<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Briercroft Court
Carrollton, Texas 75006
Telephone (972) 466-5000
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
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
--- ---
On April 9, 1997, there were 19,297,105 outstanding shares of Common Stock,
$0.01 par value per share.
<PAGE>
CELLSTAR CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
- ------ --------------------- ------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited)
February 28, 1997 and November 30, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended February 28, 1997 and February 29, 1996 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Three months ended February 28, 1997 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended February 28, 1997 and February 29, 1996 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
- ------- -----------------
Item 1. LEGAL PROCEEDINGS 15
Item 2. CHANGES IN SECURITIES 15
Item 3. DEFAULTS UPON SENIOR SECURITIES 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
Item 5. OTHER INFORMATION 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CellStar Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
--------------- --------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 39,456 27,296
Accounts receivable (less allowance for doubtful accounts of
$30,595 and $29,023, respectively) 110,482 131,812
Inventories 90,478 94,473
Deferred income taxes 3,972 4,274
Prepaid expenses 1,919 1,513
-------------- --------------
Total current assets 246,307 259,368
Property and equipment, net 19,948 20,134
Goodwill (less accumulated amortization of $1,483
and $1,330, respectively) 16,444 16,597
Other assets 2,493 2,452
-------------- --------------
$ 285,192 298,551
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 86,051 116,091
Notes payable to financial institutions 65,214 56,136
Accrued expenses 12,245 12,250
Income taxes payable 4,527 2,958
Current portion of long-term debt 575 568
-------------- --------------
Total current liabilities 168,612 188,003
Long-term debt, less current portion 6,125 6,285
-------------- --------------
Total liabilities 174,737 194,288
-------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value, 45,000,000 shares
authorized; 19,297,105 and 19,274,000 shares issued and
outstanding, respectively 193 193
Additional paid-in capital 68,626 68,167
Common stock warrants 4 4
Foreign currency translation adjustments (4,769) (4,520)
Retained earnings 46,401 40,419
-------------- --------------
Total stockholders' equity 110,455 104,263
-------------- --------------
$ 285,192 298,551
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Operations
Three months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
Revenues:
<S> <C> <C>
Net product sales $ 245,506 174,864
Activation income 8,013 26,873
Residual income 3,126 3,238
-------------- --------------
Total revenues 256,645 204,975
Cost of sales 224,794 172,970
-------------- --------------
Gross profit 31,851 32,005
Selling, general and administrative expenses 21,760 28,905
-------------- --------------
Operating income 10,091 3,100
-------------- --------------
Other income (expense):
Interest expense (1,713) (2,539)
Other, net 88 436
-------------- --------------
Total other income (expense) (1,625) (2,103)
-------------- --------------
Income before income taxes 8,466 997
Income taxes 2,484 259
-------------- --------------
Net income $ 5,982 738
============== ==============
Net income per share $ 0.30 0.04
============== ==============
Weighted average number of shares and equivalent
shares outstanding 19,766 19,274
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three months ended February 28, 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Common currency
------------ paid-in stock translation Retained
Shares Amount capital warrants adjustments earnings Total
---------- ---------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1996 19,274 $ 193 68,167 4 (4,520) 40,419 104,263
Net income - - - - - 5,982 5,982
Issuance of common stock 23 - 459 - - - 459
Foreign currency translation
adjustment - - - - (249) - (249)
---------- ---------- ---------- --------- ----------- ---------- ----------
Balance at February 28, 1997 19,297 $ 193 68,626 4 (4,769) 46,401 110,455
========== ========== ========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
CellStar Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 5,982 738
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,154 1,304
Deferred income taxes 302 1,952
Changes in certain operating assets and liabilities:
Accounts receivable 21,081 16,080
Inventories 3,995 9,836
Prepaid expenses (406) 706
Other assets (179) 354
Accounts payable (30,040) (12,575)
Accrued expenses (5) 1,129
Income taxes payable 1,569 (2,550)
-------------- --------------
Net cash provided by operating activities 3,453 16,974
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (677) (1,145)
-------------- --------------
Net cash used in investing activities (677) (1,145)
-------------- --------------
Cash flows from financing activities:
Net borrowings (payments) on notes payable to financial institutions 9,078 (5,997)
Principal payments on long-term debt (153) (150)
Net proceeds from issuance of common stock 459 -
-------------- --------------
Net cash provided by (used in) financing activities 9,384 (6,147)
-------------- --------------
Net increase in cash and cash equivalents 12,160 9,682
Cash and cash equivalents at beginning of period 27,296 31,508
-------------- --------------
Cash and cash equivalents at end of period $ 39,456 41,190
============== ==============
Supplemental cash flow information:
Interest paid $ 1,564 3,043
============== ==============
Income taxes paid $ 622 42
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
Although the interim consolidated financial statements of CellStar
Corporation (the "Company") are unaudited, it is the opinion of the
Company's management that all adjustments (consisting of only normal
recurring adjustments) necessary for a fair statement of the results
have been reflected therein. Operating revenues and net earnings for any
interim period are not necessarily indicative of results that may be
expected for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's
Form 10-K for the year ended November 30, 1996.
Accounting Pronouncements
Effective December 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("Statement
121"). Statement 121 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The adoption did
not have a material impact on the Company's consolidated financial
position or results of operations for the period.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation", ("Statement 123"), effective
December 1, 1996. Statement 123 contains optional recognition provisions
and mandatory disclosure provisions. The Company will continue to
account for stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and will make the appropriate disclosures as required by
Statement 123.
7
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(2) Geographic Area Information
The Company operates predominantly within one business segment,
wholesale and retail sales of wireless handsets, including cellular
phones, and other wireless communications products. Financial
information by geographic area as of and for the three months ended
February 28, 1997 and February 29, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
United Asia- Latin
States Pacific America Europe Total
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
February 28, 1997:
Total revenues, net of
intercompany amounts $ 154,408 66,471 25,589 10,177 256,645
Intercompany sales (purchases) 5,814 2,680 (8,494) - -
Income (loss) before income taxes 3,089 6,351 (309) (665) 8,466
Net income (loss) 2,236 5,294 (883) (665) 5,982
Identifiable assets 146,703 85,891 40,786 11,812 285,192
February 29, 1996:
Total revenues, net of
intercompany amounts $ 108,322 66,786 29,867 - 204,975
Intercompany sales (purchases) 13,453 51 (13,504) - -
(Loss) income before income taxes (4,064) 6,096 (1,035) - 997
Net (loss) income (3,555) 4,598 (305) - 738
Identifiable assets 132,722 90,169 73,913 - 296,804
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company is an integrated wholesaler and retailer of wireless
handsets, including cellular phones, and other wireless communications products.
From fiscal 1992 to fiscal 1996, the Company's total revenues grew from $181.0
million to $947.6 million. The Company accomplished this growth primarily by
focusing its efforts on the cellular phone industry. To date, U.S. sales of
cellular phone products have increased primarily as a result of greater market
penetration and decreasing unit prices. The Company's international sales of
cellular phone products have increased primarily as a result of its entry into
the Asia-Pacific and Latin American regions.
This Quarterly Report on Form 10-Q contains forward-looking statements
to such matters as anticipated financial performance and business prospects.
When used in this Quarterly Report, the words "anticipates," "expects," "may"
and similar expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors,
including foreign currency risks, political instability, changes in foreign
laws, regulations, and tariffs, new technologies, competition, customer and
vendor relationships, seasonality, inventory obsolescence and availability,
"gray market" resales and inflation could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
The Company expects that with future increases, if any, to its
revenues, more funds will be required to support corresponding increases in the
Company's inventory and accounts receivable levels. See "Liquidity and Capital
Resources" below.
The Company experienced an increase in net income of $5.3 million in
the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996
primarily as a result of reduced selling, general and administrative expenses
and interest expense.
9
<PAGE>
Results of Operations
The following table sets forth certain unaudited consolidated
statements of operations data for the Company expressed as a percentage of total
revenues for the three months ended February 28, 1997 and February 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Net product sales 95.7 % 85.3 %
Activation income 3.1 13.1
Residual income 1.2 1.6
------------ ------------
Total revenues 100.0 100.0
Cost of sales 87.6 84.4
------------ ------------
Gross profit 12.4 15.6
Selling, general and administrative expenses 8.5 14.1
------------ ------------
Operating income 3.9 1.5
------------ ------------
Other income (expense):
Interest expense (0.6) (1.2)
Other, net - 0.2
------------ ------------
Total other income (expense) (0.6) (1.0)
------------ ------------
Income before income taxes 3.3 0.5
Income taxes 1.0 0.1
------------ ------------
Net income 2.3 % 0.4 %
============ ============
</TABLE>
10
<PAGE>
The amount of net revenues and the approximate percentages of net revenues
attributable to the Company's operations for the three months ended February 28,
1997 and February 29, 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S.:
Net product sales $ 148,085 57.7 % 82,638 40.3 %
Activation income 3,693 1.4 22,805 11.1
Residual income 2,630 1.0 2,879 1.4
------------- ------------ -------------- -------------
Total U.S. 154,408 60.1 108,322 52.8
------------- ------------ -------------- -------------
Asia-Pacific:
Net product sales 65,339 25.5 66,786 32.6
Activation income 1,132 0.4 - -
Residual income - - - -
------------- ------------ -------------- -------------
Total Asia-Pacific 66,471 25.9 66,786 32.6
------------- ------------ -------------- -------------
Latin America:
Net product sales 21,905 8.6 25,440 12.4
Activation income 3,188 1.2 4,068 2.0
Residual income 496 0.2 359 0.2
------------- ------------ -------------- -------------
Total Latin America 25,589 10.0 29,867 14.6
------------- ------------ -------------- -------------
Europe:
Net product sales 10,177 4.0 - -
Activation income - - - -
Residual income - - - -
------------- ------------ -------------- -------------
Total Europe 10,177 4.0 - -
------------- ------------ -------------- -------------
Total $ 256,645 100.0 % 204,975 100.0 %
============= ============ ============== =============
</TABLE>
11
<PAGE>
Three Months Ended February 28, 1997 Compared to Three Months Ended February 29,
1996
Revenues. Total revenues increased $51.6 million, or 25.2%, from $205.0
million in the first fiscal quarter of 1996 to $256.6 million in the first
fiscal quarter of 1997.
U.S. revenues increased by $46.1 million, or 42.6%, primarily from an
increase in net product sales of $65.5 million, or 79.3%, from $82.6 million to
$148.1 million. The increase in net product sales was largely due to the growth
in sales from the Company's Miami, Florida warehouse to customers exporting into
South American countries. In addition, the U.S. operations achieved growth in
net product sales to retailers under distribution and fulfillment contracts as
well as to traditional wholesale customers. U.S. activation income decreased
primarily as a result of the sale of substantially all of the Communication
Centers on November 26, 1996.
Net product sales in the Asia-Pacific region decreased by $1.5 million,
from $66.8 million to $65.3 million. The Company has experienced increased
competition in this region. The Company's operation in Hong Kong provided $51.7
million in net product sales, a decrease of $4.0 million, or 7.2%, from $55.7
million. This decline was primarily due to increased competition, which caused
downward pressure on selling prices. Net product sales in the Company's
Singapore operations decreased by $0.8 million, or 7.2%, from $11.1 million to
$10.3 million. The Company's operations in Taiwan, which commenced in the second
quarter in fiscal 1996, provided $3.3 million of net product sales. The Asia-
Pacific operations are substantially wholesale related, and as a result,
activation income is not significant.
Net product sales in Latin America decreased by $3.5 million, or 13.8%,
from $25.4 million to $21.9 million. The decline in net product sales was
primarily due to the continuation of the strategy to shift in-country product
sales by the Company's South American subsidiaries to sales from the Company's
Miami, Florida warehouse to customers exporting into South American countries.
The Company adopted this strategy in the second fiscal quarter of 1996 to reduce
currency, accounts receivable and inventory risks. An additional factor
contributing to this decline was a sharp decline in net product sales in Brazil,
which decreased from $7.5 million to $2.7 million. The decline in Brazil was due
to the continued deterioration in the business climate in Brazil for the
cellular phone industry. Activation income in Latin America decreased by $0.9
million, or 22.0%, from $4.1 million to $3.2 million. The decrease in activation
income occurred primarily in Chile and Colombia. The Company exited the retail
business in Chile effective December 1996. The decline in activation income in
Colombia correlated to a decrease in the number of activations largely due to
weak economic and market conditions during the first fiscal quarter of 1997.
Net product sales in the Company's European operation in the United
Kingdom, which commenced in the second quarter of 1996, were $10.2 million for
the period.
Gross Profit. Gross profit decreased by $0.1 million, from $32.0 million
to $31.9 million and, as a percentage of total revenues, gross profit decreased
from 15.6% to 12.4%. The decrease in gross profit as a percentage of total
revenues was due primarily to a decrease in U.S. retail revenue, which has a
higher gross profit margin than wholesale net product sales. In November 1996,
the Company sold substantially all of its Communication Centers and, as a
result, U.S. retail revenues decreased from $37.4 million to $11.7 million. The
related decrease in retail revenue gross profit was offset, in part, by gross
profit resulting from the increase in wholesale net product sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $7.1 million, or 24.6%, from $28.9 million to
$21.8 million. Approximately $5.6 million, or 78.9%, of the decrease was
attributable to the reduction of employees related to the sale of the
Communication Centers. The sale of the Communication Centers also contributed to
other decreases in selling, general and administrative expenses totaling
approximately $2.6 million. These decreases were partially offset by
12
<PAGE>
increases in bad debt expense of $0.5 million and $0.6 million in other
employee-related costs. Overall, the Company reduced selling, general and
administrative expenses as a percentage of total revenues from 14.1% to
8.5%.
Operating Income. Operating income increased from $3.1 million to $10.1
million due to the decrease in selling, general and administrative expenses.
Correspondingly, the increase in operating income as a percentage of total
revenues from 1.5% to 3.9% was attributable to the decrease in selling, general
and administrative expenses.
Interest Expense. Interest expense decreased in the first fiscal quarter
of 1997 to $1.7 million from $2.5 million in the first fiscal quarter of 1996.
The decrease in interest expense resulted primarily from the maintenance of
lower borrowings under the Company's revolving credit agreements.
Income Taxes. Income tax expense increased by $2.2 million in the first
fiscal quarter of 1997 compared to the same period a year earlier. This increase
was primarily due to higher income before income taxes and a slightly higher
effective tax rate in the first quarter of fiscal 1997. The slightly higher
effective tax rate was primarily attributable to the increase in U.S. operations
income before taxes.
Liquidity and Capital Resources
The Company primarily relies on cash generated from operations and
borrowings under its revolving credit agreements to fund working capital,
capital expenditures and expansions. In addition, the Company receives extended
credit terms from key suppliers to fund working capital requirements of its
operations. Historically, the Company used long-term debt to fund the
acquisition of significant fixed assets.
The Company expects to increase inventory and accounts receivable
levels and to fund foreign ventures. As a result, the Company anticipates its
need for liquidity and capital resources will increase in 1997. In light of the
Company's anticipated working capital and expansion plans for fiscal 1997 and
the amount presently available under the Company's revolving credit agreements,
the Company will require outside sources of funds in addition to those available
from operations and under such revolving credit agreements to provide the
resources necessary to continue its growth. If the Company is unable to obtain
additional financing in sufficient amounts, it will have to modify its expansion
plans for 1997.
The Company's primary revolving credit facility is with a group of five
banks and currently has a maximum borrowing limit of $90.0 million. Fundings
under the line are limited by a borrowing base computed as a percentage of
certain U.S. accounts receivable and inventories. Borrowings are secured
primarily by U.S. accounts receivable and inventories. At March 25, 1997, the
borrowing base limited borrowings to $55.9 million ($68.3 million at February
28, 1997). Effective February 28, 1997, this credit facility was amended,
changing certain of its covenants. The primary revolving credit facility
contains, among other provisions, covenants relating to minimum net worth and
certain financial provisions, capital expenditures, dividend payments,
additional debt, mergers, and acquisitions and dispositions of assets.
CellStar Asia has a $15.0 million credit agreement with a bank, which
agreement matures at July 31, 1997. Fundings under this credit agreement are
limited by a borrowing base computed as a percentage of CellStar Asia's accounts
receivable and inventories. At February 28, 1997, the borrowing base limited
borrowings to $15.0 million, all of which was available. Upon maturity, the
Company may renew this agreement or consider alternative financing sources.
The Company's Brazilian subsidiary has a $2.9 million line of credit
with a Brazilian bank, which matures in May 1997, that is secured by a letter of
credit issued under the Company's U.S. revolving credit facility. Upon maturity,
the Company will consider alternative financing sources.
At February 28, 1997, the Company had $39.5 million of cash and cash
equivalents, an increase of $12.2 million since November 30, 1996. The increase
correlates with the Company's cash flow provided by
13
<PAGE>
operating activities plus borrowings under its primary revolving credit
facility, which borrowings were used for working capital purposes. A majority of
the Company's cash resides outside the United States, primarily in its Asia-
Pacific region subsidiaries. Because the Company's policy is to indefinitely
reinvest earnings of foreign subsidiaries to minimize income taxes on a global
basis, cash in those subsidiaries remains in the region to support operations in
that region. The Company's U.S. growth and South American operating losses have
caused these operations to require working capital from external sources. As a
result, the Company received extended credit terms from key suppliers. This
situation did not materially impact the Company's ability to obtain inventory
and thus did not have a significant impact on sales for the period. The Company
anticipates that such extended credit terms, if needed, will continue to be made
available to the Company for the near-term. There can be no assurance that such
extended credit terms will continue to be made available. If such extended
credit terms are not made available, the Company will need to seek additional
sources to fund working capital requirements.
International Operations
The Company's international operations are subject to political and
economic risks, including, but not limited to, political instability, currency
devaluations and controls, increased credit risks and changing tax and trade
regulations. Although the Company experienced no material foreign currency
transactions gains or losses during the first fiscal quarter of 1997, the
Company has, in the past, experienced foreign currency transaction losses
related primarily to its operations in the Latin American region.
The Company maintains a significant presence in Hong Kong. The
currencies used in the Company's operations in the Asia-Pacific region have
historically been stable relative to the U.S. dollar. With the scheduled
transfer of Hong Kong from the United Kingdom to the People's Republic of China
on July 1, 1997, the Company's operations in the Asia-Pacific region will be
exposed to the potential for a higher degree of currency volatility and economic
instability than has historically been the case. The Company is unable to
predict what impact, if any, the transfer will have on the Company's operations
in this region.
During the first quarter, the Company continued its strategy of
increasing direct sales to South American customers from the Company's Miami,
Florida warehouse. During the past several quarters, pursuit of this strategy
and other factors have resulted in a reduction in the level of inventory and
accounts receivable maintained by the Company's Latin American subsidiaries and
a reduction in the Company's fixed costs in the region. While these initiatives
have reduced the Company's exposure to certain economic and political risks
associated with transacting business in the Latin American region, the Company
continues to maintain a significant presence in the region. As such, the Company
will remain subject to the risks created by the volatile political and economic
conditions that have historically prevailed in the region.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material developments have occurred in the Company's legal
proceedings previously reported in the Company's Annual Report on Form 10-K for
its 1996 fiscal year.
Item 2. Changes in Securities
As previously reported in the Company's Current Report on Form 8-K,
filed on December 30, 1996, the Company's Board of Directors adopted a
Stockholder Rights Plan (the "Plan") which is designed to protect the Company
from unfair or coercive takeover attempts and to prevent a potential acquirer
from gaining control of the Company without fairly compensating all of the
Company's stockholders.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (3)
15
<PAGE>
4.1 The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company filed as Exhibits 3.1 and 3.2
are incorporated into this item by reference. (1)(3)
4.2 Specimen Common Stock Certificate of the Company. (2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between the
Company and Chase Mellon Shareholder Services, L.L.C., as Rights
Agent, including exhibits thereto. (4)
10.1 Fourth Amendment to Amended and Restated Loan Agreement, dated as of
February 28, 1997, among National Auto Center, Inc., the Company,
each of the banks or other lending institutions signatory thereto and
Texas Commerce Bank National Association. (5)
27.1 Financial Data Schedule. (5)
- -----------------------------------------
(1) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1995, and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 29, 1996, and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Form 8-K dated
December 30, 1996, and incorporated herein by reference.
(5) Filed herewith.
(b) Reports on Form 8-K.
A report on Form 8-K dated December 30, 1996 was filed to report, under
Item 5 therein, the Company's adoption of a Stockholder Rights Plan.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CELLSTAR CORPORATION
By: /s/ MARK Q. HUGGINS
--------------------------------------------
Mark Q. Huggins,
Senior Vice President-Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/ EVELYN HENRY MILLER
--------------------------------------------
Evelyn Henry Miller,
Vice President and Corporate Controller
Date: April 11, 1997
17
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page
- ------- --------------------------------------------------------------- ------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (3)
4.1 The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company filed as Exhibits 3.1 and 3.2
are incorporated into this item by reference. (1)(3)
4.2 Specimen Common Stock Certificate of the Company. (2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between the
Company and Chase Mellon Shareholder Services, L.L.C., as Rights
Agent, including exhibits thereto. (4)
10.1 Fourth Amendment to Amended and Restated Loan Agreement, dated as of
February 28, 1997, among National Auto Center, Inc., the Company,
each of the banks or other lending institutions signatory thereto and
Texas Commerce Bank National Association. (5)
27.1 Financial Data Schedule. (5)
</TABLE>
- --------------------------------------------------
(1) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1995, and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 29, 1996, and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Form 8-K dated
December 30, 1996, and incorporated herein by reference.
(5) Filed herewith.
18
<PAGE>
EXHIBIT 10.1
FOURTH AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
This FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment"), dated as of February 28, 1997, is among NATIONAL AUTO CENTER,
INC., a Texas corporation (the "Borrower"), CELLSTAR CORPORATION, a Delaware
corporation (the "Parent"), each of the banks or other lending institutions
which is or may from time to time become a signatory to the Agreement
(hereinafter defined) or any successor or permitted assignee thereof (each a
"Bank" and collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association ("TCB"), as agent for itself and the
other Banks and as issuer of Letters of Credit under the Agreement (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS:
A. The Borrower, the Parent, the Banks and the Agent have entered into
that certain Amended and Restated Loan Agreement dated as of July 20, 1995, as
amended by that certain First Amendment to Amended and Restated Loan Agreement
dated as of February 29, 1996, as further amended by that certain Second
Amendment to Amended and Restated Loan Agreement dated as of July 31, 1996, and
as further amended by that certain Third Amendment to Amended and Restated Loan
Agreement dated as of July 31, 1996 (the "Agreement").
B. The Borrower, the Parent, the Agent and the Banks now desire to amend
the Agreement to modify certain financial covenants and as otherwise provided
herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
Definitions
-----------
Section 1.1. Definitions. Capitalized terms used in this Amendment, to
-----------
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE II
----------
Amendments; Consent
-------------------
Section 2.1. Amendment to Cash Flow Definitions. Effective as of the date
----------------------------------
hereof, the definitions of "Companies Cash Flow" and "Consolidated Cash Flow"
set forth in Section 1.1 of the Agreement are hereby amended to read in their
respective entireties as follows:
"Companies Cash Flow" means, for any period, the sum of the following,
-------------------
calculated on a combined basis for the Companies, without duplication:
(a) the amount of net income for such period (whether positive or
negative) before interest expense, income taxes and extraordinary
items, net of
(b) all non-cash items (such as deferred taxes, depreciation,
amortization of goodwill and all other non-cash charges accrued but
not
<PAGE>
actually paid) which, in determining net income for such period,
were deducted from (or included in) gross income for such period;
provided, however, that in calculating Companies Cash Flow, changes in
the allowance for doubtful accounts shall not be treated as a non-cash
item for purposes of such calculation.
"Consolidated Cash Flow" means, for any period, the sum of the
----------------------
following, calculated on a consolidated basis for the Parent and the
Subsidiaries without duplication:
(a) the amount of net income for such period (whether positive or
negative) before interest expense, income taxes and extraordinary
items, net of
(b) all non-cash items (such as deferred taxes, depreciation,
amortization of goodwill and other non-cash charges accrued but not
actually paid) which, in determining net income for such period, were
deducted from (or included in) gross income for such period; provided,
however, that in calculating Consolidated Cash Flow for any four (4)
fiscal quarter period, changes in the allowance for doubtful accounts
shall not be treated as a non-cash item for purposes of such
calculation for each fiscal quarter of the Parent ending on or after
February 28, 1997.
Section 2.2. Amendment to Tangible Net Worth Covenant. Effective as of
----------------------------------------
the date hereof, Section 11.2 of the Agreement is hereby amended to read in its
entirety as follows:
Section 11.2 Tangible Net Worth. The Borrower will at all times
------------------
maintain or cause to be maintained Tangible Net Worth in an amount not less
than the sum of (a) Seventy Million Six Hundred Twenty-Eight Thousand
Dollars ($70,628,000), plus (b) fifty percent (50%) of net income, after
provision for income taxes, of the Companies (without any deduction for
losses), for each fiscal quarter of the Companies ended through the date of
determination beginning with the fiscal quarter ending February 28, 1997,
plus (c) one hundred percent (100%) of the Net Proceeds received by any of
the Companies from the issuance, sale or other disposition of any shares of
capital stock or other equity securities of the Parent of any class (or any
securities convertible or exchangeable for any such shares, or any rights,
warrants, or options to subscribe for or purchase any such shares).
ARTICLE III
-----------
Conditions Precedent
--------------------
Section 3.1. Conditions. The effectiveness of this Amendment is subject
----------
to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. The representations and
------------------------------
warranties contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made on the
date hereof.
(b) No Default. No Default shall have occurred and be continuing.
----------
-2-
<PAGE>
(c) Corporate Matters. All corporate proceedings taken in connection
-----------------
with the transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be satisfactory
to the Agent and its legal counsel, Winstead Sechrest & Minick P.C.
ARTICLE IV
----------
Ratifications, Representations and Warranties
---------------------------------------------
Section 4.1. Ratifications. The terms and provisions set forth in this
-------------
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower and Parent agree that the Agreement, as amended hereby, and the
other Loan Documents shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.
Section 4.2. Representations and Warranties. Borrower and Parent each
------------------------------
hereby represent and warrant to the Agent that (1) the execution, delivery, and
performance by the Borrower and the Guarantors of this Amendment and compliance
with the terms and provisions hereof have been duly authorized by all requisite
action on the part of each such Person and do not and will not (a) violate or
conflict with, or result in a breach of, or require any consent under (i) the
articles of incorporation, certificate of incorporation, bylaws, partnership
agreement or other organizational documents of any such Person, (ii) any
applicable law, rule, or regulation or any order, writ, injunction, or decree of
any Governmental Authority or arbitrator, or (iii) any material agreement or
instrument to which any such Person is a party or by which any of them or any of
their property is bound or subject, (2) the representations and warranties
contained in the Agreement, as amended hereby, and any other Loan Document are
true and correct on and as of the date hereof as though made on and as of the
date hereof, and (3) no Default has occurred and is continuing.
ARTICLE V
---------
Miscellaneous
-------------
Section 5.1. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment, and no investigation
by the Agent or any Bank or any closing shall affect the representations and
warranties or the right of the Agent or any Bank to rely upon them.
Section 5.2. Reference to Agreement. Each of the Loan Documents,
----------------------
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement as amended hereby.
Section 5.3. Expenses of the Agent. Each Company agrees to pay on demand
---------------------
all costs and expenses incurred by the Agent in connection with the preparation,
negotiation, and execution of this Amendment and any and all amendments,
modifications, and supplements thereto, including without limitation the costs
and fees of the Agent's legal counsel, and all costs and expenses incurred by
the Agent in connection with the enforcement or preservation of any rights under
the Agreement, as amended hereby, or any other Loan Document, including without
limitation the costs and fees of the Agent's legal counsel.
-3-
<PAGE>
Section 5.4. Severability. Any provision of this Amendment held by a
------------
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
SECTION 5.5. APPLICABLE LAW. NOTWITHSTANDING ANYTHING TO THE CONTRARY
--------------
CONTAINED IN THE OTHER LOAN DOCUMENTS, THIS AMENDMENT AND ALL OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS,
DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
Section 5.6. Successors and Assigns. This Amendment is binding upon and
----------------------
shall inure to the benefit of the Borrower, the Parent, the Agent and the Banks
and their respective successors and assigns, except neither the Borrower nor the
Parent shall assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Agent.
-4-
<PAGE>
Section 5.7. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 5.8. Headings. The headings, captions, and arrangements used in
--------
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 5.9. Release of Claims. The Borrower and the Guarantors each
-----------------
hereby acknowledge and agree that none of them has any and there are no claims
or offsets against or defenses or counterclaims to the terms and provisions of
or the obligations of the Borrower, any Guarantor or any Subsidiary created or
evidenced by the Agreement or any of the other Loan Documents, and to the extent
any such claims, offsets, defenses or counterclaims exist, Borrower and the
Guarantors each hereby waives, and hereby release the Agent and each of the
Banks from, any and all claims, offsets, defenses and counterclaims, whether
known or unknown, such waiver and release being with full knowledge and
understanding of the circumstances and effects of such waiver and release and
after having consulted legal counsel with respect thereto.
Section 5.10. ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
----------------
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO REGARDING
THIS AMENDMENT AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS
AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER:
--------
NATIONAL AUTO CENTER, INC.
By: /s/ Mark Q. Huggins
-----------------------------------------
Name: Mark Q. Huggins
------------------------------------
Title: Senior V.P. Administration,
-----------------------------------
Chief Financial Officer & Treasurer
-5-
<PAGE>
PARENT:
------
CELLSTAR CORPORATION
By: /s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
AGENT AND BANKS:
---------------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
By: /s/ Allen King
------------------------------------
Name: Allen King
-------------------------------
Title: Vice President
------------------------------
NATIONAL CITY BANK
By: /s/ Don R. Pullen
------------------------------------
Name: Don R. Pullen
-------------------------------
Title: Vice President
------------------------------
NBD BANK
By: /s/ Larry E. Cooper
------------------------------------
Name: Larry E. Cooper
-------------------------------
Title: First Vice President
------------------------------
-6-
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
------------------------------------
Name: Annie Chin Tat
-------------------------------
Title: Assistant Vice President
------------------------------
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By: /s/ Henry F. Setina
------------------------------------
Name: Henry F. Setina
-------------------------------
Title: Vice President
------------------------------
Each of the undersigned Guarantors hereby (a) consents and agrees to this
Amendment, and (b) agrees that its Guaranty shall continue to be the legal,
valid and binding obligation of such Guarantor enforceable against such
Guarantor in accordance with its terms.
CELLSTAR, LTD.
By: National Auto Center, Inc.,
General Partner
By: /s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
-7-
<PAGE>
CELLSTAR FULFILLMENT, LTD.
By: CellStar Fulfillment, Inc.,
General Partner
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
CELLSTAR FULFILLMENT, INC.
By: /s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
NAC HOLDINGS, INC.
By: /s/ Elaine Flud Rodriguez
------------------------------------
Elaine Flud Rodriguez
President
AUDIOMEX EXPORT CORPORATION
By: /s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
-8-
<PAGE>
CELLSTAR INTERNATIONAL CORPORATION/
ASIA
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
CELLSTAR AIR SERVICES, INC.
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
A & S AIR SERVICES, INC.
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
CELLSTAR INTERNATIONAL
CORPORATION/SA
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
CELLSTAR WEST, INC.
By:/s/ Mark Q. Huggins
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Senior V.P. Administration,
------------------------------
Chief Financial Officer & Treasurer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2/28/97
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 39,456
<SECURITIES> 0
<RECEIVABLES> 141,077
<ALLOWANCES> 30,595
<INVENTORY> 90,478
<CURRENT-ASSETS> 246,307
<PP&E> 28,556
<DEPRECIATION> 8,608
<TOTAL-ASSETS> 285,192
<CURRENT-LIABILITIES> 168,612
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 110,262
<TOTAL-LIABILITY-AND-EQUITY> 285,192
<SALES> 256,645
<TOTAL-REVENUES> 256,645
<CGS> 224,794
<TOTAL-COSTS> 224,794
<OTHER-EXPENSES> 21,672
<LOSS-PROVISION> 1,911
<INTEREST-EXPENSE> 1,713
<INCOME-PRETAX> 8,466
<INCOME-TAX> 2,484
<INCOME-CONTINUING> 5,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,982
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>
