<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, 1998
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 3, 1998, there were 29,432,447 outstanding shares of Common Stock,
$0.01 par value per share.
<PAGE>
CELLSTAR CORPORATION
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page Number
- ------ --------------------- -----------
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited)
February 28, 1998 and November 30, 1997 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended February 28, 1998 and 1997 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Three months ended February 28, 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended February 28, 1998 and 1997 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK. 11
PART II - OTHER INFORMATION
- ------- -----------------
Item 1. LEGAL PROCEEDINGS 12
Item 2. CHANGES IN SECURITIES 12
Item 3. DEFAULTS UPON SENIOR SECURITIES ` 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
Item 5. OTHER INFORMATION 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 80,956 74,646
Accounts receivable (less allowance for doubtful accounts of
$24,716 and $23,857, respectively) 220,625 176,032
Inventories 181,269 190,404
Deferred income tax assets 4,572 2,457
Prepaid expenses 6,411 2,661
--------- ---------
Total current assets 493,833 446,200
Property and equipment, net 23,420 22,877
Goodwill (less accumulated amortization of $2,708
and $2,378, respectively) 23,277 17,616
Other assets 10,548 10,418
--------- ---------
$ 551,078 497,111
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 166,867 160,614
Notes payable to financial institutions 21,400 --
Accrued expenses 15,858 13,545
Income taxes payable 18,039 11,044
Deferred income tax liabilities 1,093 1,043
--------- ---------
Total current liabilities 223,257 186,246
Long-term debt 150,000 150,000
--------- ---------
Total liabilities 373,257 336,246
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value, 45,000,000 shares
authorized; 29,383,571 and 29,249,420 shares issued and
outstanding, respectively 294 293
Additional paid-in capital 75,503 72,985
Common stock warrants 4 4
Foreign currency translation adjustments (6,280) (6,469)
Retained earnings 108,300 94,052
--------- ---------
Total stockholders' equity 177,821 160,865
--------- ---------
$ 551,078 497,111
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended February 28, 1998 and 1997
(Unaudited)
(In thousands, except per share data)
1998 1997
--------- ---------
Revenues:
Net product sales $ 394,989 245,506
Activation income 9,346 8,013
Residual income 2,410 3,126
--------- ---------
Total revenues 406,745 256,645
Cost of sales 365,335 224,794
--------- ---------
Gross profit 41,410 31,851
Selling, general and administrative expenses 22,737 21,760
--------- ---------
Operating income 18,673 10,091
Other income (expense):
Interest expense (2,520) (1,713)
Other, net 609 88
--------- ---------
Total other income (expense) (1,911) (1,625)
--------- ---------
Income before income taxes 16,762 8,466
Provision for income taxes 2,514 2,484
--------- ---------
Net income $ 14,248 5,982
========= =========
Net income per share:
Basic $ 0.49 0.21
========= =========
Diluted $ 0.47 0.20
========= =========
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CELLSTAR CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended February 28, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Foreign
Additional Common currency
Common Stock paid-in stock translation Retained
------------
Shares Amount capital warrants adjustments earnings Total
-------- -------- --------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1997 29,249 $ 293 72,985 4 (6,469) 94,052 160,865
Net income -- -- -- -- -- 14,248 14,248
Common stock issued
under stock option plans 135 1 2,518 -- -- -- 2,519
Foreign currency translation
adjustment -- -- -- -- 189 -- 189
------- ------- ------- ------- ------- ------- -------
Balance at February 28, 1998 29,384 $ 294 75,503 4 (6,280) 108,300 177,821
======= ======= ======= ======= ======= ======= =======
</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, 1998 and 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,248 5,982
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,356 1,154
Deferred income taxes (2,300) 302
Changes in operating assets and liabilities
net of effects from acquisition of business:
Accounts receivable (36,792) 21,081
Inventories 12,174 3,995
Prepaid expenses (3,331) (406)
Other assets (403) (179)
Accounts payable (26,715) (30,040)
Accrued expenses (1,754) (5)
Income taxes payable 6,871 1,569
-------- --------
Net cash (used in) provided by operating activities (36,646) 3,453
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,302) (677)
Acquisition of business, net of cash acquired (2,442) --
-------- --------
Net cash used in investing activities (3,744) (677)
-------- --------
Cash flows from financing activities:
Net borrowings on notes payable to financial institutions 21,400 9,078
Bank overdraft 23,296 --
Principal payments on long-term debt -- (153)
Net proceeds from issuance of common stock 2,004 459
-------- --------
Net cash provided by financing activities 46,700 9,384
-------- --------
Net increase in cash and cash equivalents 6,310 12,160
Cash and cash equivalents at beginning of period 74,646 27,296
-------- --------
Cash and cash equivalents at end of period $ 80,956 39,456
======== ========
</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 Annual
Report on Form 10-K for the year ended November 30, 1997.
(2) Accounting Pronouncement
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("Statement 128"), effective December 1, 1997.
Statement 128 changes the manner in which the Company calculates and
presents its net income per share and requires net income per share amounts
for all prior periods to be restated to conform to the new presentation.
The adoption of Statement 128 did not have a material effect on the
Company's net income per share amounts. A reconciliation of the numerators
and denominators of the basic and diluted net income per share computations
for the three months ended February 28, 1998 and 1997 follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
----------------------------- ----------------------------
Net Net income Net Net income
income Shares per share income Shares per share
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic income per share:
Net income $14,248 -- 5,982 --
Weighted average number of shares -- 29,314 -- 28,914
------- ------- ------- -------
Basic net income per share $14,248 29,314 0.49 5,982 28,914 0.21
======= ======= ======= ======= ======= =======
Diluted income per share:
Net income $14,248 -- 5,982 --
Interest on convertible notes 1,125 -- -- --
------- ------- ------- -------
Adjusted net income 15,373 -- 5,982 --
Weighted average number of shares -- 29,314 -- 28,914
Effect of dilutive securities:
Warrants -- 404 -- 185
Options -- 520 -- 550
Convertible notes -- 2,711 -- --
------- ------- ------- -------
Total effect of dilutive securities -- 3,635 -- 735
------- ------- ------- -------
Diluted net income per share $15,373 32,949 0.47 5,982 29,649 0.20
======= ======= ======= ======= ======= =======
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading global provider of wireless communications
products, primarily handsets. From fiscal 1993 to fiscal 1997, the Company's
total revenues grew from $275.4 million to $1,482.8 million. The Company
accomplished this growth in both U.S. and international sales by focusing its
efforts on the cellular phone industry. To date, U.S. sales of wireless
communications products have increased primarily as a result of greater market
penetration due in part to decreasing unit prices. The Company's international
sales of wireless communications products have increased primarily as a result
of its entry into the Asia-Pacific Region and the Latin American Region. The
Company's net income per share increased from $0.39 to $1.78 between its fiscal
years ended November 30, 1993 and 1997.
The Company's revenues are grouped into three categories: net product
sales, activation income and residual income. Net product sales include sales
of handsets and other wireless communications products and revenues from
fulfillment and other value-added services. Activation income includes
commissions paid by a cellular carrier when a customer initially subscribes for
cellular service through the Company. Residual income includes payments
received from carriers based on the cellular phone usage by customers activated
by the Company.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
relating to such matters as anticipated financial performance and business
prospects. When used in this Quarterly Report, the words "should,"
"anticipates," "will" 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.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the Company expressed as a percentage of total revenues for
the three months ended February 28, 1998 and 1997:
1998 1997
---------- ----------
Revenues:
Net product sales 97.1 % 95.7 %
Activation income 2.3 3.1
Residual income 0.6 1.2
---------- ----------
Total revenues 100.0 100.0
Cost of sales 89.8 87.6
---------- ----------
Gross profit 10.2 12.4
Selling, general and administrative expenses 5.6 8.5
---------- ----------
Operating income 4.6 3.9
Other income (expense):
Interest expense (0.6) (0.6)
Other, net 0.1 -
---------- ----------
Total other income (expense) (0.5) (0.6)
---------- ----------
Income before income taxes 4.1 3.3
Provision for income taxes 0.6 1.0
---------- ----------
Net income 3.5 % 2.3 %
========== ==========
9
<PAGE>
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Revenues. The Company's total revenues increased $150.1 million, or
58.5%, from $256.6 million to $406.7 million.
U.S. revenues increased by $77.7 million, or 50.3%, primarily from an
increase in net product sales of $80.8 million, or 54.6%, from $148.1 million to
$228.9 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 from distribution and fulfillment contracts for the provision
of products and value-added services. U.S. activation income decreased primarily
from the closing of the remaining 21 Communication Centers during August 1997.
Net product sales in the Asia-Pacific Region increased $12.5 million, or
19.1%, from $65.3 million to $77.8 million. The Company's operations in the
People's Republic of China ("PRC"), primarily Hong Kong, provided $57.8 million
in net product sales, an increase of $6.1 million, or 11.8%, from $51.7 million.
The higher revenue level resulted from the expansion in overall demand for
wireless handsets in the region, particularly in the PRC. Net product sales
from the Company's Singapore operations decreased $2.8 million, or 27.2%, from
$10.3 million to $7.5 million. This decrease was due to reduced demand for
wireless products as a result of the general economic, financial and currency
problems in the region. The Company's operations in Taiwan provided $12.6
million of net product sales, an increase of $9.3 million, or 281.8%, from $3.3
million. This sharp increase was due to the entry of several new carriers into
the wireless market in the first fiscal quarter of 1998. The Asia-Pacific
operations are substantially wholesale related, and, as a result, activation
income was not significant.
The Company's operations in the Latin American Region provided $53.4
million of net product sales compared to $21.9 million, a $31.5 million, or
143.8%, increase. Net product sales in Mexico, Venezuela and Argentina increased
$25.3 million, $4.9 million and $3.5 million, respectively. Net product sales in
the remainder of the region decreased $2.2 million, primarily in Brazil. The
increase in Mexico was the result of a change in promotional strategy by the
principal cellular carrier, which began subsidizing cellular phone units in the
Company's fourth fiscal quarter of 1997. The increase in Venezuela was fueled by
the Company's prepaid cellular business. The increase in Argentina was due to
improved market penetration and a change whereby the calling party pays for the
call, which began in the latter half of 1997. The decline in Brazil was
principally due to the continuing failure of the Brazilian government to
authorize additional wireless phone lines and the Company's emphasis on sales to
South American exporters from its Miami, Florida warehouse. Activation and
residual income generated by the Company's operations in the Latin American
Region increased from $3.7 million to $8.0 million. Most of the increase was due
to activation income from the Company's Venezuelan prepaid cellular business and
its operations in Mexico, which benefited from the aforementioned carrier
promotional strategy.
The Company's European operations recorded net product sales of $34.8
million, an increase of $24.6 million, or 241.2%, from $10.2 million. This
increase reflects continued growth from the Company's U.K. operation and net
product sales from the recently acquired operation in Sweden.
Gross Profit. Gross profit increased $9.5 million, from $31.9 million to
$41.4 million, while, as a percentage of total revenues, gross profit decreased
from 12.4% to 10.2%. The increase in gross profit was due to the increase in net
product sales. The decrease in gross profit as a percentage of total revenues
was due primarily to an increase in wholesale net product sales relative to
retail revenues, which have a higher gross profit margin than wholesale net
product sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.9 million, or 4.1%, from $21.8 million to
$22.7 million. The increase was related principally to infrastructure costs
incurred in connection with the Company's growth in net product sales. Overall,
the Company reduced selling, general and administrative expenses as a percentage
of total revenues from 8.5% to 5.6%. Bad debt expense as a percentage of total
revenues decreased from 0.7% to 0.4%.
10
<PAGE>
Interest Expense. Interest expense increased to $2.5 million from $1.7
million as a result of an increase in long-term debt.
Income Taxes. Income tax expense was comparable; however, the Company's
effective tax rate decreased to 15.0% from 29.3%. The lower effective tax rate
was attributable to the continued benefit from certain tax advantages in Hong
Kong that allow offshore sales to be exempted from tax, as well as higher income
before income taxes primarily in Hong Kong and Latin America, which generally
have lower statutory tax rates compared to the United States. The utilization of
net operating loss carryforwards, primarily in Latin America, also reduced the
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
During this quarter, the Company relied primarily on cash generated from
operations and borrowings under its $135.0 million Multicurrency Revolving
Credit Facility (the "Facility") to fund working capital, capital expenditures
and expansions. At April 7, 1998, the Company had available all of the $135.0
million borrowing capacity.
At February 28, 1998, the Company had $81.0 million of cash and cash
equivalents, an increase of $6.3 million since November 30, 1997. The increase
resulted primarily from cash generated from operating activities outside the
United States. Historically, a significant amount of the Company's cash has
resided outside the United States, primarily in its Asia-Pacific Region
subsidiaries. The Company is currently utilizing its recently-established global
agency treasury center in Dublin, Ireland, to pool certain of its global cash
resources primarily to fund acquisitions and working capital requirements where
needed. This approach should allow the Company to better utilize its cash
worldwide, while minimizing income taxes. Additionally, the Company's accounts
receivable have increased since November 30, 1997, primarily due to sales
activity in the latter portion of the quarter in Mexico and Venezuela and the
inclusion of accounts receivable from the recently acquired Swedish operation.
The Company anticipates that available cash, amounts available under the
Facility and cash generated from operations will be sufficient to satisfy its
capital requirements and current expansion plans for fiscal 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
11
<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 1997 fiscal year.
ITEM 2. CHANGES IN SECURITIES
None.
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 CellStar
Corporation.(1)
3.2 Amended and Restated Bylaws of CellStar Corporation.(3)
4.1 The Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws of CellStar Corporation filed as Exhibits 3.1 and 3.2
are incorporated into this item by reference.(1)(3)
4.2 Specimen Common Stock Certificate of CellStar Corporation.(2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent ("Rights Agreement").(4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(5)
4.5 Form of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation").(4)
4.6 Form of Rights Certificate.(4)
4.7 Certificate of Correction of Certificate of Designation.(5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and The Bank of New York, as Trustee.(6)
12
<PAGE>
10.1 First Amendment, dated as of February 20, 1998, to Credit Agreement
dated as of October 15, 1997, among CellStar Corporation, each of the
banks or other lending institutions signatory thereto, The First
National Bank of Chicago and National City Bank, as co-agents, and Chase
Bank of Texas, National Association (formerly known as Texas Commerce
Bank National Association.(7)
27.1 Financial Data Schedule.(7)
- ------------------------------------
(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 Annual Report on Form
10-K for the fiscal year ended November 30, 1997, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form 8-A (File No. 000-22972), filed January 3, 1997, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement
on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30,
1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated October 8, 1997, filed October 24, 1997, and incorporated
herein by reference.
(7) Filed herewith.
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated January 14, 1998, filed January 22, 1998, was
filed to report, under Item 5 and Item 7 therein, the Company's fourth quarter
and fiscal year financial results. The Company included as an exhibit to such
report a press release containing the following financial statements: (i)
Consolidated Statements of Operations for the Three Months ended November 30,
1997 and 1996 and for the Years Ended November 30, 1997 and 1996; and (ii)
Condensed Consolidated Balance Sheets for the Years Ended November 30, 1997 and
1996.
13
<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
and Chief Financial Officer
(Principal Financial Officer)
By: /s/ EVELYN HENRY MILLER
------------------------------------
Evelyn Henry Miller,
Vice President and Corporate Controller
(Principal Accounting Officer)
Date: April 13, 1998
14
<PAGE>
EXHIBIT INDEX
-----------------
Exhibit
No. Description
- ------- ----------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation.(1)
3.2 Amended and Restated Bylaws of CellStar Corporation.(3)
4.1 The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1
and 3.2 are incorporated into this item by reference. (1)(3)
4.2 Specimen Common Stock Certificate of CellStar Corporation.(2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between
CellStar Corporation and Chase Mellon Shareholder Services, L.L.C.,
as Rights Agent ("Rights Agreement").(4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(5)
4.5 Form of Certificate of Designation, Preferences and Rights of Series
A Preferred Stock of CellStar Corporation ("Certificate of
Designation").(4)
4.6 Form of Rights Certificate.(4)
4.7 Certificate of Correction of Certificate of Designation.(5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and The Bank of New York, as Trustee.(6)
10.1 First Amendment, dated as of February 20, 1998, to Credit Agreement
dated as of October 15, 1997, among CellStar Corporation, each of
the banks or other lending institutions signatory thereto, The First
National Bank of Chicago and National City Bank, as co-agents, and
Chase Bank of Texas, National Association (formerly known as Texas
Commerce Bank National Association.(7)
27.1 Financial Data Schedule. (7)
- -----------------------------------------
(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 Annual Report on
Form 10-K for the fiscal year ended November 30, 1997, and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Registration
Statement on Form 8-A (File No. 000-22972), filed January 3, 1997,
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration
Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed
June 30, 1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on
Form 8-K dated October 8, 1997, filed October 24, 1997, and
incorporated herein by reference.
(7) Filed herewith.
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
CREDIT AGREEMENT
----------------
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
February 20, 1998, is among CELLSTAR CORPORATION, a Delaware corporation (the
"Borrower"), 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"), THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL CITY BANK, as co-
agents ("Co-Agents"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly
known as Texas Commerce Bank National Association), a national banking
association ("TCB"), as agent for itself and the other Banks, as issuer of
Letters of Credit under the Agreement, and as the swing line lender (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS:
A. The Borrower, the Banks, the Co-Agents and the Agent have entered into
that certain Credit Agreement dated as of October 15, 1997 (the "Agreement").
B. The Borrower, the Banks, the Co-Agents and the Agent now desire to
amend the Agreement to modify the covenant restricting mergers and acquisitions
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
----------
Section 2.1. Amendment to Covenant Restricting Mergers, Etc. Effective as
----------------------------------------------
of the date hereof, subsection (1) of Section 10.3 of the Agreement is hereby
amended to read in its entirety as follows:
(1) the Borrower or any Subsidiary shall be permitted to become a
party to a merger or consolidation or acquire all or any part of the assets
of any
<PAGE>
Person or any shares or other beneficial ownership of any Person, so long
as (a) no Default is existing or would result therefrom, (b) the Borrower
has given the Agent at least 20 days prior notice of such merger,
consolidation or acquisition, (c) the total cash and non-cash consideration
paid and Debt assumed or incurred by the Borrower or any Subsidiary in
connection with all such mergers, consolidations or acquisitions (i) shall
not exceed $30,000,000 for any single transaction and (ii) shall not exceed
$50,000,000 in the aggregate for any fiscal year, and (d) the Borrower or
such Subsidiary, as the case may be, is the surviving corporation in such
merger or consolidation;
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.
----------
(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 agrees 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 hereby represents
------------------------------
and warrants to the Agent and the Banks 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
-2-
<PAGE>
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. Borrower 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.
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 Banks, the Co-Agents and the
Agent and their respective
-3-
<PAGE>
successors and assigns, except the Borrower shall not assign or transfer any of
its rights or obligations hereunder without the prior written consent of the
Agent.
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:
--------
CELLSTAR CORPORATION
By: /s/ MARK Q. HUGGINS
------------------------------------
Name: Mark Q. Huggins
-------------------------------
Title: Sr. Vice President and CFO
------------------------------
-4-
<PAGE>
AGENTS AND BANKS:
----------------
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION (formerly known as Texas
Commerce Bank National Association), as
Agent and as a Bank
By: /s/ ALLEN K. KING
------------------------------------
Name: Allen K. King
-------------------------------
Title: Vice President
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
as a Co-Agent and a Bank
By: /s/ JAMES D. BENKO
------------------------------------
Name: James D. Benko
-------------------------------
Title: Vice President
------------------------------
NATIONAL CITY BANK,
as a Co-Agent and a Bank
By: /s/ DON PULLEN
------------------------------------
Name: Don Pullen
-------------------------------
Title: Vice President
------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ ALAIN PAPIASSE
------------------------------------
Name: Alain Papiasse
-------------------------------
Title: Executive Vice President
------------------------------
-5-
<PAGE>
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By: /s/ P.C. LAUINGER III
-------------------------------------
Name: Philip C. Lauinger III
--------------------------------
Title: Vice President & Manager
-------------------------------
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ CRAIG T. SCHEEF
-------------------------------------
Name: Craig T. Scheef
--------------------------------
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.
NATIONAL AUTO CENTER, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
CELLSTAR, LTD.
By: National Auto Center, Inc.,
General Partner
By: /s/ MARK Q. HUGGINS
---------------------------------
Name: Mark Q. Huggins
---------------------------
Title: Sr. Vice President and CFO
---------------------------
-6-
<PAGE>
CELLSTAR FULFILLMENT, LTD.
By: CellStar Fulfillment, Inc.,
General Partner
By: /s/ MARK Q. HUGGINS
---------------------------------
Name: Mark Q. Huggins
----------------------------
Title: Sr. Vice President and CFO
---------------------------
CELLSTAR WEST, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
ACC-CELLSTAR, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
CELLSTAR FINANCO, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
CELLSTAR FULFILLMENT, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
-7-
<PAGE>
NAC HOLDINGS, INC.
By: /s/ ELAINE FLUD RODRIGUEZ
-------------------------------------
Name: Elaine Flud Rodriguez
--------------------------------
Title: President
-------------------------------
CELLSTAR INTERNATIONAL CORPORATION/
ASIA
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
AUDIOMEX EXPORT CORP.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
CELLSTAR INTERNATIONAL
CORPORATION/SA
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
CELLSTAR AIR SERVICES, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
-8-
<PAGE>
A & S AIR SERVICE, INC.
By: /s/ MARK Q. HUGGINS
-------------------------------------
Name: Mark Q. Huggins
--------------------------------
Title: Sr. Vice President and CFO
-------------------------------
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997
<PERIOD-START> DEC-01-1997 DEC-01-1996
<PERIOD-END> FEB-28-1998 FEB-28-1997
<CASH> 80,956 39,456
<SECURITIES> 0 0
<RECEIVABLES> 245,341 141,077
<ALLOWANCES> 24,716 30,595
<INVENTORY> 181,269 90,478
<CURRENT-ASSETS> 493,833 246,307
<PP&E> 35,476 28,556
<DEPRECIATION> 12,056 8,608
<TOTAL-ASSETS> 551,078 285,192
<CURRENT-LIABILITIES> 223,257 168,612
<BONDS> 150,000 0
0 0
0 0
<COMMON> 294 193
<OTHER-SE> 177,527 110,262
<TOTAL-LIABILITY-AND-EQUITY> 551,078 285,192
<SALES> 406,745 256,645
<TOTAL-REVENUES> 406,745 256,645
<CGS> 365,335 224,794
<TOTAL-COSTS> 365,335 224,794
<OTHER-EXPENSES> 20,437 19,761
<LOSS-PROVISION> 1,691 1,911
<INTEREST-EXPENSE> 2,520 1,713
<INCOME-PRETAX> 16,762 8,466
<INCOME-TAX> 2,514 2,484
<INCOME-CONTINUING> 14,248 5,982
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,248 5,982
<EPS-PRIMARY> 0.49<F1> 0.21<F1>
<EPS-DILUTED> 0.47<F2> 0.20<F2>
<FN>
<F1>BASIC NET INCOME PER SHARE UNDER SFAS NO. 128.
<F2>DILUTED NET INCOME PER SHARE UNDER SFAS NO. 128.
</FN>
</TABLE>
