<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 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: 0-23494
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BRIGHTPOINT, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1778566
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State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
6402 Corporate Drive, Indianapolis, Indiana 46278
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(Address of principal executive offices) (Zip Code)
(317) 297-6100
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(Registrant's telephone number, including area code)
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. [X] Yes [ ] No
Number of shares of common stock outstanding at August 12, 1997:
24,529,787 shares
<PAGE> 2
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1997 3
Six Months Ended June 30, 1996 and 1997 3
Consolidated Balance Sheets
December 31, 1996 and June 30, 1997 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 2
Changes in Securities 16
ITEM 4
Submission of Matters to a Vote of Security Holders 16
ITEM 6
Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE> 3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $119,896 $220,027 $232,856 $419,196
Cost of sales 111,414 202,013 216,446 385,180
-------- -------- -------- --------
Gross profit 8,482 18,014 16,410 34,016
Selling, general and administrative expenses 4,090 9,040 7,767 17,136
-------- -------- -------- --------
Income from operations 4,392 8,974 8,643 16,880
Merger expenses 2,750 - 2,750 -
Net investment gain - - - 1,432
Interest expense 439 1,983 623 3,106
-------- -------- -------- --------
Income before income taxes and minority interest 1,203 6,991 5,270 15,206
Income taxes 806 2,097 1,971 4,540
-------- -------- -------- --------
Income before minority interest 397 4,894 3,299 10,666
Minority interest in subsidiaries' earnings - 27 - 383
-------- -------- -------- --------
Net income $ 397 $ 4,867 $ 3,299 $ 10,283
======== ======== ======== ========
Pro forma data:
Historical income before income taxes $ 1,203 $ 5,270
Pro forma income taxes 857 2,447
-------- --------
Pro forma net income $ 346 $ 4,867 $ 2,823 $ 10,283
======== ======== ======== ========
Pro forma net income excluding the after-tax
effect of one-time merger expenses $ 2,407 $ 4,867 $ 4,884 $ 10,283
======== ======== ======== ========
Net income per share:
Historical $ 0.21 $ 0.44
======== ========
Pro forma $ 0.02 $ 0.21 $ 0.14 $ 0.44
======== ======== ======== ========
Pro forma excluding the after-tax effect of
one-time merger expenses $ 0.11 $ 0.21 $ 0.23 $ 0.44
======== ======== ======== ========
Weighted average common shares outstanding 20,895 23,339 20,809 23,159
======== ======== ======== ========
See accompanying notes.
</TABLE>
3
<PAGE> 4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
(Note 1) (Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,255 $ 16,939
Marketable securities 18,000 -
Accounts receivable (less allowance for doubtful
accounts of $1,115 in 1996
and $2,161 in 1997) 113,119 119,343
Inventories 112,916 98,729
Other current assets 8,422 10,355
-------- --------
Total current assets 266,712 245,366
Property and equipment, net 8,207 16,806
Goodwill, net 15,232 19,312
Other assets 8,894 4,673
-------- --------
Total assets $299,045 $286,157
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $123,231 $ 77,802
-------- --------
Total current liabilities 123,231 77,802
Notes payable 79,564 97,501
Deferred taxes 330 330
Minority interest 938 289
Stockholders' equity:
Preferred stock, $.01 par value: 1,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value: 100,000 shares
authorized; 21,636 and 22,318 issued and
outstanding in 1996 and 1997, respectively 216 223
Additional paid-in capital 73,206 81,840
Foreign currency translation adjustment 97 355
Unrealized gain on marketable securities, net of tax 3,929 -
Retained earnings 17,534 27,817
-------- --------
Total stockholders' equity 94,982 110,235
-------- --------
Total liabilities and stockholders' equity $299,045 $286,157
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,299 $ 10,283
Adjustments to reconcile net income to
net cash used by operating activities:
Minority interest - 383
Depreciation and amortization 333 1,416
Merger expenses 2,750 -
Net investment gain - (1,432)
Changes in current assets and liabilities:
Accounts receivable (16,500) (4,063)
Inventories 2,454 15,717
Other current assets 205 (1,021)
Accounts payable and accrued expenses (13,352) (44,247)
------- -------
Net cash used by operating activities (20,811) (22,964)
INVESTING ACTIVITIES
Capital expenditures (3,449) (9,650)
Sale of marketable securities, net of transaction costs - 18,528
Acquisition of minority interests in Brightpoint China
Limited, Brightpoint (UK) Limited and Brightpoint
Australia Pty Ltd. - (1,522)
Acquisition of Telnic AB - (2,512)
Increase in other assets (1,144) (3,089)
------- -------
Net cash provided (used) by investing activities (4,593) 1,755
FINANCING ACTIVITIES
Net proceeds from notes payable 32,229 17,938
Proceeds and tax benefit from exercise of stock
options and warrants 1,356 5,549
Payments on stockholder loans (554) -
Merger expenses (2,088) -
S corporation distributions (286) -
------- -------
Net cash provided by financing activities 30,657 23,487
Effect of exchange rate changes on cash and cash
equivalents - 406
------- -------
Net increase in cash and cash equivalents 5,253 2,684
Cash and cash equivalents at beginning of period 726 14,255
------- -------
Cash and cash equivalents at end of period $ 5,979 $ 16,939
======= ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial statements have been included.
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary, Brightpoint International Ltd. and Brightpoint
International Ltd.'s subsidiaries, which are domiciled outside of the
United States and are generally wholly-owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet at December 31, 1996 has been derived from the
audited consolidated financial statements at that date, but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated statements of
income for the three and six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the entire year.
For further information reference is made to the audited consolidated
financial statements and the footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
On June 7, 1996, the Company completed a merger with Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied Communications of
Georgia, Inc., Allied Communications of Illinois, Inc. and Allied
Communications of Puerto Rico, Inc. (collectively Allied Communications),
which was engaged in substantially the same business as the Company. The
transaction was accounted for using the pooling-of-interests method and
accordingly, the Company's financial statements have been restated to reflect
the consolidated financial position and consolidated results of operations of
both entities as if the merger had been in effect for all periods presented.
Pro forma net income per share for all periods presented is computed after
taking into consideration the 3,796,875 shares of the Company's common stock
that were exchanged for all of the outstanding common stock of Allied
Communications. The merger was structured as a tax-free reorganization. In
connection with the merger, the Company recorded a non-recurring charge of
$2.7 million ($2.1 million net of tax) in the quarter ended June 30, 1996, for
transaction costs, including investment banking,
6
<PAGE> 7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. Basis of Presentation (continued)
legal, and accounting fees, and for other estimated costs associated with the
merger.
There were no material differences between the accounting policies of the
Company and Allied Communications. Certain amounts in Allied Communications'
historical combined financial statements were reclassified to conform with the
presentation used by the Company.
2. Recently Issued Accounting Standards
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share," which replaces the presentation of primary
earnings per share (EPS) with basic EPS and replaces fully diluted EPS with
diluted EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the components of the basic EPS
computation to the components of the diluted EPS computation. SFAS No. 128 is
effective for both interim and annual periods ending after December 15, 1997.
Earlier adoption is not permitted. Upon adoption, all prior-period EPS data
presented will be restated. The Company does not anticipate the adoption of
SFAS No. 128 to have a significant effect on EPS.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These statements will
affect the disclosure requirements for the 1998 annual financial statements.
Currently, the Company is evaluating the effect of these new statements.
3. Pro Forma Income Taxes
The pro forma income tax amounts presented in the 1996 statements of income
represent an estimate of the income taxes that the Company and Allied
Communications would have incurred had Allied Communications been a tax paying
entity in 1996.
4. Acquisitions
In February 1997, the Company acquired the balance of ownership of its
majority-owned subsidiary, Brightpoint China Limited. The 20 percent minority
interest was owned by members of management of that subsidiary. The purchase
price for the remaining equity interest consisted of 96,775 unregistered
shares of the Company's common stock, valued at $1.3 million, and $750,000 in
cash. The acquisition was accounted for using the purchase method. The
resulting goodwill of $1.6 million is being amortized over 30 years.
7
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. Acquisitions (continued)
Effective April 1, 1997, the Company announced that it had acquired the
balance of ownership of two of its majority-owned subsidiaries, Brightpoint
(UK) Limited and Brightpoint Australia Pty Ltd. The 20 percent minority
interests were owned by members of management of each of the respective
subsidiaries. The purchase price of the minority ownership interests consisted
of approximately 135,470 of unregistered shares of the Company's common stock,
valued at $1.8 million, and approximately $772,000 in cash. The acquisitions
were accounted for using the purchase method. The purchase price of
approximately $2.6 million was allocated principally to goodwill which is
being amortized over 30 years.
Effective April 1, 1997, the Company's wholly-owned subsidiary, Brightpoint
Sweden AB, acquired the business and certain net assets of Telnic AB, a
distributor of wireless communications equipment located in Sweden. The
purchase price consisted of approximately $2.5 million in cash with an
additional $300,000 payable upon execution of a key contract and up to an
additional $3.6 million depending upon the future financial performance of
Brightpoint Sweden AB. This acquisition was accounted for using the purchase
method and the resulting goodwill was approximately $600,000 which is being
amortized over 30 years.
The impact of these acquisitions was not material in relation to the Company's
results of operations. Consequently, pro forma information is not presented.
5. Credit Arrangements
On June 24, 1997, the Company entered into a new $200 million five-year senior
secured revolving line of credit facility with The First National Bank of
Chicago and Bank One, Indiana, N.A., as co-agents for a group of banks
(collectively, the "Banks"). The new credit facility has replaced the
Company's two previous bank credit facilities of up to $125 million in the
aggregate. The new credit facility matures in June 2002 and generally bears
interest, at the Company's option, at (i) the greater of The First National
Bank of Chicago's corporate base rate and 0.50% plus the Federal funds
effective rate (the "Base Rate") or (ii) the rate at which deposits in United
States dollars or Eurocurrencies are offered by the The First National Bank of
Chicago to first-class banks in the London interbank market plus a spread
ranging from 40 to 112.5 basis points (based on the Company's leverage ratio)
plus a spread reserve, if any. Borrowings by the Company's non-United States
subsidiaries bear interest at rates negotiated with the applicable lenders.
Under the new line of credit, at June 30, 1997, there was $97.5 million
outstanding, an aggregate of $15.6 million in letters of credit outstanding
and $86.9 million of credit remaining available.
8
<PAGE> 9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Credit Arrangements (continued)
All of the Company's assets located in the United States and 65% of the
capital stock of the Company's foreign subsidiaries are pledged to the Banks
as collateral, and the Company is substantially prohibited from incurring
additional indebtedness. In addition to certain net worth and other financial
covenants, the Company's loan agreement with the Banks limits or prohibits the
Company, subject to certain exceptions, from declaring or paying cash
dividends, making capital distributions or other payments to stockholders,
merging or consolidating with another corporation or selling all or
substantially all of its assets.
6. Net Investment Gain
During the first quarter of 1997, the Company realized a gain on the sale of
its investment in CellStar Corporation. The gain, net of transaction costs,
including related bonuses to certain key employees, was approximately $8.3
million. In addition, on March 31, 1997, Pocket Communications, Inc. (Pocket)
filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Accordingly, the Company recorded $6.9 million of losses on its investments in
Pocket and two smaller equity investments. Excluding the impact of the
resulting net investment gain of $1.4 million and related income taxes, net
income per share for the six months ended June 30, 1997 would have been $0.41.
7. Stockholders' Equity
On April 24, 1997, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation to increase the authorized number
of shares of common stock from 25,000,000 to 100,000,000 and an amendment to
the Company's 1994 Stock Option Plan to increase the number of shares reserved
for issuance from 2,109,375 to 4,100,000.
8. Subsequent Event
On August 12, 1997, the Company closed on its public offering of 2,200,000
shares of common stock by the Company and an additional 2,100,000 and 200,000
shares of common stock on behalf of Robert Picow and Joseph Forer,
respectively. Messrs. Picow and Forer are the former stockholders of Allied
Communications. The Company's proceeds of approximately $61.5 million (net of
estimated expenses) were used to reduce the borrowings outstanding on its line
of credit. In addition, the Company has granted an option to the
underwriters to purchase up to an additional 600,000 shares of common stock,
solely to cover over-alloments, if any. However, there is no assurance that
the underwriters will exercise this option.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Comparison of Three and Six Months Ended June 30, 1996 to Three and Six Months
Ended June 30, 1997
OVERVIEW
This discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. On June 7,
1996, the Company completed a merger with Allied Communications, which was
engaged in substantially the same business as the Company. The transaction was
accounted for using the pooling-of-interests method and accordingly, the
Company's financial statements have been restated to reflect the consolidated
financial position and consolidated results of operations of both entities as if
the merger had been in effect for all periods presented.
Certain statements made in this report may contain forward-looking statements.
For a description of risks and uncertainties relating to such forward-looking
statements, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and exhibit 99 attached hereto.
RESULTS OF OPERATIONS
NET SALES
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ----------------------------
1996 1997 Change 1996 1997 Change
- ------------------------------------------------------------------------
Net sales $119,896 $220,027 84% $232,856 $419,196 80%
- ------------------------------------------------------------------------
Net sales for the three and six months ended June 30, 1997 increased
significantly over net sales for the same periods in 1996 reflecting continued
strong worldwide demand for wireless handsets and related accessories. These
increases in net sales are primarily attributable to an increase in handset
volume and an increase in the average selling price per wireless handset. These
increases in average selling price were the result of significant sales growth
in markets where sales are concentrated in higher priced digital handsets.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------- --------------------------
1996 1997 1996 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales by division:
Asia-Pacific 15% 44% 13% 44%
North America 65 27 67 31
Europe, Middle East and Africa 2 22 2 20
Latin America 18 7 18 5
- ----------------------------------------------------------------------------------------
</TABLE>
Sales in Asia-Pacific and Europe, Middle East and Africa divisions remained
strong as the Company continued to penetrate these markets. In its North
America division, units handled by the Company (phones sold by the Company or
phones, consigned to the Company by its customers, on which the Company has
performed its value-added logistics services) during the six months ended June
30, 1997 increased 31% from the comparable period in 1996 due primarily to an
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS (CONTINUED)
increase in its value-added logistics services. In the many cases in which the
Company performs value-added logistics services on products consigned to it by
its customers, only service fees are recorded as sales. Therefore as units
handled increased in 1997, sales in North America were lower in the three and
six months ended June 30, 1997 as compared to the same periods in 1996. Sales
in the Latin America division also decreased due to a planned reduction in
sales to other distributors, as the Company continues to implement its strategy
of selling directly to network operators.
Sales of wireless handsets, sales of related accessories and fees generated
from value-added logistics services were 89%, 7% and 4%, respectively, of net
sales for the six months ended June 30, 1997. Sales of wireless handsets and
related accessories were 84% and 16%, respectively, of net sales for the six
months ended June 30, 1996.
GROSS PROFIT
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ----------------------------
1996 1997 Change 1996 1997 Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross profit $8,482 $18,014 112% $16,410 $34,016 107%
Gross margin percentage 7.07% 8.19% 7.05% 8.11%
- --------------------------------------------------------------------------------------
</TABLE>
Gross profit for the three and six months ended June 30, 1997 improved
significantly over the same periods in 1996 due to increased sales and
increased gross margin percentage. These increases in gross margin percentage
are primarily due to an increase in the amount of higher margin value-added
logistics services provided by the Company, as well as increased sales in
certain markets, and to certain customers, from which the Company generated
higher margins. In addition, the Company continued its disciplined effort to
reduce sales to other distributors in the North and Latin America markets as
such sales have traditionally been lower margin sales for the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ----------------------------
1996 1997 Change 1996 1997 Change
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $4,090 $9,040 121% $7,767 $17,136 121%
As a percent of net sales 3.41% 4.11% 3.34% 4.09%
- -----------------------------------------------------------------------------------------
</TABLE>
The increase in selling, general and administrative expenses for the three and
six months ended June 30, 1997 over the same periods in 1996 is attributable to
the Company's expanded level of operations and reflects increases in
depreciation expense relating to investments in information systems, rent
expense for expanded facilities, and compensation expense and travel costs
associated with increased international sales and marketing efforts.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS (CONTINUED)
INCOME FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ----------------------------
1996 1997 Change 1996 1997 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $4,392 $8,974 104% $8,643 $16,880 95%
As a percent of net sales 3.66% 4.08% 3.71% 4.03%
- ----------------------------------------------------------------------------------------
</TABLE>
The increase in income from operations for the three and six months ended June
30, 1997 over the same period in 1996 is primarily attributable to increased
gross profit offset partially by an increase in selling, general and
administrative expenses.
NET INCOME AND PRO FORMA NET INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ----------------------------
1996 1997 Change 1996 1997 Change
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 397 $4,867 1,126% $3,299 $10,283 212%
Pro forma net income $2,407 $4,867 102% $4,884 $10,283 111%
Pro forma net
income as a percent
of sales 2.01% 2.21% 2.10% 2.45%
Pro forma net
income per share $0.11 $ 0.21 91% $ 0.23 $ 0.44 91%
- -----------------------------------------------------------------------------------
</TABLE>
The increase in net income and pro forma net income for the three and six
months ended June 30, 1997 over the same periods in 1996 is the result of
increased income from operations, a $1.4 million net investment gain (as
described below) and a decrease in the effective income tax rate from 39% in
the six months ended June 30, 1996 to 30% in the first six months of 1997,
partially offset by an increase in interest expense relating to bank debt
obtained for working capital purposes and by income attributable to minority
interests. The decrease in the effective income tax rate is due primarily to
increased earnings in tax jurisdictions with lower statutory rates. Pro forma
amounts for 1996 reflect a provision for income taxes for Allied Communications
which, at the time, was not subject to income taxes.
Generally accepted accounting principles require that certain charges related to
pooling-of-interests transactions be expensed in the period in which the
transaction is consummated. Such charges related to the Allied Merger, in the
amount of $2.1 million net of applicable taxes, were recognized as expense in
the quarter ended June 30, 1996. Pro forma amounts exclude the effect of this
one-time charge.
For the six months ended June 30, 1997, weighted average common shares
outstanding were approximately 23.2 million as compared to approximately 20.8
million shares for the six months ended June 30, 1996. This increase is due
primarily to shares issued in connection with the Company's acquisition of
Brightpoint International Ltd. and of the minority interests in Brightpoint
China Limited, Brightpoint (UK) Limited and Brightpoint Australia Pty Ltd. and
the impact of the exercise of stock options and warrants.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NET INCOME AND PRO FORMA NET INCOME (CONTINUED)
During the first quarter of 1997, the Company realized a gain on the sale of
its equity investment in CellStar Corporation. The gain, net of transaction
costs, including related bonuses to certain key employees, was approximately
$8.3 million. In addition, on March 31, 1997, Pocket Communications, Inc.
(Pocket) filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Accordingly, the Company recorded $6.9 million of losses on its investments in
Pocket and two smaller equity investments. Excluding the impact of the
resulting net investment gain of $1.4 million and related income taxes, net
income per share for the six months ended June 30, 1997 would have been $0.41.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1996 June 30, 1997
- -------------------------------------------------------------------------
Cash, cash equivalents and marketable
securities $ 32,255 $ 16,939
Working capital $143,481 $167,564
Current ratio 2.16:1 3.15:1
- -------------------------------------------------------------------------
The Company's primary cash requirements have been to fund increased levels of
accounts receivable and inventories and to fund capital expenditures. The
Company has historically satisfied its working capital requirements principally
through cash flow from operations, vendor financing, bank borrowings and the
issuance of equity securities.
The increase in working capital is primarily attributable to a decrease in
accounts payable. This increase was funded by an increase in bank borrowings
and the sale of the Company's investment in CellStar Corporation. The Company
also generated working capital through the exercise of stock options.
Net cash used by operating activities was approximately $23.0 million for the
six months ended June 30, 1997, as compared to approximately $20.8 million for
the six months ended June 30, 1996. The increase in cash used by operating
activities for the six months ended June 30, 1997 was primarily attributable to
a decrease in accounts payable and an increase in accounts receivable,
partially offset by a decrease in inventories. Net cash provided by investing
activities was approximately $1.8 million for the six months ended June 30,
1997, as compared to net cash used by investing activities of approximately
$4.6 million for the six months ended June 30, 1996. The cash provided by
investing activities for the six months ended June 30, 1997 was primarily
attributable to the sale of the Company's investment in CellStar Corporation,
partially offset by capital expenditures relating to the purchase of
information systems equipment and software, the expansion of the Company's
operations center in Indianapolis, Indiana, the opening of its west coast
operations center in Sparks, Nevada, the purchase of minority interests in
Brightpoint China
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Limited, Brightpoint (UK) Limited and Brightpoint Australia Pty Ltd. and the
continued expansion of its international operations. The cash used by investing
activities for the six months ended June 30, 1996 was primarily attributable to
capital expenditures relating to the purchase of information systems equipment
and software. Net cash provided by financing activities was approximately $23.5
million for the six months ended June 30, 1997, as compared to approximately
$30.7 million for the six months ended June 30, 1996. The net cash provided by
financing activities is primarily due to advances against the Company's line of
credit and proceeds from the exercise of stock options. At June 30, 1997, the
Company had cash and cash equivalents of approximately $16.9 million.
On June 24, 1997, the Company entered into a $200 million five-year senior
secured revolving line of credit facility with The First National Bank of
Chicago and Bank One, Indiana, N.A., as co-agents for a group of banks
(collectively, the "Banks"). The new facility replaced the Company's two prior
credit facilities of up to $125 million in the aggregate. The new line of
credit matures in June 2002 and generally bears interest, at the Company's
option, at (i) the greater of The First National Bank of Chicago's corporate
base rate and 0.50% plus the Federal funds effective rate (the "Base Rate") or
(ii) the rate at which deposits in United States dollars or Eurocurrencies are
offered by The First National Bank of Chicago to first-class banks in the
London interbank market plus a spread ranging from 40 to 112.5 basis points
(based on a leverage ratio defined in the credit agreement) plus a spread
reserve, if any and provides it with the ability to borrow in multiple
currencies and thus to use the facility for its global working capital needs.
Borrowings by the Company's non-United States subsidiaries will bear interest
at rates negotiated with the applicable lenders. Under its line of credit, at
June 30, 1997, there was $97.5 million outstanding, an aggregate of $15.6
million in letters of credit outstanding and $86.9 million of credit remaining
available.
All of the Company's assets located in the United States and 65% of the capital
stock of the Company's foreign subsidiaries are pledged to the Banks as
collateral, and the Company is substantially prohibited from incurring
additional indebtedness, either of which terms could, under certain
circumstances, limit the Company's ability to implement its expansion plans. In
addition to certain net worth and other financial covenants, the Company's loan
agreement with the Banks limits or prohibits the Company, subject to certain
exceptions, from declaring or paying cash dividends, making capital
distributions or other payments to stockholders, merging or consolidating with
another corporation or selling substantially all of its assets.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On August 12, 1997, the Company closed on its public offering of 2,200,000
shares of Common Stock by the Company and an additional 2,100,000 and 200,000
shares of Common Stock on behalf of Robert Picow and Joseph Forer,
respectively. Messrs. Picow and Forer are the former stockholders of Allied
Communications. The Company's proceeds of approximately $61.5 million (net of
estimated expenses) were used to reduce the borrowings outstanding on its line
of credit. In addition, the Company has granted an option to the underwriters
to purchase up to an additional 600,000 shares of common stock, solely to cover
over-allotments, if any. However, there is no guarantee that the underwriters
will exercise this option.
The Company believes that the net proceeds received by it from the offering,
together with projected cash flow from operations and existing capital
resources, including cash and borrowings available under its line of credit,
will be sufficient to satisfy the Company's anticipated working capital
requirements and expansion plans for at least 12 months following the
consummation of the offering. The Company has no material commitments for
capital expenditures as of June 30, 1997.
Inflation has historically not had a material effect on the Company's
operations. The Company frequently transacts business in currencies other than
its functional currency and, therefore, experiences some risk to exchange rate
fluctuations. Historically, the Company has not experienced significant
exchange rate gains or losses. Increasing trade activity in foreign markets
could subject the Company to greater inflationary pressures and more
significant exchange rate gains or losses from these arrangements.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the Company's quarter ended June 30, 1997, the Company issued (i) 135,470
unregistered shares of the Company's common stock, valued at $1.8 million, in
connection with its purchase, effective April 1, 1997, of the remaining 20% of
Brightpoint (UK) Limited and Brightpoint Australia Pty Ltd and (ii) options
under the Company's Stock Option Plans, exercisable for the purchase of an
aggregate of 264,000 shares of the Company's common stock, to certain officers,
employees and consultants of the Company. The foregoing securities' issuances
were made in reliance on the exemptions from registration provided by Sections
4(2) (issuances not involving a public offering) and/or 2(3) (issuances that do
not constitute a sale) of the Securities Act of 1933, as amended. No
underwriter fees or commissions were paid by the Company in connection with
such issuances.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on April 24, 1997 to:
(i) elect three (3) Class III directors to hold office until the Annual
Meeting of Stockholders to be held in 2000 and until their respective
successors have been duly elected and qualified. The terms of office of
Class I directors Messrs. J. Mark Howell, Joseph Forer and Stephen H.
Simon continue until 1998. The terms of office of Class II directors
Messrs. Robert J. Laikin, Robert Picow, Robert F. Wagner and Rollin M.
Dick continue until 1999. The results of the vote to elect the three (3)
Class III directors were as follows:
John W. Adams received 17,972,574 votes for and 2,016,442 votes withheld
T. Scott Housefield received 17,971,762 votes for and 2,017,254 votes
withheld and Steven B. Sands received 17,972,808 votes for and 2,016,208
votes withheld.
(ii) consider and vote on a proposal to approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares
of Common Stock from 25,000,000 to 100,000,000. The proposal received
13,646,310 votes for, 6,306,162 against votes and 36,544 abstentions.
(iii) consider and vote on a proposal to approve an amendment to the Company's
1994 Stock Option Plan to increase the number of shares of Common Stock
reserved for issuance thereunder from 2,109,375 to 4,100,000. The proposal
received 10,277,656 votes for, 6,579,518 votes against, 40,161
abstentions and 3,091,681 broker non-votes.
16
<PAGE> 17
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule
(99) Cautionary Statements
(b) Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
(Registrant)
Date August 14, 1997 /s/ J. Mark Howell
--------------- -------------------------------
J. Mark Howell
President and Chief Operating Officer
Date August 14, 1997 /s/ Phillip A. Bounsall
--------------- -------------------------------
Phillip A. Bounsall
Executive Vice President
and Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule
(99) Cautionary Statements
19
<PAGE> 1
EXHIBIT (11)
Statement Re: Computation of Earnings Per Share
-----------------------------------------------
(000's omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 20,004 22,297 19,952 22,114
Net effect of stock options and
warrants - based on the
treasury stock method
using average market price 887 1,042 754 1,045
------- ------- ------- -------
Total 20,891 23,339 20,706 23,159
======= ======= ======= =======
Historical income before
income taxes $ 1,203 $ 6,991 $ 5,270 $15,206
Deduct pro forma income taxes 857 2,097 2,447 4,540
Deduct minority interest in
subsidiaries' earnings -- 27 -- 383
------- ------- ------- -------
Pro forma net income (A) $ 346 $ 4,867 $ 2,823 $10,283
======= ======= ======= =======
Per share amount $ 0.02 $ 0.21 $ 0.14 $ 0.44
======= ======= ======= =======
Fully diluted:
Average shares outstanding 20,004 22,297 19,952 22,114
Net effect of dilutive stock
options and warrants - based
on the treasury stock method
using the greater of quarter
end market price or the
average market price 891 1,042 857 1,045
------- ------- ------- -------
Total 20,895 23,339 20,809 23,159
======= ======= ======= =======
Historical income before
income taxes $ 1,203 $ 6,991 $ 5,270 $15,206
Deduct pro forma income taxes 857 2,097 2,447 4,540
Deduct minority interest in
subsidiaries' earnings -- 27 -- 383
------- ------- ------- -------
Net income (A) $ 346 $ 4,867 $ 2,823 $10,283
======= ======= ======= =======
Per share amount $ 0.02 $ 0.21 $ 0.14 $ 0.44
======= ======= ======= =======
</TABLE>
(A) 1996 includes a provision for income taxes as if Allied Communications had
been subject to income taxes for the entire period presented.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,939
<SECURITIES> 0
<RECEIVABLES> 121,504
<ALLOWANCES> 2,161
<INVENTORY> 98,729
<CURRENT-ASSETS> 245,366
<PP&E> 19,175
<DEPRECIATION> 2,369
<TOTAL-ASSETS> 286,157
<CURRENT-LIABILITIES> 77,802
<BONDS> 0
0
0
<COMMON> 223
<OTHER-SE> 110,012
<TOTAL-LIABILITY-AND-EQUITY> 286,157
<SALES> 419,196
<TOTAL-REVENUES> 419,196
<CGS> 385,180
<TOTAL-COSTS> 385,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,106
<INCOME-PRETAX> 15,206
<INCOME-TAX> 4,540
<INCOME-CONTINUING> 10,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,283
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q and in the documents incorporated
by reference herein constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the ability to hire and retain key personnel;
successful completion and integration of future acquisitions; relationships with
and dependence on third-party wireless communications equipment suppliers;
uncertainties relating to economic conditions in markets in which the Company
operates; uncertainties relating to government and regulatory policies;
uncertainties relating to customer plans and commitments; dependence on the
wireless communications industry; pricing and availability of wireless
communications equipment materials and inventories; rapid technological
developments and obsolescence in the wireless communications industry; potential
performance issues with suppliers and customers; governmental export and import
policies; global trade policies; worldwide political stability and economic
growth; the highly competitive environment in which the Company operates;
potential entry of new, well-capitalized competitors into the Company's markets;
changes in the Company's capital structure and cost of capital; and
uncertainties inherent in international operations and foreign currency
fluctuations. The words "believe," "expect," "anticipate," "intend" and "plan"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.
22
