown risks and uncertainties,
including, without limitation, (i) uncertainties relating to customer plans and
commitments; (ii) lack of demand for the Company's products and services in
certain markets; (iii) the possible adverse effect on demand for the Company's
products resulting from consolidation of wireless network operator customers;
(iv) business conditions and growth in the Company's markets, including
currency, economic and political risks in markets in which the Company operates;
(v) availability and prices of wireless products; (vi) the ability of the
Company to absorb, through revenue growth, the increasing operating costs that
the Company has incurred and continues to incur in connection with its expansion
activities and provision of integrated logistics services; (vii) successful
consummation and integration of businesses product lines acquired; (viii)
success of strategic relationships with wireless equipment manufacturers and
network operators; (ix) ability to meet intense industry competition; (x)
continued access to increasing amounts of capital or other financing; (xi) the
Company's significant outstanding indebtedness; (xii) the highly dynamic nature
of the industry in which the Company participates; (xiii) continued tendency of
wireless equipment manufacturers and network operators to outsource aspects of
their business; (xiv) ability to manage and sustain future growth at our
historical or current rates; (xv) ability to respond to rapid technological
changes in the wireless communications and data industry; (xvi) reliance on
sophisticated information systems technologies; (xvii) ability to attract and
retain qualified management and other personnel; (xviii) potential performance
issues with suppliers and customers; (xix) ability to protect the Company's
proprietary information; (xx) risk of failure or material interruption of
wireless systems and services.
Because of the aforementioned uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical trends
to anticipate future results or trends.
A-8
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
(AS RESTATED, SEE NOTE 17)
Revenue $ 1,584,198 $ 1,768,121 $1,977,291
Cost of revenue 1,460,825 1,636,207 1,806,731
--------------------------------------------------
Gross profit 123,373 131,914 170,560
Selling, general and administrative expenses 90,980 117,925 102,298
Trading, restructuring and other unusual charges 3,564 61,251 6,125
--------------------------------------------------
Income (loss) from operations 28,829 (47,262) 62,137
Interest expense 12,762 12,893 11,791
Other (income) expenses (2,523) 1,216 1,656
--------------------------------------------------
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain 18,590 (61,371) 48,690
Income taxes 11,212 13,165 14,992
--------------------------------------------------
Income (loss) before minority interest, accounting change and
extraordinary gain 7,378 (74,536) 33,698
Minority interest (151) (93) 3
--------------------------------------------------
Income (loss) before accounting change and extraordinary gain 7,529 (74,443) 33,695
Cumulative effect of accounting change, net of tax -- (13,404) --
Extraordinary gain on debt extinguishment, net of tax -- -- 9,988
--------------------------------------------------
Net income (loss) $ 7,529 $ (87,847) $ 43,683
==================================================
Basic per share:
Income (loss) before accounting change and
extraordinary gain $ 0.14 $ (1.40) $ 0.61
Cumulative effect of accounting change, net of tax -- (0.25) --
Extraordinary gain on debt extinguishment, net of tax -- -- 0.18
--------------------------------------------------
Net income (loss) $ 0.14 $ (1.65) $ 0.79
==================================================
Diluted per share:
Income (loss) before accounting change and
extraordinary gain $ 0.14 $ (1.40) $ 0.60
Cumulative effect of accounting change, net of tax -- (0.25) --
Extraordinary gain on debt extinguishment, net of tax -- -- 0.18
--------------------------------------------------
Net income (loss) $ 0.14 $ (1.65) $ 0.78
==================================================
Weighted average common shares outstanding:
Basic 52,818 53,290 55,461
==================================================
Diluted 53,483 53,290 56,105
==================================================
See accompanying notes.
A-9
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF OPERATIONS - RESTATED
The Company's revenues are comprised of sales of wireless handsets (including
wireless data devices), accessory programs and fees generated from the provision
of integrated logistics services. The sale of wireless handsets and related
accessories and the resulting gross profit reflects the compensation earned by
the Company for its distribution services, which services include purchasing,
marketing, selling, warehousing, picking, packing, shipping and delivery. Fees
from integrated logistics services are earned as services are performed. Such
services include, among others, support for prepaid programs, inventory
management, procurement, product fulfillment, programming, telemarketing,
private labeling, kitting and customized packaging, product warranty, repair and
refurbishment and end-user support services.
Due to the significance of the Restructuring Plan announced by the Company on
June 30, 1999, results of operations have been delineated between results from
recurring operations and results from non-recurring operations. In addition, the
impacts of non-recurring gains and charges have been shown and discussed
separately. Recurring operations include all operations except those that were
eliminated or terminated in accordance with the Restructuring Plan. Recurring
operations also exclude the impacts of the gain on debt extinguishment realized
in 2000, the cumulative effect of a change in accounting principle in 1999,
non-recurring and other unusual charges in 1998, 1999 and 2000 and a net
investment gain recorded in the first quarter of 1998. As previously discussed,
the Company's execution of the Restructuring Plan has been substantially
completed.
RECURRING OPERATIONS - RESTATED
REVENUE
(In thousands) 1998 1999 Change 2000 CHANGE
-------------------------------------------------------------------------------------------------------------
Revenue $ 1,264,778 $ 1,647,478 30% $ 1,977,291 20%
=============================================================================================================
Revenue from recurring operations for 2000 increased 20% to approximately $2.0
billion from $1.6 billion in 1999. Revenue from recurring operations for 1999
increased 30% when compared to 1998. The increases in both periods are a result
of the worldwide demand for wireless products and the Company's distribution and
integrated logistics services. The increased demand for wireless products
resulted from, among other things, increasing numbers of wireless subscribers in
many markets worldwide and increasing demand for replacement or upgraded
equipment. However, the Company believes revenue from recurring operations was
adversely affected by lower-than-anticipated demand for wireless products in the
U.S. market in the fourth quarter of 2000 and pricing pressures in the Latin
America market throughout 2000 due to a general oversupply of products. Both of
these trends are expected to continue in 2001.
A-10
RECURRING OPERATIONS - RESTATED
REVENUE BY SERVICE LINE
(In thousands) 1998 1999 2000
---------------------------------------------------------------------------------------------------------
Wireless handset sales $1,054,320 84% $1,245,493 76% $1,569,777 79%
Wireless accessory programs 129,337 10% 263,934 16% 221,967 11%
Integrated logistics services 81,121 6% 138,051 8% 185,547 10%
--------------------------------------------------------------------
Total $1,264,778 100% $1,647,478 100% $1,977,291 100%
---------------------------------------------------------------------------------------------------------
Revenue from recurring operations for 2000 as compared to 1999 includes a
greater proportion of revenues from integrated logistics services as the Company
continued to develop and grow its service offerings and obtain new customers in
this area. Revenue from wireless handset sales grew 26% from the prior year due
to the increased demand for wireless handsets and improved product availability.
Revenue from accessory programs decreased worldwide due to a reduction in the
number of promotions offered by or fulfilled for certain network operators.
Revenue from the provision of integrated logistics services increased 34% in
2000 when compared to 1999 as the Company continued the execution of its
strategy of focusing on this higher-margin service line. Approximately 50% of
the 1999 increase in total revenue from recurring operations was attributable to
a 70% increase in revenues from integrated logistics services and a 104%
increase in wireless accessories sold. Revenue growth from both of these service
lines outpaced increases in wireless handset sales, which increased 18% from
1998 to 1999, and accounted for the remaining 50% increase in 1999 total
revenues.
REVENUE BY DIVISION
(In thousands) 1998 1999 2000
-----------------------------------------------------------------------------------------------------------
North America $ 480,665 38% $ 757,146 46% $ 697,235 35%
Asia-Pacific 406,454 32% 341,097 21% 557,475 28%
Europe, Middle East and Africa 178,510 14% 301,953 18% 444,585 23%
Latin America 199,149 16% 247,282 15% 277,996 14%
---------------------------------------------------------------------
Total $1,264,778 100% $1,647,478 100% $1,977,291 100%
-----------------------------------------------------------------------------------------------------------
The Company operates in various markets worldwide and business activities are
managed in four divisions: North America; Asia-Pacific; Europe, Middle East and
Africa; and Latin America. The North America division conducts its operations
primarily within the United States. Units handled in the North America division
during 2000, grew by 27% compared to 1999, while revenue in this division
declined 8% from 1999. This was primarily the result of lower demand in the
United States during the fourth quarter of 2000, due to a variety of factors
including economic uncertainty. Additionally, revenue from accessory programs in
the North America division decreased due in part to the lower fourth quarter
demand and to a reduction in the number of promotions offered by or fulfilled
for certain network operators. The Company believes that both of these trends
will continue in 2001. The Company continued the execution of its strategy of
focusing on integrated logistics services, which typically generate lower
revenue per handset, but generally contribute higher gross and operating
margins. In the North America division, 67% of the units handled in 2000 were
processed as integrated logistics services units, a substantial increase from
units attributable to integrated logistics services of 56% in 1999. Revenue in
the North America division increased 58% in 1999 compared to 1998 primarily due
to increases across all service lines reflecting growth in the provision of
services to network operators and their agents.
A-11
RECURRING OPERATIONS - RESTATED
The Company's Asia-Pacific division maintains operations in Australia, New
Zealand, Philippines and the People's Republic of China (including Hong Kong).
Revenue from recurring operations in the Asia-Pacific division increased 63% in
2000 when compared to 1999. In addition, units handled grew 103% from the prior
year demonstrating the successful development of new supplier and customer
relationships by the Company's new joint operations in China, as well as volume
growth during 2000 in Australia, the Philippines and New Zealand. Revenue from
recurring operations in the Asia-Pacific division during 1999 decreased 16% when
compared to 1998 due primarily to changes in the Company's strategy in China.
The Company's Europe, Middle East and Africa division has operations in France,
Germany, Ireland, Jordan, the Netherlands, South Africa, Sweden, the United Arab
Emirates and Zimbabwe. Revenue from recurring operations within the Europe,
Middle East and Africa division grew by 47% in 2000 compared to 1999 and units
handled increased 95% resulting from the increased demand for wireless handsets
and improved product availability in those markets, as well as the execution of
our strategies designed for those markets. Average selling prices were depressed
in the Europe, Middle East and Africa division during the second half of 2000
due primarily to increased competition in the Middle East from trading
companies. Recurring revenue within the Europe, Middle East and Africa division
grew by 69% in 1999 compared to 1998 resulting from the strong demand for the
Company's distribution and integrated logistics services and expansion of our
in-country operations in certain markets within the division.
The Latin America division of the Company has operations in Miami, Brazil,
Mexico, Venezuela, Puerto Rico and Colombia. Revenue from recurring operations
within the Latin America division grew by 12% in 2000 compared to 1999. In
addition, units handled grew by 21% compared to the prior year. This unit volume
growth was offset by declines in average selling prices as oversupplies in
various markets in Latin America resulted in significant pricing pressures.
Recurring revenue grew by 24% in 1999 compared to 1998 resulting from the
Company's migration to in-country presences in certain markets within the
division.
GROSS PROFIT
(In thousands) 1998 1999 Change 2000 CHANGE
--------------------------------------------------------------------------------------------
Gross profit $ 122,499 $ 139,754 14% $ 170,560 22%
Gross margin 9.7% 8.5% 8.6%
--------------------------------------------------------------------------------------------
Gross profit in 2000 increased 22% from 1999 to approximately $171 million, and
gross profit in 1999 increased 14% from the prior year to approximately $140
million. These increases were due primarily to the increases in revenue. Gross
margins for 2000 were consistent with 1999, due to a shift in service line mix
from higher-margin accessory programs to lower margin handset sales which was
offset by improved profitability in existing accessory programs. Gross margins
were lower in 1999 compared to 1998 due to pressure on handset margins and
increased costs of revenue across all service lines (in total and as a percent
of revenue).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(In thousands) 1998 1999 Change 2000 CHANGE
---------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses $ 61,820 $ 99,741 61% $ 102,276 3%
As a percent of revenue 4.9% 6.1% 5.2%
---------------------------------------------------------------------------------------------------------
A-12
RECURRING OPERATIONS - RESTATED
Selling, general and administrative expenses increased 3% in 2000 compared to
the prior year recurring operations and improved as a percent of revenue to 5.2%
from 6.1% in 1999. These changes were due to cost reduction programs initiated
in the second half of 1999 and continued monitoring of costs by management in
2000. Selling, general and administrative expenses increased 61% in 1999
compared to the prior year and reflected the increased cost of serving current
and anticipated integrated logistics services customers, increased levels of
business activity and increased managerial resources in all of the Company's
operating divisions.
INCOME FROM OPERATIONS
(In thousands) 1998 1999 Change 2000 CHANGE
-----------------------------------------------------------------------------------------------
Income from operations $60,679 $40,013 (34%) $68,284 71%
As a percent of revenue 4.8% 2.4% 3.5%
-----------------------------------------------------------------------------------------------
In 2000, income from operations increased by 71% to approximately $68.3 million,
and the operating margin (income from operations as a percent of revenue) also
increased from 2.4% in 1999 to 3.5% in 2000. The increase in operating income is
due primarily to increased revenue in 2000. The increase in operating margin is
due primarily to the decrease in selling, general and administrative expenses as
a percent of revenue. In 1999, income from recurring operations decreased by 34%
to approximately $40.0 million, and the operating margin also decreased from
4.8% in 1998 to 2.4% in 1999. These decreases were primarily the result of the
decrease in gross margin and from the increase in selling, general and
administrative expenses as a percent of revenue.
NET INCOME
(In thousands, except per share data) 1998 1999 Change 2000 CHANGE
---------------------------------------------------------------------------------------------------------------
Net income $ 37,593 $ 15,950 (58%) $37,151 133%
As a percent of revenue 3.0% 1.0% 1.9%
Net income per share
- Basic $ 0.71 $ 0.30 (58%) $ 0.67 123%
- Diluted $ 0.70 $ 0.29 (59%) $ 0.66 128%
Weighted average shares outstanding
- Basic 52,818 53,290 1% 55,461 4%
- Diluted 53,483 54,145 1% 56,105 4%
--------------------------------------------------------------------------------------------------------------
Net income from operations in 2000 increased by 133% compared to 1999. This
increase was due primarily to the increase in income from operations as well as
a decrease in the effective income tax rate to 32% in 2000 from 42% in 1999
reflecting a decrease in the percentage of taxable income generated during 2000
in higher tax rate jurisdictions. The decrease in net income from recurring
operations of 58% in 1999 when compared to 1998 resulted primarily from the
decrease in operating margins. In addition, the effective tax rate increased in
1999 to approximately 42% from 29% in 1998. Changes in the effective tax rate
are due generally to the amount and geographic dispersion of pretax income.
A-13
NON-RECURRING OPERATIONS - RESTATED
Non-recurring operations in 1998 and 1999 included certain operations in
Argentina, Poland, Taiwan, the United Kingdom and two joint operations in China,
all of which have been terminated or eliminated. In 2000, no non-recurring
operations existed as the Restructuring Plan had been substantially completed.
For 1999, non-recurring operations generated revenue of $120.6 million,
operating and net losses of $11.2 million and $10.8 million, respectively, and a
net loss per diluted share of $0.20. When compared to the same operations in
1998, these results reflect the reduced business activity resulting from
execution of the Restructuring Plan in 1999 and discontinuation of trading
activities completed in the fourth quarter of 1998. In 1998, non-recurring
operations generated revenue of $319.4 million, operating and net income of $5.7
million and $1.3 million, respectively, and net income per diluted share of
$0.02.
NON-RECURRING CHARGES AND OTHER UNUSUAL ITEMS
As more fully discussed in the section entitled "Overview and Recent
Developments," the Company recorded non-recurring and other unusual charges in
1998, 1999 and 2000, an extraordinary gain on debt extinguishment in 2000, a
cumulative effect adjustment for a change in accounting principle in 1999 and a
net gain on the sale of a marketable equity security in 1998 that represent
income or expense of a non-recurring nature and, accordingly, have been excluded
from the previous discussion of operating results.
A-14
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
DECEMBER 31
---------------------------
1999 2000
--------- ---------
(AS RESTATED, SEE NOTE 17)
ASSETS
Current assets:
Cash and cash equivalents $ 85,261 $ 79,718
Accounts receivable (less allowance for doubtful
accounts of $6,220 in 1999 and $6,548 in 2000) 231,041 208,181
Inventories 140,758 225,337
Other current assets 41,814 49,570
--------- ---------
Total current assets 498,874 562,806
Property and equipment 36,250 36,763
Goodwill and other intangibles 71,253 72,390
Other assets 11,123 15,828
--------- ---------
Total assets $ 617,500 $ 687,787
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 190,524 $ 233,802
Accrued expenses 47,313 61,447
--------- ---------
Total current liabilities 237,837 295,249
--------- ---------
Long-term debt:
Line of credit 46,022 53,685
Convertible notes 184,864 144,756
--------- ---------
Total long-term debt 230,886 198,441
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $0.01 par value: 100,000 shares
authorized; 54,654 and 55,763 issued and
outstanding in 1999 and 2000, respectively 547 558
Additional paid-in capital 204,283 213,714
Retained earnings (deficit) (37,427) 6,256
Accumulated other comprehensive loss (18,626) (26,431)
--------- ---------
Total stockholders' equity 148,777 194,097
--------- ---------
Total liabilities and stockholders' equity $ 617,500 $ 687,787
========= =========
See accompanying notes.
A-15
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
YEAR ENDED DECEMBER 31
--------------------------------------------
1998 1999 2000
--------- --------- --------
(AS RESTATED, SEE NOTE 17)
OPERATING ACTIVITIES
Net income (loss) $ 7,529 $ (87,847) $ 43,683
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 11,342 15,034 14,142
Amortization of debt discount 5,587 7,179 7,169
Cumulative effect of accounting change, net of tax -- 13,404 --
Income tax benefits from exercise of stock options 4,961 1,557 2,717
Extraordinary gain on debt extinguishment, net of tax -- -- (9,988)
Trading, restructuring and other unusual charges 37,567 79,564 6,125
Net investment gain (572) -- --
Minority interest and deferred taxes 3,680 1,102 (1,911)
Changes in operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable (71,704) 17,930 10,667
Inventories (64,568) 6,874 (86,351)
Other operating assets 9,516 117 3,190
Accounts payable and accrued expenses 55,273 53,110 47,453
--------- --------- --------
Net cash provided (used) by operating activities (1,389) 108,024 36,896
INVESTING ACTIVITIES
Capital expenditures (30,120) (13,716) (14,664)
Sales of marketable securities, net of transaction costs 3,263 -- --
Purchase acquisitions, net of cash acquired (48,978) (5,608) (6,215)
Decrease (increase) in funded contract financing receivables 5,842 6,065 (4,210)
Decrease (increase) in other assets (21,974) 170 108
--------- --------- --------
Net cash used by investing activities (91,967) (13,089) (24,981)
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit facility (37,713) (62,998) 7,682
Repurchase of convertible notes -- -- (29,329)
Net proceeds from issuance of convertible notes 166,088 -- --
Proceeds from common stock issuances under employee stock
option and purchase plans 11,861 5,082 6,724
--------- --------- --------
Net cash provided (used) by financing activities 140,236 (57,916) (14,923)
Effect of exchange rate changes on cash and cash equivalents (293) (1,286) (2,535)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 46,587 35,733 (5,543)
Cash and cash equivalents at beginning of year 2,941 49,528 85,261
--------- --------- --------
Cash and cash equivalents at end of year $ 49,528 $ 85,261 $ 79,718
========= ========= ========
See accompanying notes.
A-16
ANALYSIS OF THE CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF CASH FLOWS - RESTATED
(dollars in thousands) 1998 1999 2000
------------------------------------------
Working capital $ 349,248 $261,037 $267,557
Cash provided (used) by operating activities (1,389) 108,024 36,896
Cash operating profit (EBITDA) 72,021 55,047 82,426
Current ratio 2.88 : 1 2.10 : 1 1.91 : 1
Average days revenue in accounts receivable 44 43 33
Average inventory turnover 10 12 9
Average days costs in accounts payable 20 32 40
Cash conversion cycle days 61 41 34
----------------------------------------------------------------------------------------------
The Company has historically satisfied its working capital requirements
principally through cash operating profit (also referred to as EBITDA and
calculated as income from recurring operations plus depreciation and
amortization expense), vendor financing, bank borrowings and the issuance of
equity and debt securities. The Company believes that cash operating profit will
be sufficient to continue funding its short-term capital requirements, however,
significant changes in the Company's business model or expansion of operations
in the future may require the Company to raise additional capital. The Company
generated cash operating profit of approximately $72.0 million, $55.0 million
and $82.4 million in 1998, 1999 and 2000, respectively. The increase in 2000 and
the decrease in 1999 in cash operating profit resulted from the corresponding
changes in income from recurring operations.
The increase in working capital in 2000 compared to 1999 is comprised primarily
of the net effect of increases in inventories, accounts payable and accrued
expenses and a decrease in accounts receivable. The decrease in working capital
in 1999 compared to 1998 is comprised primarily of the net effect of decreases
in accounts receivable, inventories and other current assets and an increase in
accounts payable and accrued liabilities, partially offset by the increase in
cash. These changes in working capital, particularly an increased level of
inventories at December 31, 2000, and an unusually low level of inventories at
December 31, 1999, caused by product shortages in the 1999 fourth quarter,
resulted in a decrease in net cash provided by operating activities in 2000 when
compared to 1999 and an increase in net cash provided by operating activities in
1999 when compared to 1998. These changes were partially offset by an increase
in net income in 2000 compared to 1999 and a decrease in net income in 1999
compared to 1998.
Additionally, as of December 31, 2000, average days revenue in accounts
receivable were approximately 33 days, compared to days revenue outstanding of
approximately 43 and 44 days for 1999 and 1998, respectively. During 2000,
average inventory turns were 9 times, compared to 12 times and 10 times in 1999
and 1998, respectively. Average days costs in accounts payable were 40 days for
2000, compared to 32 days and 20 days in 1999 and 1998, respectively. These
changes combined to create a decrease in cash conversion cycle days to 34 days
in 2000 from 41 days in 1999 and 61 days in 1998. The reduction in accounts
receivable in 2000 was attributable to the successful acceleration of the
Company's accounts receivable collection cycle, as well as sales or financing
transactions of certain accounts receivable to financing organizations. These
efforts have substantially reduced the amount of working capital required to
fund the Company's accounts receivable. The increase in inventories and
corresponding decrease in average inventory turns is due primarily to the
lower-than-anticipated demand in the fourth quarter of 2000 for products in the
United States and the significant shortage of products available in the fourth
quarter of 1999 in certain markets in which the Company operates. The increase
in other current assets is due primarily to an increase in the Company's
contract financing activities. The 2000
A-17
increase in accounts payable is due primarily to increased cash management
efforts and the establishment of longer payment terms with certain vendors.
At December 31, 2000, the Company's allowance for doubtful accounts was $6.5
million compared to $6.2 million at December 31, 1999, which the Company
believed was adequate for the size and nature of its receivables at those dates.
Bad debt expense as a percent of revenues was less than 1.0% for 2000 and 1999.
However, the Company incurred significant accounts receivable impairments in
connection with its Restructuring Plan in 1999 because it ceased doing business
in certain markets, significantly reducing the Company's ability to collect the
related receivables. Also, the Company's accounts receivable are concentrated
with network operators, agent dealers and mass retailers and delays in
collection or the uncollectibility of accounts receivable could have an adverse
effect on the Company's liquidity and working capital position. In connection
with its continued expansion, the Company intends to offer open account terms to
additional customers, which subjects the Company to further credit risks,
particularly in the event that receivables are concentrated in particular
geographic markets or with particular customers. The Company seeks to minimize
losses on credit sales by closely monitoring its customers' credit worthiness
and by obtaining, where available, credit insurance or security on open account
sales to certain customers.
There were only minor increases in property and equipment and goodwill and other
intangibles in 2000 compared to 1999 primarily because cash used for capital
expenditures and acquisition activities were almost fully offset by current year
depreciation and amortization expenses. The Company intends to invest an
aggregate of between $40.0 and $50.0 million in capital expenditures (related
primarily to information technology) over the next two years. The 2000 increase
in other assets is comprised primarily of an increase in the gross amount of the
Company's long-term deferred tax assets. The increase in net cash used by
investing activities in 2000 as compared to 1999 is due primarily to increased
funding of the Company's contract financing activity during 2000. The Company's
investments in contract financing receivables are included as a component of
"Other current assets" in the Consolidated Balance Sheets. The decrease in net
cash used by investing activities in 1999 as compared to 1998 is primarily
comprised of a reduction in the amounts of cash expended for acquisition
activities, capital expenditures and other long-term investments.
The Company's long-term debt at December 31, 1999 and 2000, includes borrowings
or permitted indebtedness under its $175 million senior secured revolving line
of credit facility which was modified and restated on July 27, 1999 (the
Facility). The Facility provides the Company, based upon a borrowing base
calculation, with a maximum borrowing capacity of up to $175 million. Interest
rates on U.S. Dollar borrowings under the Facility, excluding fees, range from
140 basis points to 250 basis points above LIBOR, depending on certain leverage
ratios. Many of the Company's assets are pledged as collateral for borrowings
under the Facility and the Company is substantially prohibited from incurring
additional indebtedness, either of which terms could limit the Company's ability
to implement its expansion plans. The Company is also subject to certain
restrictive covenants as more fully described in Note 8 to the Consolidated
Financial Statements.
The remainder of the Company's long-term debt is comprised of the Company's
zero-coupon, subordinated, convertible notes (Convertible Notes) which have an
aggregate principal amount at maturity of $380.0 million and $286.0 million
($1,000 face value per Convertible Note) at December 31, 1999 and 2000,
respectively. The Convertible Notes are due in the year 2018, have a yield to
maturity of 4.00% and are convertible into the Company's common stock at a rate
of 19.109 shares per Convertible Note. On October 30, 2000, the Company
announced that its Board of Directors had approved a plan under which the
Company could repurchase up to 130,000 of the Convertible Notes. As of December
31, 2000, the Company had repurchased 94,000 of the Convertible Notes, with an
aggregate accreted value as of the date of the repurchases of approximately
$47.3 million. The Company realized a gain on these repurchases of approximately
$16.6 million ($10.0 million, net of
A-18
tax) that is recorded as an extraordinary gain on debt extinguishment in the
Consolidated Statements of Operations for 2000.
Subsequent to December 31, 2000, the Company completed its repurchase plan by
acquiring an additional 36,000 of the Convertible Notes at prices ranging from
$278 to $283 per Convertible Note. These transactions resulted in an
extraordinary gain in 2001 of approximately $4.6 million ($0.09 per diluted
share), net applicable income taxes and transaction costs.
Net cash used by financing activities in 2000 was primarily the result of these
repurchases, partially offset by borrowings on the Company's line of credit and
proceeds from the issuance of common stock pursuant to the Company's employee
stock option and purchase plans. The repurchase of the Convertible Notes
combined with cash operating profit generated in 2000 resulted in improvements
in the Company's leverage, as Long-term debt to EBITDA decreased to 2.4 to 1 at
the end of 2000 from 4.2 to 1 at the end of 1999. The net cash used by financing
activities in 1999 was primarily the result of payments on the Company's line of
credit, partially offset by proceeds from the exercise of stock options. The net
cash provided by financing activities in 1998 was primarily due to $166.1
million generated from the issuance of the Convertible Notes and $11.9 million
of proceeds generated from the exercise of stock options partially offset by
$37.7 million of net principal reductions on the Company's line of credit.
The increase in shareholders' equity from 1999 to 2000 of $45.3 million resulted
from net income in 2000 of $43.7 million and funds generated from the exercise
of stock options of $9.4 million, partially offset by an increase in accumulated
other comprehensive loss of $7.8 million. The increase in accumulated other
comprehensive loss was primarily the result of foreign currency translation
adjustments, due particularly to the strengthening of the U.S. Dollar in 2000.
These adjustments are recorded in accumulated other comprehensive income (loss)
when the Company translates its foreign currency denominated assets and
liabilities to the U.S. Dollar at the end of each accounting period.
A-19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AS RESTATED, SEE NOTE 17)
(Amounts in thousands)
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
STOCK CAPITAL (DEFICIT) INCOME (LOSS) EQUITY INCOME (LOSS)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 $504 $160,387 $42,891 $ (4,491) $ 199,291
1998 Activity:
Net income -- -- 7,529 -- 7,529 $ 7,529
Other comprehensive income (loss):
Currency translation of foreign investments -- -- -- (3,514) (3,514) (3,514)
Unrealized loss on derivatives, net of tax -- -- -- (762) (762) (762)
benefit
Reclassification of marketable securities -- -- -- 74 74 74
losses, net of income tax benefit of $49
Exercise of stock options and related income 19 16,803 -- -- 16,822
tax benefit
Purchase acquisitions 5 7,176 -- -- 7,181
-------------------------------------------------------------------------------
Balance at December 31, 1998 528 184,366 50,420 (8,693) 226,621 $ 3,327
=========
1999 Activity:
Net loss -- -- (87,847) -- (87,847) ($87,847)
Other comprehensive income (loss):
Currency translation of foreign -- -- -- (10,750) (10,750) (10,750)
investments
Unrealized gain on derivatives, net of -- -- -- 817 817 817
income tax
Exercise of stock options and related income 8 6,631 -- -- 6,639
tax benefit
Purchase acquisition 11 13,286 -- -- 13,297
-------------------------------------------------------------------------------
Balance at December 31, 1999 547 204,283 (37,427) (18,626) 148,777 ($97,780)
=========
2000 ACTIVITY:
NET INCOME -- -- 43,683 -- 43,683 $ 43,683
OTHER COMPREHENSIVE INCOME (LOSS):
CURRENCY TRANSLATION OF FOREIGN -- -- -- (7,939) (7,939) (7,939)
INVESTMENTS
UNREALIZED GAIN ON DERIVATIVES, NET OF -- -- -- 134 134 134
INCOME TAX
COMMON STOCK ISSUED IN CONNECTION WITH
EMPLOYEE STOCK OPTION AND PURCHASE
PLANS AND RELATED INCOME TAX BENEFIT 11 9,431 -- -- 9,442
-------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $558 $213,714 $ 6,256 $(26,431) $ 194,097 $ 35,878
===============================================================================
See accompanying notes.
A-20
FINANCIAL MARKET RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate interest rate risks, the
Company has utilized interest rate swaps to convert certain portions of its
variable rate debt to fixed interest rates. To mitigate foreign currency
exchange rate risks, the Company utilizes its multi-currency revolving line of
credit and derivative financial instruments under a risk management program
approved by the Company's Board of Directors. The Company does not use
derivative instruments for speculative or trading purposes.
The Company is exposed to changes in interest rates on its variable interest
rate revolving lines of credit. A 10% increase in short-term borrowing rates
during 2000 would have resulted in only a nominal increase in interest expense
as well as a nominal increase in the fair value of the Company's interest rate
swaps at December 31, 2000.
A substantial portion of the Company's revenue and expenses are transacted in
markets worldwide and are denominated in currencies other than the U.S. Dollar.
Accordingly, the Company's future results could be adversely affected by a
variety of factors, including changes in specific countries' political, economic
or regulatory conditions and trade protection measures.
The Company's foreign currency risk management program is designed to reduce but
not eliminate unanticipated fluctuations in earnings, cash flows and the value
of foreign investments caused by volatility in currency exchange rates by
hedging, where believed to be cost-effective, significant exposures with foreign
currency exchange contracts, options and foreign currency borrowings. The
Company's hedging programs reduce, but do not eliminate, the impact of foreign
currency exchange rate movements. An adverse change (defined as a 10%
strengthening of the U.S. Dollar) in all exchange rates would have resulted in a
decrease in results of operations of approximately $3.4 million for 2000. The
same adverse change in exchange rates would have resulted in a $7.5 million
increase in the fair value of the Company's cash flow and net investment hedges
open at December 31, 2000. The majority of this fair value increase would offset
currency devaluations from translating the Company's foreign investments from
functional currencies to the U.S. Dollar. The Company's sensitivity analysis of
foreign currency exchange rate movements does not factor in a potential change
in volumes or local currency prices of its products sold or services provided.
Actual results may differ materially from those discussed above. For further
discussion see Note 11 to the Consolidated Financial Statements entitled
"Derivative Financial Instruments."
Certain of the Company's foreign entities are located in countries that are
members of the European Union (EU) and, accordingly, have adopted the Euro, the
EU's new single currency, as their legal currency effective January 1, 1999.
From that date, the Euro has been traded on currency exchanges and available for
noncash transactions. Local currencies remain legal tender until December 31,
2001 at which time participating countries will issue Euro-denominated bills and
coins for use in cash transactions. By no later than July 1, 2002, participating
countries will withdraw all bills and coins denominated in local currencies.
During 2000, the Company's operations that are located in EU countries (France,
Germany, Ireland and the Netherlands) have transacted business in both the Euro
and their local currency as appropriate to the nature of the transaction under
the EU's "no compulsion, no prohibition principle." The Company has made
significant investments in information technology in Europe and has experienced
no significant information technology or operational problems as a result of the
Euro conversion. In addition, the Company continues to evaluate the effects on
its business of the Euro conversion for the affected operations and believes
that the completion of the Euro conversion during 2001 and 2002 will not have a
material effect on its financial position or results of operations.
A-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
its majority-owned or controlled subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1999 Consolidated Financial Statements have been
reclassified to conform to the 2000 presentation. In the third quarter of 2000,
the Emerging Issues Task Force of the Financial Accounting Standards Board
reached a consensus on Issue No. 00-10, Accounting for Shipping and Handling
Costs. The consensus required, among other provisions, that shipping and
handling costs that are billed to customers be classified as revenue beginning
in the fourth quarter of 2000, consistent with the implementation of Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
Previously, the Company classified freight costs billed to its customers as an
offset to the corresponding freight expense included in cost of revenue. In the
fourth quarter of 2000, the Company reclassified these amounts to revenue and
applied the reclassification retroactively to all periods presented. The
reclassification did not affect income from operations, net income or earnings
per share. All amounts in this Annual Report reflect the retroactive application
of the required reclassification.
Beginning in the third quarter of 2000 and applied retroactively to all periods
presented, the Company classifies i) net foreign currency exchange gains and
losses, ii) gains and losses on sales of marketable securities and iii) net
gains and losses on the sale of assets in a separate line item entitled "Other
(income) expenses" in the Consolidated Statements of Operations. The individual
amounts reclassified were not significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results are likely to differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position or results of operations.
REVENUE RECOGNITION
Revenue is recognized when wireless equipment is sold and shipped or when the
Company's integrated logistics services have been rendered. In arrangements
where the Company both sells wireless equipment and provides integrated
logistics services, revenue is recognized separately for these functions and the
Company consistently applies the above criteria. In certain circumstances the
Company manages and distributes wireless equipment and prepaid recharge cards on
behalf of various network operators and assumes little or no product risk. The
Company records revenue for these integrated logistics services at the amount of
the net margin rather than the gross amount of the transactions.
A-22
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
CONCENTRATIONS OF RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. These receivables
are generated from product sales and services provided to network operators,
agents, resellers, dealers and retailers in the wireless telecommunications and
data industry and are dispersed throughout the world, including North America,
Asia and the Pacific Rim, Europe, the Middle East, Africa and Latin America. No
customer accounted for 10% or more of the Company's 1998, 1999 or 2000 revenue.
The Company performs ongoing credit evaluations of its customers and provides
credit in the normal course of business to a large number of its customers.
However, consistent with industry practice, the Company generally requires no
collateral from its customers to secure trade accounts receivable.
The Company is dependent primarily on equipment manufacturers for its supply of
wireless telecommunications and data equipment. Products sourced from the
Company's three largest suppliers accounted for approximately 79%, 75% and 79%
of product purchases in 1998, 1999 and 2000, respectively. The Company is
dependent on the ability of its suppliers to provide an adequate supply of
products on a timely basis and on favorable pricing terms. The loss of certain
principal suppliers or a significant reduction in product availability from
principal suppliers could have a material adverse effect on the Company. The
Company believes that its relationships with its suppliers are satisfactory,
however, the Company has periodically experienced inadequate supply from certain
handset manufacturers.
INVENTORIES
Inventories consist of wireless handsets and accessories and are stated at the
lower of cost (first-in, first-out method) or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts at December 31, 1999 and 2000, of cash and cash
equivalents, trade accounts receivable, other current assets, accounts payable,
accrued expenses and the Company's revolving credit facility approximate their
fair values. See Note 8 - Long-term Debt for disclosure of the fair value of the
Company's Convertible Notes.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to fifteen years. Leasehold improvements are stated at cost and
depreciated over the lease term of the associated property. Maintenance and
repairs are charged to expense as incurred.
A-23
GOODWILL
Purchase price in excess of the fair value of net assets of businesses acquired
is recorded as goodwill and is amortized on a straight-line basis over 30 years.
Amortization charged to operations was $2.7 million, $2.5 million and $2.5
million in 1998, 1999 and 2000, respectively. Goodwill as reflected in the
Consolidated Balance Sheets is presented net of accumulated amortization of $4.5
million and $6.7 million at December 31, 1999 and 2000, respectively. The
carrying amount of goodwill is regularly reviewed for indications of impairment
in value, which in the view of management are other than temporary, including
unexpected or adverse changes in the economic or competitive environments in
which the Company operates, profitability and cash flow. If facts and
circumstances suggest that a subsidiary's net assets are impaired, the Company
assesses the fair value of the underlying business and reduces goodwill to an
amount that results in the book value of the operation approximating fair value.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company's foreign subsidiaries is the
respective local currency. Revenue and expenses denominated in foreign
currencies are translated to the U.S. Dollar at average exchange rates in effect
during the year and assets and liabilities denominated in foreign currencies are
translated to the U.S. Dollar at the exchange rate in effect at the end of the
period. Foreign currency transaction gains and losses are included in the
Consolidated Statements of Operations as "Other (income) expenses." Currency
translation of assets and liabilities (foreign investments) from the functional
currency to the U.S. Dollar are included as a component of accumulated other
comprehensive loss in stockholders' equity.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected in
the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
A-24
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is based on the weighted average number of
common shares outstanding during each period, and diluted net income (loss) per
share is based on the weighted average number of common shares and dilutive
common share equivalents outstanding during each period. The Company's common
share equivalents consist of stock options, stock warrants and the Convertible
Notes described in Note 10 to the Consolidated Financial Statements.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for 1998, 1999 and
2000 (in thousands, except per share data) as restated (see Note 17 to the
Consolidated Financial Statements):
YEAR ENDED DECEMBER 31
1998 1999 2000
------------------------------------
Income (loss) before accounting change and
extraordinary gain $ 7,529 $ (74,443) $33,695
Cumulative effect of accounting change, net of tax -- (13,404) --
Extraordinary gain on debt extinguishment, net of tax -- -- 9,988
-------------------------------------
Net income (loss) $ 7,529 $ (87,847) $43,683
=====================================
Basic:
Weighted average shares outstanding 52,818 53,290 55,461
=====================================
Per share amount:
Income (loss) before accounting change and
extraordinary gain $ 0.14 $ (1.40) $ 0.61
Cumulative effect of accounting change, net of tax -- (0.25) --
Extraordinary gain on debt extinguishment, net of tax -- -- 0.18
-------------------------------------
Net income (loss) $ 0.14 $ (1.65) $ 0.79
=====================================
Diluted:
Weighted average shares outstanding 52,818 53,290 55,461
Net effect of dilutive stock options and stock
warrants - based on the treasury stock method using
average market price 665 -- 644
-------------------------------------
Total weighted average shares outstanding 53,483 53,290 56,105
=====================================
Per share amount:
Income (loss) before accounting change and
extraordinary gain $ 0. 14 $ (1.40) $ 0.60
Cumulative effect of accounting change, net of tax -- (0.25) --
Extraordinary gain on debt extinguishment, net of tax -- -- 0.18
-------------------------------------
Net income (loss) $0. 14 $ (1.65) $ 0.78
=====================================
A-25
STOCK OPTIONS
The Company uses the intrinsic value method to account for stock options. Under
this method, no compensation expense has been recognized for stock options
granted to employees. In March of 2000, the FASB issued Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25, Accounting for Stock Issued to Employees.
The Company's application of the provisions of this Interpretation commenced on
July 1, 2000 (the effective date of the Interpretation), and did not have a
material effect on its financial statements.
COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on available-for-sale securities, unrealized gains or
losses on derivative financial instruments and gains or losses resulting from
currency translations of foreign investments. At December 31, 1999 and 2000,
accumulated other comprehensive loss was comprised primarily of cumulative
foreign currency translation adjustments totaling $18.6 million and $26.6
million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). On July 1, 1998, the Company adopted SFAS
No. 133 and such adoption did not have a material impact on the Company's
results of operations or stockholders' equity.
The Company records all derivative instruments on the balance sheet at fair
value. On the date derivative contracts are entered into, the Company designates
the derivative as either (i) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair value hedge), (ii) a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability (cash flow hedge), or (iii) a
hedge of a net investment in a foreign operation (net investment hedge).
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income (loss), depending on whether a derivative
is designated as part of a hedge transaction and, if it is, depending on the
type of hedge transaction. For fair value hedge transactions, changes in the
fair value of the derivative instrument are generally offset in the statement of
operations by changes in the fair value of the item being hedged. For cash flow
hedge transactions, changes in the fair value of the derivative instrument are
reported in other comprehensive income (loss). For net investment hedge
transactions, changes in the fair value are recorded as a component of the
foreign currency translation account, which is also included in other
comprehensive income (loss). The gains and losses on cash flow hedge
transactions that are reported in other comprehensive income (loss) are
reclassified to earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item or the forecasted transactions
are realized. The impact of ineffective hedges is recognized in results of
operations in the periods in which the hedges are deemed to be ineffective.
A-26
OPERATING SEGMENTS
The Company's operations are divided into four separately managed segments. See
additional information on Operating Segments on pages A - 7 and A - 8.
2. TRADING, RESTRUCTURING AND OTHER UNUSUAL CHARGES
2000
In 2000, the Company consolidated four Indianapolis, Indiana, locations and a
location in Bensalem, Pennsylvania, into a single, new facility located near the
Indianapolis International Airport and designed specifically for the Company and
its processes. The Company recorded an unusual charge related to the
consolidation for moving costs, the disposal of assets not used in the new
facility and the estimated impact of vacating the unused facilities, net of
potential subleases. The total amount of the charge recorded in 2000 was $7.0
million ($4.2 million after applicable taxes or $0.07 per diluted share) and was
comprised of approximately $3.2 million in non-cash fixed asset disposals and
$3.8 million in moving, lease termination and other costs paid or to be paid in
cash. As a result of the actions discussed above, the Company had approximately
$3.0 million in facility consolidation reserves at December 31, 2000, and no
significant adjustments or revisions to the charge are anticipated in future
periods.
1999
In 1999, the Company implemented a broad Restructuring Plan eliminating or
restructuring identified non-performing business activities and improving the
Company's cost structure. The Restructuring Plan was approved by the Company's
Board of Directors on June 30, 1999, and included the disposal of certain
operations in the United Kingdom, Poland, Taiwan and Argentina; termination of
the Company's investments in two joint operations in China; disposal of its 67%
interest in a Hong Kong-based accessories company; and cost reduction
initiatives in selected operating subsidiaries and its regional and corporate
operations. In total, the Restructuring Plan resulted in a reduction in
headcount of approximately 350 employees. This headcount reduction occurred in
most areas of the Company, including marketing, operations and administration;
however, substantially all of the reductions occurred in the Company's operating
divisions outside of North America.
A-27
As a result of actions taken in accordance with the Restructuring Plan, the
Company recorded restructuring and other unusual charges totaling approximately
$78.7 million in 1999 and 2000 as follows (in millions):
Non-cash charges:
Impairment of goodwill and investments in joint operations $ 38.5
Impairment of accounts receivable and inventories of
restructured operations 12.0
Impairment of accounts receivable related to elimination
of sales to other distributors 8.0
Impairment of fixed assets 7.1
Write-off of deferred tax assets 3.5
Write-off of cumulative foreign currency translation
adjustments 1.8
Other 1.9
-------
72.8
-------
Cash charges:
Employee termination costs 3.2
Lease termination costs 1.0
Other exit costs 1.7
-------
5.9
-------
$ 78.7
=======
The Company's execution of the Restructuring Plan has been substantially
completed and no further revisions or adjustments to these charges are expected
in future periods. The aforementioned charges and related adjustments have been
recorded within the following captions in the restated Consolidated Statements
of Operations for 1999 and 2000 (in millions):
YEAR ENDED DECEMBER 31
------------------------
1999 2000
------ ------
Cost of revenue $ 9.6 $ -
Selling, general and administrative expenses 5.2 -
Trading, restructuring and other unusual charges 61.3 (0.9)
Income taxes 3.5 -
------ ------
$ 79.6 $ (0.9)
====== ======
At December 31, 2000, the Company had no significant reserves or assets held for
disposal related to the 1999 Restructuring Plan.
A-28
1998
The Company recorded non-recurring and unusual charges totaling approximately
$29.6 million ($25.6 million net of related tax benefits) in 1998 related to the
elimination of its trading division. The Company decided to cease its trading
activities primarily because (i) those activities were not consistent with its
strategy of emphasizing relationships with wireless equipment manufacturers and
network operators, (ii) the margins earned on the trading activities were
rapidly decreasing and (iii) the Company had increasing concerns about the
business practices of many trading companies.
The trading charges consisted of the following (in thousands):
Impairment of trading accounts receivable $ 9,652
Impairment of inventory prepayments and trading-related inventory losses 16,935
Losses upon liquidation of trading inventories 1,484
Legal and professional fees 894
Employee termination costs 602
--------
$ 29,567
========
The impairment in receivables resulted from actions necessary to discontinue the
trading division and the Company's emphasis on its in-country presence in the
regions in which those customers operate. The development of in-country
resources and the elimination of the Company's trading activities severely
harmed the businesses of many of the Company's trading customers, thereby
impairing amounts due from those customers. The impairment of inventory
prepayments and trading related inventory losses were primarily the result of
certain inappropriate business activities carried out by individuals and
third-party trading companies in 1998 that were inconsistent with the best
interests of the Company. The losses on the liquidation of trading inventories
were incurred upon subsequent disposal of on-hand quantities earmarked
specifically for trading activities. The legal and professional fees included
legal advice related to employee terminations as well as investigation costs
into the aforementioned inappropriate activities. The termination costs were
incurred to terminate all trading division employees.
A-29
In addition to the charges related to exiting the trading business noted above,
the Company also recorded other non-recurring charges in 1998 totaling $8.0
million ($6.1 million net of related tax benefits) which were the result of
impairments in the value of assets resulting from the Company's elimination of
other distributors from the Company's supply and sales channels. The assets
determined to be impaired include accounts receivable generated by sales to
other distributors and supplier credits related to the purchase of products for
these channels. Both classes of assets were determined by the Company to have
lost significant value upon termination of the related business relationships as
the Company deliberately shifted its focus from significant sales to other
distributors to direct in-country relationships with network operators and their
representatives.
These non-recurring and unusual charges are recorded in the Company's restated
Consolidated Statements of Operations as follows (in millions):
Cost of revenue $ 21.2
Selling, general and administrative expenses 12.8
Trading, restructuring and other unusual charges 3.6
------
$ 37.6
======
3. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting the Costs of Start-up Activities (SOP
98-5), which requires that such costs (as broadly defined in the Statement) be
expensed as incurred. SOP 98-5 became effective for years beginning after
December 15, 1998, and the initial application must be reported as the
cumulative effect of a change in accounting principle. The Company's application
of SOP 98-5 in the first quarter of 1999 resulted in the recording of a
cumulative effect of a change in accounting principle of approximately $13.4
million, net of the applicable income tax benefit of $6.2 million. This charge
represents the unamortized portion of previously capitalized organization,
start-up, pre-operating and integrated logistics services contract
implementation costs primarily incurred as a part of the Company's in-country
expansion and long-term contract activities from 1996 through 1998. The Company
believes that the ongoing application of SOP 98-5 will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
4. ACQUISITIONS AND DIVESTITURES
2000
In December of 2000, the Company acquired Advanced Portable Technologies Pty Ltd
located in Sydney, Australia, a provider of distribution and other outsourced
services to the wireless data and portable computer industry in Australia and
New Zealand. This transaction was accounted for as a purchase and, accordingly,
the Consolidated Financial Statements include the operating results of this
business from the effective date of acquisition. The purchase price consisted of
$0.9 million in cash, the assumption of certain liabilities and remaining
contingent consideration of up to $1.3 million based upon the future operating
results of the business over the next three years. Goodwill of approximately
$1.0 million resulted from this acquisition.
A-30
1999
During 1999, the Company acquired Cellular Services S.A., a provider of
integrated logistics services in the wireless communications industry in Brazil.
This transaction was accounted for as a purchase and, accordingly, the
Consolidated Financial Statements include the operating results of this business
from the effective date of acquisition. The purchase price consisted of $3.8
million in cash, the assumption of certain liabilities and remaining contingent
cash consideration of up to $15.0 million based upon the future operating
results of the Company's Brazilian operations over the five years following the
acquisition. Goodwill of approximately $5.0 million resulted from this
acquisition. In addition, the Company completed the sale of WAVETech Network
Services Limited, a subsidiary of WAVETech Limited in the United Kingdom. The
Company had previously accounted for the estimated loss on the sale of this
business as a part of the purchase price in its 1998 acquisition of WAVETech
Limited. The impact of the ultimate divestiture of this business did not result
in a material adjustment to the goodwill originally recorded.
1998
During 1998, the Company made acquisitions of businesses located in Brazil,
France, Germany, Mexico, the Netherlands, New Zealand, Poland, Taiwan, the
United Kingdom, and the United States. Each of these transactions was accounted
for as a purchase and, accordingly, the Consolidated Financial Statements
include the operating results of each business from the effective date of its
acquisition. The aggregate purchase price for these businesses consisted of
1,431,468 unregistered shares of the Company's common stock valued at $19.4
million, $37.6 million in cash, and the assumption of certain liabilities.
Goodwill of $61.1 million resulted from these acquisitions.
The impact of these acquisitions was not material in relation to the Company's
consolidated results of operations. Consequently, pro forma information is not
presented.
5. ACCOUNTS RECEIVABLE TRANSFERS
During 2000, the Company entered into certain transactions with respect to a
portion of its accounts receivable with financing organizations in order to
reduce the amount of working capital required to fund such receivables. These
transactions have been treated as sales pursuant to the provisions of FASB
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (FASB No. 125). Net funds received from the
sales of accounts receivable during 2000 totaled $149.3 million (7.6% of
revenues). Fees, in the form of discounts, incurred in connection with these
sales totaled $2.6 million and were recorded as losses on the sale of assets
which are included as a component of "Other (income) expenses" in the
Consolidated Statements of Operations. The Company is the collection agent on
behalf of the financing organization for many of these arrangements and has no
significant retained interests or servicing liabilities related to accounts
receivable that it has sold.
In September of 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No.
140), which replaces FASB No. 125. SFAS No. 140 is
A-31
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. With respect to recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral, SFAS No. 140 is effective for fiscal years ending
after December 15, 2000, and is to be applied prospectively with certain
exceptions. The Company adopted the disclosure provisions of SFAS No. 140 in
2000 and believes the complete implementation of SFAS No. 140 in 2001 will not
have a material effect on its financial statements.
6. NET INVESTMENT GAIN
During 1998, the Company realized a gain on the sale of a marketable equity
security. The net gain after related transaction costs was approximately $0.6
million ($0.3 million net of tax) and is included as a component of "Other
(income) expenses" in the Consolidated Statements of Operations.
At December 31, 1999 and 2000, the Company had no investments in marketable
equity securities.
7. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
DECEMBER 31
-----------------------
1999 2000
-----------------------
Furniture and equipment $ 13,976 $ 16,383
Information systems equipment and software 37,923 43,565
Leasehold improvements 6,497 7,858
-----------------------
58,396 67,806
Less accumulated depreciation 22,146 31,043
-----------------------
$ 36,250 $ 36,763
=======================
Depreciation expense charged to operations was $8.6 million, $12.5 million and
$11.6 million in 1998, 1999 and 2000, respectively.
8. LONG-TERM DEBT
On July 27, 1999, the Company amended and restated its five-year senior secured
revolving line of credit facility (the Facility) with Bank One, Indiana,
National Association, as agent for a group of banks (collectively, the Banks).
The Facility, subject to various restrictions, allows for borrowings of up to
$175 million, matures in June 2002, and generally bears interest, at the
Company's option, at (i) the greater of the agent bank's corporate base rate
plus a spread of 0 to 100 basis points and the Federal Funds effective rate plus
0.50%, or (ii) the rate at which deposits in United States Dollars or Euro
currencies are offered by the agent bank to first-class banks in the London
interbank market plus a spread ranging from 140 to 250 basis points (based on
the Company's leverage ratio defined in the Facility) plus a spread reserve, if
any. Borrowings by the Company's non-United States subsidiaries bear interest at
various rates based on the type and term of advance selected and the prevailing
interest rates of the country in which the subsidiary is domiciled.
A-32
At December 31, 2000, there was approximately $48.9 million outstanding under
the Facility, all of which was denominated in foreign currencies, at interest
rates ranging from 5.9% to 8.2% (a weighted average rate of 6.8%). In addition,
there was an aggregate of $39.7 million in letters of credit issued.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness. Funding under the Facility is
limited by an asset coverage test, which is measured monthly. As of December 31,
2000, available funding under the Facility was approximately $22.0 million. In
addition to certain net worth and other financial covenants, the Company's
Facility limits or prohibits the Company, subject to certain exceptions, from
declaring or paying cash dividends, making capital distributions or other
payments to stockholders, merging or consolidating with another corporation or
selling portions of its assets.
In December 1999, Brightpoint International Trading (Guangzhou) Co., Ltd. (an
indirect subsidiary of Brightpoint, Inc.) entered into a $4.8 million one-year
secured loan (denominated in China's local currency, the Renminbi) with China
Construction Bank Guangzhou Economic Technological Development District Branch
(China Construction Bank). In December 2000, the Company renewed and revised its
agreement with China Construction Bank. The revised agreement has an initial
maturity in May 2001 and increased available advances from $4.8 million to $8.5
million. At December 31, 2000, there was approximately $4.8 million outstanding
pursuant to the loan agreement at an interest rate of 5.9%. The loan is
supported by a stand-by letter of credit of $5.0 million which was issued under
the Facility. In addition, upon maturity the Company intends to renew this loan
with the lender or replace it with funding from the Facility. The loan prohibits
the borrower from making various changes in its ownership structure.
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 (Convertible Notes) with an
aggregate face value of $380 million ($1,000 per Convertible Note) and a yield
to maturity of 4.00%. The Convertible Notes are subordinated to all existing and
future senior indebtedness of the Company and all other liabilities, including
trade payables, of the Company's subsidiaries. The Convertible Notes resulted in
gross proceeds to the Company of approximately $172 million (issue price of
$452.89 per Convertible Note) and require no periodic cash payments of interest.
The proceeds were used to reduce borrowings under the Company's revolving credit
facility and to invest in highly-liquid, short-term investments pending use in
operations.
Each Convertible Note is convertible at the option of the holder any time prior
to maturity. Upon conversion, the Company, at its option, will deliver to the
holder 19.109 shares of common stock per Convertible Note or cash equal to the
market value of such shares. On or after March 11, 2003, the Convertible Notes
may be redeemed at any time by the Company for cash equal to the issue price
plus accrued original discount through the date of redemption. In addition, each
Convertible Note may be redeemed at the option of the holder on March 11, 2003,
2008 or 2013. The purchase price for each Convertible Note at these redemption
dates is approximately $552, $673 and $820, respectively, which is equal to the
issue price plus accrued original discount through the date of redemption. The
Company may elect at its option to pay for such redemption in cash or common
stock, or any combination thereof equaling the purchase price.
A-33
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company could repurchase up to 130,000 of the
Convertible Notes. The Company and the Banks amended the Facility on October 27,
2000, to allow the Company to execute such repurchases and to modify its
leverage ratio covenant upon completion of the repurchases. As of December 31,
2000, the Company had repurchased 94,000 of the Convertible Notes. The Company
realized a gain on these repurchases of approximately $16.6 million ($10.0
million, net of tax) that is recorded as an extraordinary gain on debt
extinguishment in the Consolidated Statements of Operations. At December 31,
2000, the Convertible Notes had an accreted value of $145 million and an
estimated fair market value of approximately $79 million based on their quoted
market price.
Subsequent to December 31, 2000, the Company completed its repurchase plan by
acquiring an additional 36,000 of the Convertible Notes at prices ranging from
$278 to $283 per Convertible Note. These transactions resulted in an
extraordinary gain in 2001 of approximately $4.6 million ($0.09 per diluted
share), net applicable income taxes and transaction costs.
On October 31, 2001, the Company cancelled and replaced the Facility with a new
revolving credit facility which matures in October 2004. The new facility
provides availability of up to $80 million, subject to borrowing base
calculations and other limitations. Interest payments for 1998, 1999 and 2000
were approximately $5.4 million, $6.7 million and $2.9 million, respectively.
9. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes, minority
interest, accounting change and extraordinary gain, by tax jurisdiction, is
comprised of the following (in thousands):
Year ended December 31
-------------------------------------
1998 1999 2000
-------------------------------------
United States $ 11,640 $ (14,046) $ 3,963
Foreign 6,950 (47,325) 44,727
-------------------------------------
$ 18,590 $ (61,371) $ 48,690
=====================================
The reconciliation for 1998, 1999 and 2000 of income tax expense computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:
------------------------
1998 1999 2000
------------------------
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of U.S. federal benefit 3.5 (0.7) 1.0
Foreign sales corporation and foreign taxes 18.7 (51.4) (7.9)
Other 3.1 (4.4) 2.7
------------------------
60.3% (21.5)% 30.8%
========================
The Company's effective tax rate for 1999, excluding the effect of non-recurring
operations and non-recurring charges, would have been 42% based on income before
taxes and minority interest. Due to the elimination of certain operations in
1999, the related tax benefits on losses generated within those
A-34
operations during 1999 and prior years will not be realized through the
application of net operating loss carryforwards in future periods. Consequently,
the Company provided for tax expense in 1999 based on recurring operations
income before income taxes of $27.4 million and the rates applicable to its
recurring operations which had effective tax rates of 29% and 42% in 1998 and
1999, respectively. The Company also recognized the impairment of tax benefits
recognized in prior periods for operations eliminated as a part of the
Restructuring Plan.
Significant components of the provision for income taxes are as follows (in
thousands):
1998 1999 2000
------------------------------------
Current:
Federal $ 608 $ 4,084 $ 6,465
State 314 646 879
Foreign 6,459 7,240 9,562
------------------------------------
7,381 11,970 16,906
------------------------------------
Deferred:
Federal 3,313 (1,145) (1,216)
State 704 (588) (444)
Foreign (186) 2,928 (254)
------------------------------------
3,831 1,195 (1,914)
------------------------------------
$ 11,212 $ 13,165 $ 14,992
====================================
Components of the Company's net deferred tax asset after valuation allowance are
as follows (in thousands):
DECEMBER 31
---------------------
1999 2000
---------------------
Deferred tax assets:
Current:
Capitalization of inventory costs $ 545 $ 1,598
Allowance for doubtful accounts 1,205 1,282
Accrued liabilities and other 500 859
Noncurrent:
Other long-term investments 2,083 4,244
Net operating losses and other carryforwards 7,026 14,290
---------------------
11,359 22,273
Valuation allowance (5,800) (13,938)
---------------------
5,559 8,335
Deferred tax liabilities:
Noncurrent:
Depreciation (642) (269)
Other assets (3,846) (5,081)
---------------------
(4,488) (5,350)
---------------------
$ 1,071 $ 2,985
=====================
A-35
Income tax payments were $5.9 million, $4.1 million and $5.6 million in 1998,
1999 and 2000, respectively.
At December 31, 2000, the Company had net operating loss carryforwards of $46.0
million, of which approximately $26.7 million have no expiration date. The
remaining foreign net operating loss carryforwards expire through the year 2008.
Undistributed earnings of the Company's foreign operations were approximately
$11.3 million at December 31, 2000. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal or state
income taxes or foreign withholding taxes has been made. Upon distribution of
those earnings, the Company would be subject to U.S. income taxes (subject to a
reduction for foreign tax credits) and withholding taxes payable to the various
foreign countries. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable; however, unrecognized foreign tax
credit carryovers would be available to reduce some portion of the U.S. tax
liability.
10. STOCKHOLDERS' EQUITY
All references in the financial statements related to share amounts, per share
amounts, average shares outstanding and information concerning stock option
plans have been adjusted retroactively to reflect stock splits.
The Company has a Stockholders' Rights Agreement, commonly known as a "poison
pill," which provides that in the event an individual or entity becomes a
beneficial holder of 15% or more of the shares of the Company's capital stock,
other stockholders of the Company shall have the right to purchase shares of the
Company's (or in some cases, the acquiror's) common stock at 50% of its then
market value.
The Company has authorized 1.0 million shares of preferred stock which remain
unissued. The Board of Directors has not yet determined the preferences,
qualifications, relative voting or other rights of the authorized shares of
preferred stock.
STOCK OPTION PLANS
The Company has three fixed stock option plans, which reserve shares of common
stock for issuance to executives, key employees, directors and others.
The Company maintains the 1994 Stock Option Plan whereby employees of the
Company and others are eligible to be granted incentive stock options or
non-qualified stock options. Under this plan there are 10.5 million common
shares reserved for issuance of which 6.7 million and 6.4 million were
authorized but unissued at December 31, 1999 and 2000, respectively. The Company
also maintains the 1996 Stock Option Plan whereby employees of the Company and
others are eligible to be granted non-qualified stock options. Under this plan
there are 3.8 million common shares reserved for issuance of which 2.3 million
and 1.7 million were authorized but unissued at December 31, 1999 and 2000,
respectively. For both plans, a committee of the Board of Directors determines
the time or times at which the options will
A-36
be granted, selects the employees or others to whom options will be granted and
determines the number of shares covered by each option, as well as the purchase
price, time of exercise (not to exceed ten years from the date of the grant) and
other terms of the option.
The Company also maintains the Non-Employee Directors Stock Option Plan whereby
non-employee directors are eligible to be granted non-qualified stock options.
Under this plan there are 937,500 common shares reserved for issuance of which
594,375 and 524,375 were authorized but unissued at December 31, 1999 and 2000,
respectively. Options to purchase 10,000 shares of common stock are granted to
each newly elected non-employee director and, on the first day of each year,
each individual elected and continuing as a non-employee director receives an
option to purchase 4,000 shares of common stock.
The exercise price of stock options granted may not be less than the fair market
value of a share of common stock on the date of the grant. Options become
exercisable in periods ranging from one to three years after the date of the
grant. Information regarding these option plans for 1998 through 2000 is as
follows:
1998 1999 2000
--------------------------------------------------------------------------------------
Weighted Weighted WEIGHTED
Average Average AVERAGE
Exercise Exercise EXERCISE
Shares Price Shares Price SHARES PRICE
--------------------------------------------------------------------------------------
Options outstanding,
beginning of year 7,063,586 $ 8.36 6,685,348 $ 9.87 6,590,220 $ 9.42
Options granted
2,893,500 12.40 1,531,500 8.35 2,270,300 10.70
Options exercised
(1,855,568) 6.46 (710,462) 7.31 (1,065,258) 6.22
Options canceled (1,416,170) 12.57 (916,166) 11.85 (453,459) 10.51
--------------------------------------------------------------------------------------
Options outstanding,
end of year 6,685,348 $ 9.87 6,590,220 $ 9.42 7,341,803 $ 10.21
======================================================================================
Options exercisable,
end of year 2,147,506 $ 7.62 3,356,083 $ 8.85 3,654,372 $ 10.17
======================================================================================
Option price range at end of year $1.33 - $17.50 $3.84 - $19.06 $3.50 - $19.06
Option price range for
exercised shares $1.33 - $11.20 $1.33 - $13.00 $3.84 - $11.20
Options available for grant
at year end 1,353,462 3,038,129 1,221,288
Weighted average fair value
of options granted during
the year $ 4.96 $ 3.81 $ 5.09
A-37
The following table summarizes information about the fixed price stock options
outstanding at December 31, 2000.
Exercisable
Weighted --------------------------------
Number Average Number
Outstanding at Remaining Weighted Outstanding at Weighted
Range of December 31, Contractual Average December 31, Average
Exercise Prices 2000 Life Exercise Price 2000 Exercise Price
--------------------------------------------------------------------------------------------------------
$ 3.50 - $ 6.00 1,209,499 4 years $ 4.53 269,853 $ 4.30
$ 6.23 - $ 8.50 1,727,086 3 years $ 6.87 1,447,429 $ 6.76
$ 8.81 - $ 14.25 2,285,718 4 years $ 10.66 1,121,419 $ 12.28
$ 14.38 - $ 19.06 2,119,500 3 years $ 15.68 815,671 $ 15.27
Disclosure of pro forma information regarding net income and earnings per share
is required to be presented as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method. The fair value for options granted by the Company is estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
1998 1999 2000
---------------------------
Risk-free interest rate 5.33% 6.10% 5.46%
Dividend yield 0.00% 0.00% 0.00%
Expected volatility .67 .69 .72
Expected life of the options (years) 2.42 2.67 2.76
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. 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 management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
and stock warrants (discussed below) are amortized to expense over the related
vesting period. Because compensation expense is recognized over the vesting
period, the initial impact on pro forma net income for 1998 and 1999 may not be
representative of compensation expense in future years (including 2000), when
the effect of amortization of multiple awards would be reflected in pro forma
net income. The Company's pro forma information giving effect to the estimated
compensation expense related to stock options and warrants is as follows (in
thousands, except per share data):
1998 1999 2000
--------------------------------
Pro forma net income (loss) $ (285) $ (92,381) $ 38,710
Pro forma net income (loss) per share (diluted) $ (0.01) $ (1.74) $ 0.72
A-38
STOCK WARRANTS
In connection with its acquisition of Cellular Trading 3, CA in Venezuela, the
Company issued to a principal of the seller warrants to purchase up to 200,000
shares of common stock at $15.44 per share. These warrants became exercisable in
2000 and expire in 2002, however, no shares have been exercised to date.
EMPLOYEE STOCK PURCHASE PLAN
During 1999, the Company's shareholders approved the 1999 Brightpoint, Inc.
Employee Stock Purchase Plan (ESPP). The ESPP, available to substantially all
employees of the Company, is designed to comply with Section 423 of the Internal
Revenue Code for employees living in the United States and eligible employees
may authorize payroll deductions of up to 10% of their monthly salary to
purchase shares of the Company's common stock at 85% of the lower of the fair
market value as of the beginning and ending of each month. Each employee is
limited to a total monthly payroll deduction of $2,000 for ESPP purchases. The
Company reserved 2,000,000 shares for issuance under the ESPP. During 1999 and
2000, employees made contributions to the ESPP to purchase 1,428 and 56,811
shares, respectively, at a weighted-average price of $9.08 and $5.76 per share,
respectively.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into derivative contracts to hedge forecasted future cash
flows and net investments in foreign operations. The Company utilizes interest
rate swaps to hedge interest rate risk on its multi-currency borrowings and
forward exchange contracts with maturities generally less than twelve months to
hedge a portion of its forecasted transactions. The Company utilizes borrowings
on its multi-currency credit facility to hedge a portion of its foreign net
investments. The fair value of the Company's foreign currency forward contracts
by currency and hedge designation recorded as liabilities was as follows at
December 31, 1999 and 2000 (in thousands):
1999 2000
-------------------------------------------------------------
Cash Flow Net Investment CASH FLOW NET INVESTMENT
-------------------------------------------------------------
Euro $ (407) $ (2,489) $ (291) $ (3,819)
Hong Kong Dollar 285 - (18) -
Swedish Krona - (543) - (1,207)
Australian Dollar - 511 - (1,425)
-------------------------------------------------------------
$ (122) $ (2,521) $ (309) $ (6,451)
-------------------------------------------------------------
From July 1, 1998 (the date of adoption of SFAS No. 133) through December 31,
2000, gains and losses recognized in earnings on cash flow hedges and the gains
and losses from net investments hedges included as a component of accumulated
other comprehensive loss in stockholders' equity have not been significant.
A-39
12. LEASE ARRANGEMENTS
The Company leases its office and warehouse/distribution space as well as
certain furniture and equipment under operating leases. Total rent expense for
all operating leases was $7.1 million, $10.1 million and $11.5 million for 1998,
1999 and 2000, respectively.
The aggregate future minimum payments on the above leases are as follows (in
thousands):
YEAR ENDING
DECEMBER 31
-----------
2001 $ 10,594
2002 8,483
2003 7,606
2004 6,988
2005 6,047
THEREAFTER 59,797
-----------
$ 99,515
===========
The commitments above include approximately $4.5 million in aggregate facility
lease payments for the years 2001 through 2005 and approximately $0.9 million
payable in 2006 that relate to the Company's former North America headquarters
and main distribution center in Indianapolis. The Company is currently
attempting to sublease this facility.
13. EMPLOYEE SAVINGS PLAN
The Company maintains an employee savings plan which permits employees based in
the United States with at least four months of service to make contributions by
salary reduction pursuant to section 401(k) of the Internal Revenue Code. The
Company matches 25% of employee contributions, up to 6% of each employee's
salary, in Company common stock. In connection with the required match, the
Company's contributions to the Plan were $0.1 million, $0.2 million and $0.2
million in 1998, 1999 and 2000, respectively.
14. FOREIGN CURRENCY DEVALUATION
On January 13, 1999, the Brazilian government allowed the value of its currency,
the Real, to float freely against other currencies. Between that date and
December 31, 1999, the Real's exchange rate to the U.S. Dollar declined
significantly. During 1999, the average exchange rate for the Real was
approximately 36.5% lower than the average exchange rate in 1998. As most of the
Company's transactions in Brazil are Real-denominated, translating the results
of operations of the Company's Brazilian subsidiary into U.S. Dollars at
devalued exchange rates resulted in a lower contribution to consolidated
revenues and operating income in 1999. Based on the exchange rates on December
31, 1999, the Company's currency translation of the foreign investment in its
Brazilian subsidiary from the Real (functional currency) to the U.S. Dollar
resulted in a devaluation of approximately $5.7 million. Currency translation
adjustments resulting from translating assets and liabilities from the
functional currency to the U.S. Dollar are included as a component of other
comprehensive loss in stockholders' equity. Valuation changes in the Real during
2000 were not significant.
A-40
15. CONTINGENCIES (UNAUDITED)
Various lawsuits, claims and proceedings have been or may be asserted against
the Company in the normal course of business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and Rule 10b-5 of the Exchange Act, based on allegations that false
and misleading statements were rendered and/or statements were omitted
concerning the Company's then current and future financial condition and
business prospects. The action involves a purported class of purchasers of the
Company's common stock during the period October 2, 1998 through March 10, 1999.
The Company and the individual defendants filed a motion to dismiss the action.
The court granted that motion on March 29, 2001. The plaintiffs have until April
26, 2001, to file a motion seeking leave to amend their complaint. If they do
not do so, the court will enter final judgment dismissing the case. The outcome
of any litigation is uncertain and it is possible that an unfavorable decision
could have a material adverse effect on the Company's financial position,
results of operations or cash flows.
A-41
16. QUARTERLY RESULTS OF OPERATIONS - RESTATED (UNAUDITED)
The quarterly results of operations are as follows (in thousands, except per
share data):
2000 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
REVENUE $ 477,772 $ 461,810 $ 517,360 $ 520,349
GROSS PROFIT 43,079 44,516 42,971 39,994
NET INCOME BEFORE EXTRAORDINARY GAIN 7,239 9,905 9,170 7,381
NET INCOME 7,239 9,905 9,170 17,369
BASIC PER SHARE:
INCOME BEFORE EXTRAORDINARY GAIN $ 0.13 $ 0.18 $ 0.16 $ 0.13
NET INCOME $ 0.13 $ 0.18 $ 0.16 $ 0.31
DILUTED PER SHARE:
INCOME BEFORE EXTRAORDINARY GAIN $ 0.13 $ 0.18 $ 0.16 $ 0.13
NET INCOME $ 0.13 $ 0.18 $ 0.16 $ 0.31
1999 First Second Third Fourth
---- ----- ------ ----- ------
Revenue $ 369,545 $ 405,347 $ 458,532 $ 534,697
Gross profit 25,867 22,679 36,916 46,452
Net income (loss) before accounting
change (3,713) (84,846) 3,310 10,806
Net income (loss) (17,117) (84,846) 3,310 10,806
Basic per share:
Income (loss) before accounting
change $ (0.07) $ (1.59) $ 0.06 $ 0.20
Net income (loss) $ (0.32) $ (1.59) $ 0.06 $ 0.20
Diluted per share:
Income (loss) before accounting
change $ (0.07) $ (1.59) $ 0.06 $ 0.19
Net income (loss) $ (0.32) $ (1.59) $ 0.06 $ 0.19
A-42
17. RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On November 13, 2001, the Company announced that it would restate its
annual financial statements for 1998, 1999, 2000 and the interim periods of
2001. On January 31, 2002, the Company announced that it would further restate
its financial statements for the same periods. The restated financial statements
reflect the correction of an error in applying generally accepted accounting
principles pertaining to the accounting for an agreement that was entered into
with an insurance company, effective in 1998, relating to retrospective and
prospective loss occurrences. The retrospective occurrences related primarily to
losses the Company had sustained and recorded in connection with its closure and
discontinuance of its trading division in the fourth quarter of 1998. The
Company has responded to requests for information and subpoenas from the
Securities and Exchange Commission (SEC) in connection with an investigation
including the Company's accounting treatment of the agreement with the insurance
company referenced above. In addition, certain officers or employees of the
Company have provided testimony to the SEC and the Company believes that the
staff of the SEC will subpoena additional testimony of certain officers and
employees of the Company. In connection with those responses, the Company and
its independent auditors reviewed the agreement with the insurance company and
the accounting for the related transactions. In November of 2001, the Company
and its independent auditors believed that insurance expense should have been
accrued at the date the Company entered into the agreement, rather than
prospectively over the periods covered by the agreement because the Company
could not allocate the costs of the agreement between the retrospective and
prospective loss occurrences. Accordingly, the Company's November 2001
restatement of its financial statements included an accrual in 1998 of
approximately $15 million of insurance expense related to this agreement. In
January 2002, the Company's Board of Directors appointed an independent member
of the Board to conduct an investigation of the circumstances surrounding the
procurement and accounting treatment of the agreement with the insurance company
and related matters. The independent member of the Board retained counsel to
assist in the investigation and their report was made to the Board in February
2002. This report included findings and recommendations concerning the
investigation and the independent members of the Board unanimously approved and
adopted such findings and recommendations. In late January 2002, the Company and
its independent auditors reviewed the results of the termination of the
retrospective portion of the agreement and determined that the appropriate
accounting method for the agreement is deposit accounting. Deposit accounting
requires treating the Company's payments under this agreement as deposits rather
than as premiums and the Company's receipts under the agreement as withdrawals
rather than claims paid by the insurance company, resulting in no income or
expense recognition during the term of the agreement. As a result of adopting
this accounting method, the Company i) wrote-off an insurance receivable of
approximately $12 million during the quarter ended December 31, 1998, ii)
wrote-off an insurance premium payable of approximately $15 million during the
quarter ended December 31, 1998, iii) reversed collectibility reserves that had
previously been applied to the aforementioned insurance receivables, iv)
recorded the applicable income tax impacts of the foregoing actions and v) did
not recognize an anticipated gain related to the termination of the
retrospective portion of the agreement in the quarter ended December 31, 2001.
The restated financial statements also include certain adjustments and
reclassifications that were previously deemed to be immaterial. The Company
believes that the restatement had no effect on the Company's cash flow and will
have no material effect on its financial position at any future date.
A-43
17. RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The following tables reconcile the effects of the restatements for the
fiscal years ended December 31, 1998, 1999 and 2000. All information in the
following tables is presented in thousands, except per share data.
1998 1999 2000
---- ---- ----
Income (loss) from operations as initially reported $ 41,486 $(52,750) $ 59,791
Effects of November 2001 insurance accounting correction (15,103) 2,852 2,852
Effects of January deposit accounting correction 3,285 2,685 245
Effects of adjustments previously deemed immaterial (839) (49) (751)
-------- -------- --------
Income (loss) from operations as restated $ 28,829 $(47,262) $ 62,137
======== ======== ========
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as
initially reported $ 31,237 $(66,827) $ 46,322
Effects of November 2001 insurance accounting correction (15,103) 2,852 2,852
Effects of January 2002 deposit accounting correction 3,285 2,685 245
Effects of adjustments previously deemed immaterial (829) (81) (729)
-------- -------- --------
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as restated $ 18,590 $(61,371) $ 48,690
======== ======== ========
Net income (loss) as initially reported $ 20,176 $(93,080) $ 41,772
Effects of November 2001 insurance accounting correction (10,421) 1,968 1,968
Effects of January 2002 deposit accounting correction (1,397) 2,685 161
Effects of adjustments previously deemed immaterial (829) 580 (218)
-------- -------- --------
Net income (loss) as restated $ 7,529 $(87,847) $ 43,683
======== ======== ========
Net income (loss) per share (basic) as initially reported $ 0.38 $ (1.75) $ 0.75
Effects of November 2001 insurance accounting correction (0.20) 0.04 0.04
Effects of January 2002 deposit accounting correction (0.03) 0.05 --
Effects of adjustments previously deemed immaterial (0.01) 0.01 --
-------- -------- --------
Net income (loss) per share (basic) as restated $ 0.14 $ (1.65) $ 0.79
======== ======== ========
Net income (loss) per share (diluted) as initially reported $ 0.38 $ (1.75) $ 0.74
Effects of November 2001 insurance accounting correction (0.20) 0.04 0.04
Effects of January 2002 deposit accounting correction (0.03) 0.05 --
Effects of adjustments previously deemed immaterial (0.01) 0.01 --
-------- -------- --------
Net income (loss) per share (diluted) as restated $ 0.14 $ (1.65) $ 0.78
======== ======== ========
A-44
17. RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The effects of the restatements on the Consolidated Balance Sheets are as
follows (in thousands):
1998 1999 2000
---- ---- ----
Total current assets as initially reported $ 549,225 $ 504,919 $ 566,678
Effects of January 2002 deposit accounting correction (11,818) (6,281) (3,184)
Effects of adjustments previously deemed immaterial (2,146) 236 (688)
--------- --------- ---------
Total current assets as restated $ 535,261 $ 498,874 $ 562,806
========= ========= =========
Total assets as initially reported $ 714,450 $ 623,858 $ 691,659
Effects of January 2002 deposit accounting correction (11,818) (6,281) (3,184)
Effects of adjustments previously deemed immaterial (3,292) (77) (688)
--------- --------- ---------
Total assets as restated $ 699,340 $ 617,500 $ 687,787
========= ========= =========
Total current liabilities as initially reported $ 188,176 $ 236,781 $ 293,618
Effects of November 2001 insurance accounting correction 10,421 8,454 6,487
Effects of January 2002 deposit accounting correction (10,421) (7,569) (4,634)
Effects of adjustments previously deemed immaterial (2,163) 171 (222)
--------- --------- ---------
Total current liabilities as restated $ 186,013 $ 237,837 $ 295,249
========= ========= =========
Total stockholders' equity as initially reported $ 239,568 $ 156,191 $ 199,600
Effects of November 2001 insurance accounting correction (10,421) (8,454) (6,487)
Effects of January 2002 deposit accounting correction (1,397) 1,288 1,451
Effects of adjustments previously deemed immaterial (1,129) (248) (467)
--------- --------- ---------
Total stockholders' equity as restated $ 226,621 $ 148,777 $ 194,097
========= ========= =========
A-45
OTHER INFORMATION
COMMON STOCK INFORMATION (UNAUDITED)
The Company's Common Stock is listed on the NASDAQ Stock Market(R) under the
symbol CELL. The following tables set forth, for the periods indicated, the high
and low sale prices for the Common Stock as reported by the NASDAQ Stock
Market(R).
2000 HIGH LOW
---- ---- ---
FIRST QUARTER $ 16.31 $ 11.44
SECOND QUARTER 12.94 8.53
THIRD QUARTER 9.50 4.41
FOURTH QUARTER 6.94 3.34
1999 High Low
---- ---- ---
First quarter $ 18.56 $ 5.81
Second quarter 7.25 5.31
Third quarter 7.28 3.53
Fourth quarter 14.88 6.84
At March 20, 2001, there were approximately 436 stockholders of record.
The Company has not paid cash dividends on its Common Stock other than S
corporation distributions made to stockholders during periods prior to the
rescissions of S corporation elections by the Company or its predecessors. In
addition, the Company's bank agreements limit or prohibit the Company, subject
to certain exceptions, from declaring or paying cash dividends, making capital
distributions or other payments to stockholders (See Note 8 - Long-term Debt).
The Board of Directors intends to continue a policy of retaining earnings to
finance the Company's anticipated growth and development of its business and
does not expect to declare or pay any cash dividends in the foreseeable future.
The Company has declared the following stock splits which were effected in the
form of stock dividends:
DECLARATION DATE DIVIDEND PAYMENT DATE SPLIT RATIO
---------------- --------------------- -----------
August 31, 1995 September 20, 1995 5 for 4
November 12, 1996 December 17, 1996 3 for 2
January 28, 1997 March 3, 1997 5 for 4
October 22, 1997 November 21, 1997 2 for 1
A-46
SELECTED FINANCIAL DATA (AS RESTATED, SEE NOTE 17 TO THE CONSOLIDATED FINANCIAL
STATEMENTS (1)
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Revenue (2) $589,718 $1,006,116 $1,584,198 $ 1,768,121 $1,977,291
Gross profit (2) 45,840 85,171 123,373 131,914 170,560
Income (loss) from operations (2) 24,991 41,862 28,829 (47,262) 62,137
Net income (loss) before accounting
change and extraordinary gain 11,037 25,510 7,529 (74,443) 33,695
Net income (loss) 11,037 25,510 7,529 (87,847) 43,683
Basic per share:
Income (loss) before accounting change and
extraordinary gain $ 0.27 $ 0.55 $ 0.14 $ (1.40) $ 0.61
Cumulative effect of accounting change,
net of tax -- -- -- (0.25) --
Extraordinary gain on debt extinguishment,
net of tax -- -- -- -- 0.18
-------- ---------- ---------- ----------- ----------
Net income (loss) $ 0.27 $ 0.55 $ 0.14 $ (1.65) $ 0.79
======== ========== ========== =========== ==========
Diluted per share:
Income (loss) before accounting change and
extraordinary gain $ 0.26 $ 0.53 $ 0.14 $ (1.40) $ 0.60
Cumulative effect of accounting change,
net of tax -- -- -- (0.25) --
Extraordinary gain on debt extinguishment,
net of tax -- -- -- -- 0.18
-------- ---------- ---------- ----------- ----------
Net income (loss) $ 0.26 $ 0.53 $ 0.14 $ (1.65) $ 0.78
======== ========== ========== =========== ==========
DECEMBER 31
-------------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Working capital $143,481 $ 281,063 $ 349,248 $ 261,037 $ 267,557
Total assets 299,045 456,702 699,340 617,500 687,787
Long-term obligations 79,894 146,963 286,706 230,886 198,441
Total liabilities 203,125 257,411 472,719 468,723 493,690
Stockholders' equity 94,982 199,291 226,621 148,777 194,097
(1) Operating data includes non-recurring charges and other unusual items that
were recorded in the years presented as follows: merger expenses in 1996;
investment gains on marketable equity securities in 1997 and 1998;
trading, restructuring and other unusual charges in 1998, 1999, and 2000;
the results of those operations that were terminated or sold in 1999 in
accordance with the Company's Restructuring Plan; the cumulative effect of
an accounting change in 1999 and an extraordinary gain on debt
extinguishment in 2000. See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes to Consolidated
Financial Statements.
(2) The Company has reclassified certain prior year amounts to conform to the
2000 presentation primarily to reflect certain classification requirements
of accounting pronouncements issued in 2000. The amounts reclassified were
not significant and had no effect on net income or earnings per share.
A-47
BRIGHTPOINT, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
Report of Independent Auditors on Financial Statement Schedule.......... F-1
Consent of Ernst & Young LLP............................................ F-2
Financial Statement Schedule for the years 2000, 1999 and 1998:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS..................... F-3
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the Consolidated Financial Statements of Brightpoint, Inc. as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, and have issued our report thereon dated January 22, 2001
(except for Notes 8 and 17, as to which the dates are November 16, 2001 and
January 31, 2002, respectively). Our audits also included the financial
statement schedule listed in Item 14(a) of this Form 10-K/A Amendment No. 3.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 22, 2001
F-1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-87863) pertaining to the Brightpoint, Inc. 1994 Stock Option Plan,
as amended, the 1996 Brightpoint, Inc. Stock Option Plan, as amended, the
Brightpoint, Inc. Non-employee Director Stock Option Plan, and the Brightpoint,
Inc. Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No.
333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the Registration
Statement (Form S-3 No. 33-91112) pertaining to certain options and warrants of
Brightpoint, Inc., in the Registration Statement (Form S-3 No. 333-3569)
pertaining to certain warrants of Brightpoint, Inc., and in the Registration
Statements (Form S-3 Nos. 333-15663, 333-29533, 333-07892, 333-37587, 333-55945,
333-58863, 333-34952, and 333-37022) pertaining to certain common stock of
Brightpoint, Inc. of our report dated January 22, 2001 (except for Notes 8 and
17, as to which the dates are November 16, 2001 and January 31, 2002,
respectively) with respect to the Consolidated Financial Statements and our
report dated January 22, 2001 with respect to the financial statement schedule,
both included in this Annual Report (Form 10-K/A Amendment No. 3) of
Brightpoint, Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 25, 2002
F-2
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES(1) ACCOUNTS DEDUCTIONS OF PERIOD
----------- --------- ----------- -------- ---------- ---------
Year ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful
accounts $6,220,000 $ 6,328,000 $ -- $ 6,000,000(2) $6,548,000
---------- ------------ ------------ ----------- ----------
Total $6,220,000 $ 6,328,000 $ -- $ 6,000,000 $6,548,000
========== ============ ============ =========== ==========
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful
accounts $6,045,000 $ 10,906,000 $ -- $10,731,000(2) $6,220,000
---------- ------------ ------------ ----------- ----------
Total $6,045,000 $ 10,906,000 $ -- $10,731,000 $6,220,000
========== ============ ============ =========== ==========
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful
accounts $3,394,000 $ 5,601,000 $ -- $ 2,950,000(2) $6,045,000
---------- ------------ ------------ ----------- ----------
Total $3,394,000 $ 5,601,000 $ -- $ 2,950,000 $6,045,000
========== ============ ============ =========== ==========
(1) Does not include impairments of accounts receivable recognized in
connection with the Company's trading, restructuring and other unusual
charges. See notes to Consolidated Financial Statements.
(2) Uncollectible accounts written off.
F-3