<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: September 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
-----------------------------------------------
BRIGHTPOINT, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1778566
- ------------------------------ -------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
6402 Corporate Drive, Indianapolis, Indiana 46278
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 297-6100
- --------------------------------------------------------------------------------
(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 November 6, 1997: 25,100,631
shares; giving effect to the two-for-one common stock split to be effected
in the form of a 100% stock divided payable on November 21, 1997 to holders of
record on November 6, 1997, the number of shares of common stock outstanding at
November 6, 1997 would have been 50,201,262 shares.
<PAGE> 2
BRIGHTPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1
------
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1996 and 1997........3
Consolidated Balance Sheets
December 31, 1996 and September 30, 1997.......................4
Consolidated Statements of Cash Flows
Nine Months Ended September 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..................11
PART II. OTHER INFORMATION
ITEM 2
------
Changes in Securities...............................................18
ITEM 6
------
Exhibits and Reports on Form 8-K....................................18
Signatures....................................................................19
</TABLE>
<PAGE> 3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 145,290 $ 243,210 $ 378,146 $ 662,406
Cost of sales 133,036 222,576 349,482 607,756
-------- -------- -------- --------
Gross profit 12,254 20,634 28,664 54,650
Selling, general and administrative expenses 5,105 10,836 12,872 27,972
-------- -------- -------- --------
Income from operations 7,149 9,798 15,792 26,678
Merger expenses - - 2,750 -
Net investment gain - - - 1,432
Interest expense 549 1,283 1,172 4,389
-------- -------- -------- --------
Income before income taxes and minority interest 6,600 8,515 11,870 23,721
Income taxes 2,349 2,557 4,320 7,097
-------- -------- -------- --------
Income before minority interest 4,251 5,958 7,550 16,624
Minority interest in subsidiaries' earnings 1,042 30 1,042 413
-------- -------- -------- --------
Net income $ 3,209 $ 5,928 $ 6,508 $ 16,211
======== ======== ======== ========
Pro forma data:
Historical income before income taxes $ 11,870
Pro forma income taxes 4,796
Minority interest in subsidiaries' earnings 1,042
--------
Pro forma net income $ 6,032
========
Pro forma net income excluding the after-tax
effect of one-time merger expenses $ 3,209 $ 5,928 $ 8,093 $ 16,211
======== ======== ======== ========
Net income per share (Note 7):
Historical $ 0.08 $ 0.12 $ 0.34
======== ======== ========
Pro forma $ 0.14
========
Pro forma excluding the after-tax effect of
one-time merger expenses $ 0.08 $ 0.12 $ 0.19 $ 0.34
======== ======== ======== ========
Weighted average common shares outstanding 42,078 50,099 41,884 47,822
======== ======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,255 $ 20,220
Marketable securities 18,000 -
Accounts receivable (less allowance for doubtful
accounts of $1,115 in 1996
and $1,882 in 1997) 113,119 131,114
Inventories 112,916 93,593
Contract financing receivables - 30,306
Other current assets 8,422 18,840
------------------- ------------------
Total current assets 266,712 294,073
Property and equipment, net 8,207 20,068
Goodwill, net 15,232 24,247
Other assets 8,894 5,143
------------------- ------------------
Total assets $ 299,045 $ 343,531
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 123,231 $ 83,749
------------------- ------------------
Total current liabilities 123,231 83,749
Notes payable 79,564 65,132
Deferred taxes 330 330
Minority interest 938 316
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; 43,272 and 50,270 issued and
outstanding in 1996 and 1997, respectively 433 503
Additional paid-in capital 72,989 159,631
Foreign currency translation adjustment 97 125
Unrealized gain on marketable securities, net of tax 3,929 -
Retained earnings 17,534 33,745
------------------- ------------------
Total stockholders' equity 94,982 194,004
------------------- ------------------
Total liabilities and stockholders' equity $ 299,045 $ 343,531
=================== ==================
</TABLE>
See accompanying notes.
4
<PAGE> 5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1996 1997
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,508 $ 16,211
Adjustments to reconcile net income to
net cash used by operating activities:
Minority interest 1,042 413
Depreciation and amortization 573 2,583
Merger expenses 2,750
Net investment gain - (1,432)
Changes in current assets and liabilities:
Accounts receivable (23,062) (16,162)
Inventories 203 20,350
Contract financing receivables - (30,306)
Other current assets (59) (9,502)
Accounts payable and accrued expenses 2,531 (39,261)
---------- -----------
Net cash used by operating activities (9,514) (57,106)
INVESTING ACTIVITIES
Capital expenditures (7,441) (13,479)
Sale of marketable securities, net of transaction costs - 18,528
Acquisition of businesses and minority interests - (6,257)
Increase in other assets (3,186) (3,249)
---------- ----------
Net cash used by investing activities (10,627) (4,457)
FINANCING ACTIVITIES
Net proceeds (payments) on notes payable 21,545 (14,265)
Net proceeds from stock offering - 75,600
Proceeds and tax benefit from exercise of stock
options and warrants 5,473 5,661
Payments on stockholder loans (554) -
Merger expenses (2,168) -
S corporation distributions (289) -
---------- ----------
Net cash provided by financing activities 24,007 66,996
Effect of exchange rate changes on cash and cash
equivalents - 532
---------- ----------
Net increase in cash and cash equivalents 3,866 5,965
Cash and cash equivalents at beginning of period 726 14,255
---------- ----------
Cash and cash equivalents at end of period $ 4,592 $ 20,220
========== ==========
</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 and consolidated statements of cash flows
for the three and nine months ended September 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). Allied Communications 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 7,593,750 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
6
<PAGE> 7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. Basis of Presentation (continued)
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, 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.
The Company offers financing of inventory and receivables to certain
customers under contractual arrangements. These financing services are
complementary to the inventory management and other value-added logistics
services provided by the Company. The amount financed pursuant to these
arrangements is recorded as a current asset under the caption "Contract
Financing Receivables."
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 annual
financial statements beginning in 1998. Currently, the Company is
evaluating the effect of these new statements.
3. Pro Forma Income Taxes
The pro forma income tax amount presented in the statement of income for
the nine months ended September 30, 1996 represents 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.
7
<PAGE> 8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 of the minority ownership interest consisted of 193,550
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.
Effective April 1, 1997, the Company 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 270,940 of
unregistered shares of the Company's common stock, valued at $1.8 million,
and $772,000 in cash. The acquisitions were accounted for using the
purchase method. The purchase price of $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, including costs of acquisition, consisted of
approximately $2.5 million in cash with an additional $300,000 in cash
payable upon execution of a key contract and up to an additional $3.6
million in cash payable depending upon the future financial performance of
Brightpoint Sweden AB. This acquisition was accounted for using the
purchase method and the resulting goodwill of approximately $600,000 is
being amortized over 30 years.
Effective August 1, 1997, the Company's wholly-owned subsidiary,
Brightpoint China Limited, acquired the business and certain net assets
of Legend International (Asia) Limited, a distributor of wireless
communications equipment located in Hong Kong. The purchase price,
including costs of acquisition, consisted of 161,344 unregistered shares
of the Company's common stock, valued at $2.4 million, and approximately
$3.6 million in cash, and certain assumed liabilities with up to an
additional $5.2 million in cash payable depending upon the future
financial performance of Brightpoint China Limited. This acquisition was
accounted for using the purchase method and the resulting goodwill of
approximately $5.5 million 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.
8
<PAGE> 9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 replaced the
Company's two previous bank credit facilities which provided for $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
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 various rates
based on the type and term of advance selected and the prevailing
interest rates of the country in which the subsidiary resides. At
September 30, 1997, there was $65.1 million outstanding at interest rates
ranging from 5.23% to 8.41% (a weighted average rate of 6.82%) and an
aggregate of $12.0 million in letters of credit under this line of credit,
with $122.9 million of credit 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. 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 nine months ended
September 30, 1997 would have been $0.32.
9
<PAGE> 10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 4,218,750 to 8,200,000.
In August 1997, the Company consummated a public offering of 5,400,000
shares of common stock by the Company and an additional 4,600,000 shares of
common stock on behalf of two former stockholders (Selling Stockholders).
Upon consummation of the offering, the Selling Stockholders, who were
former stockholders of Allied Communications, resigned as members of the
Company's Board of Directors pursuant to an agreement with the Company.
The Company's proceeds of approximately $76 million (net of estimated
expenses) were used to reduce the borrowings outstanding on its bank line
of credit.
On October 22, 1997, the Company declared a two-for-one common stock split
to be effected in the form of a 100% stock dividend payable November 21,
1997 to holders of record on November 6, 1997. Accordingly, all references
in the financial statements related to per share amounts, average shares
outstanding and information concerning stock option plans have been
adjusted retroactively to reflect the stock split.
10
<PAGE> 11
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 Nine Months Ended September 30, 1996 to Three and Nine
Months Ended September 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
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------- --------------------------------------
1996 1997 Change 1996 1997 Change
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Net sales $145,290 $243,210 67% $378,146 $662,406 75%
- --------------------------------------------------------------------------------------------
</TABLE>
Net sales for the three and nine months ended September 30, 1997 increased
significantly over net sales for the same periods in 1996 reflecting continued
strong worldwide demand for wireless handsets and related accessories. The
increases in net sales were primarily attributable to an increase in handset
volume and an increase in the average selling price per wireless handset. The
increases in average selling price were the result of increases in the
percentage of sales of higher priced digital handsets.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- --------------------------------
1996 1997 1996 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales by division:
Asia-Pacific 16% 42% 14% 43%
North America 43 24 58 28
Europe, Middle East
and Africa 20 24 9 22
Latin America 21 10 19 7
- --------------------------------------------------------------------------------------------
</TABLE>
Sales in the 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 on which the Company
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)
has performed its value-added logistics services) during the nine months ended
September 30, 1997 increased 39% from the comparable period in 1996 due
primarily to an increase in its value-added logistics services. In 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. These service
fees are earned by the Company through its provision of a variety of services
including inventory procurement and management, financing, fulfillment,
programming, light assembly, kitting and packaging, and various other services.
As a result of the increase in units handled by the Company for which only
service fees are recorded as revenue, sales in North America were slightly
lower in the third quarter of 1997 than the third quarter of 1996. Sales in the
Latin America division also decreased when compared to the third quarter of
1996 due to a planned reduction in sales to other distributors; however, sales
increased significantly from the second quarter of 1997 as the Company
continued to implement its strategy of selling directly to network operators.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- --------------------------------
1996 1997 1996 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales by product line:
Wireless handsets 91% 86% 88% 88%
Related accessories 8 7 11 7
Value-added logistics
services 1 7 1 5
- ------------------------------------------------------------------------------------------------
</TABLE>
On a consolidated basis, value-added logistics services (on which the Company
has higher margins than on its product sales) continued to comprise an
increasingly larger portion of the Company's net sales. Value-added logistics
services grew to 7% of total net sales in the quarter ended September 30,1997.
GROSS PROFIT
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------- ----------------------------------
1996 1997 Change 1996 1997 Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross profit $12,254 $20,634 68% $28,664 $54,650 91%
Gross margin percentage 8.43% 8.48% 7.58% 8.25%
- --------------------------------------------------------------------------------------------------
</TABLE>
Gross profit for the three and nine months ended September 30, 1997 improved
over the same periods in 1996 due to increased sales and increased gross margin
percentage. The increases in gross margin percentage were 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, which 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 generated lower margins.
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)
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------- ----------------------------------
1996 1997 Change 1996 1997 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $5,105 $10,836 112% $12,872 $27,972 117%
As a percent of net sales 3.51% 4.46% 3.40% 4.22%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The increases in selling, general and administrative expenses for the three and
nine months ended September 30, 1997 over the same periods in 1996 are
primarily 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 travels costs associated with increased international sales and
marketing efforts. These resources are necessary to support the increasing
demands placed on the Company for its value-added logistics services and to
support the Company's significant growth.
INCOME FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------- ----------------------------------
1996 1997 Change 1996 1997 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $7,149 $9,798 37% $15,792 $26,678 69%
As a percent of net sales 4.92% 4.03% 4.18% 4.03%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The increases in income from operations for the three and nine months ended
September 30, 1997 over the same periods in 1996 are primarily attributable to
the increase in net sales. The decreases in operating income margin for the
three and nine months ended September 30, 1997 over the same periods in 1996 are
primarily attributable to increases in selling, general and administrative
expenses as a percent of net sales which was greater than the increase in the
gross profit margin as a percent of sales.
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)
NET INCOME AND PRO FORMA NET INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------- ------------------------------
1996 1997 Change 1996 1997 Change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,209 $5,928 85% $6,508 $16,211 149%
Pro forma net income $3,209 $5,928 85% $8,093 $16,211 100%
Pro forma net income as a
percent of sales 2.21% 2.44% 2.14% 2.45%
Pro forma net income per
share $ 0.08 $ 0.12 50% $ 0.19 $ 0.34 79%
- -----------------------------------------------------------------------------------------------
</TABLE>
The increases in net income and pro forma net income for the three and nine
months ended September 30, 1997 when compared to the same periods in 1996 are
the result of increased income from operations and a decrease in the effective
income tax rate from 36% in the nine months ended September 30, 1996 to 30% in
the first nine months of 1997, partially offset by an increase in interest
expense relating to bank debt obtained for working capital purposes. The
decrease in the effective income tax rate is due primarily to increased
earnings in tax jurisdictions with lower statutory rates. In addition, minority
interest in subsidiaries' earnings decreased due to the Company's purchase of
all significant minority interests in the fourth quarter of 1996 and the first
and second quarters of 1997. 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 relating
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 nine months ended September 30, 1997, weighted average common shares
outstanding were approximately 47,822,000 as compared to approximately
41,884,000 shares for the nine months ended September 30, 1996. This increase is
due primarily to shares issued in connection with the Company's public offering
of 5,400,000 shares in August 1997, the acquisitions of Brightpoint
International Ltd. and the minority interests in Brightpoint China Limited,
Brightpoint (UK) Limited and Brightpoint Australia Pty Ltd. and the impact of
stock options and warrants.
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 nine months ended September 30, 1997 would have been
$0.32.
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
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash, cash equivalents and marketable
securities $ 32,255 $ 20,220
Working capital $143,481 $210,324
Current ratio 2.16:1 3.51:1
- -----------------------------------------------------------------------------------------
</TABLE>
The Company's primary cash requirements have been to fund increased levels of
accounts receivable, contract financing receivables 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, proceeds and tax benefits received from stock
option exercises and the issuance of equity securities.
The increase in working capital is primarily attributable to an increase in
accounts receivable, contract financing receivables and a decrease in accounts
payable partially offset by a decrease in inventory. This increase in working
capital was funded by the public offering of the Company's common stock in
August 1997 and the sale of the Company's investment in CellStar Corporation.
The Company offers financing of inventory and receivables to certain customers
under contractual arrangements. These financing services are complementary to
the inventory management and other value-added logistics services provided by
the Company. The amount financed pursuant to these arrangements is recorded as
a current asset under the caption "Contract Financing Receivables."
15
<PAGE> 16
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)
Net cash used by operating activities was approximately $57.1 million for the
nine months ended September 30, 1997, as compared to approximately $9.5 million
for the nine months ended September 30, 1996. The increase in cash used by
operating activities for the nine months ended September 30, 1997 was primarily
attributable to the increase in working capital. Net cash used by investing
activities was approximately $4.5 million for the nine months ended September
30, 1997, as compared to net cash used by investing activities of approximately
$10.6 million for the nine months ended September 30, 1996. The cash used by
investing activities for the nine months ended September 30, 1997 was primarily
attributable to the capital expenditures for the purchase of information
systems equipment and software, the expansion of the Company's operations
center in Indianapolis, Indiana, the opening of a west coast operations center
in Sparks, Nevada, the purchase of minority interests in Brightpoint China
Limited, Brightpoint (UK) Limited and Brightpoint Australia Pty Ltd. and the
continued expansion of international operations, partially offset by the sale
of the Company's investment in CellStar Corporation. The cash used by investing
activities for the nine months ended September 30, 1996 was primarily
attributable to capital expenditures for the purchase of information systems
equipment and software. Net cash provided by financing activities was
approximately $67.0 million for the nine months ended September 30, 1997, as
compared to approximately $24.0 million for the nine months ended September 30,
1996. The net cash provided by financing activities was primarily due to the
proceeds from the Company's public offering of its common stock and proceeds
from the exercise of stock options, offset partially by repayments on the
Company's line of credit. At September 30, 1997, the Company had cash and cash
equivalents of approximately $20.2 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 which provided for $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 bear interest at
various rates based on the type and term of advance selected and the prevailing
interest rates of the country in which the subsidiary resides. At September 30,
1997, there was $65.1 million outstanding at interest rates ranging from 5.23%
to 8.41% (a weighted average rate of 6.82%) and an aggregate of $12.0 million in
letters of credit under this line of credit, with $122.9 million of credit
available.
16
<PAGE> 17
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)
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.
In August 1997, the Company consummated a public offering of 5,400,000 shares
of common stock by the Company and an additional 4,600,000 shares of common
stock on behalf of two former stockholders (Selling Stockholders). Upon
consummation of the offering, the Selling Stockholders, who were former
stockholders of Allied Communications, resigned as members of the Company's
Board of Directors pursuant to an agreement with the Company. The Company's
proceeds of approximately $76 million (net of estimated expenses) were used to
reduce the borrowings outstanding on its bank line of credit.
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. The Company has no
material commitments for capital expenditures as of September 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.
17
<PAGE> 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the quarter ended September 30, 1997, the Company issued (i) 161,344
shares of the Company's common stock in connection with the purchase of certain
assets of Legend International (Asia) Limited, effective August 1, 1997 and
(ii) options under the Company's Stock Option Plans, exercisable for the
purchase of an aggregate of 214,000 shares of the Company's common stock, to
certain officers, employees and consultants of the Company. The foregoing
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 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
On August 6, 1997, the Company filed a Form 8-K with the Securities
and Exchange Commission reporting under Item 5 - Other Events, the
public offering of up to 10,200,000 shares of the Company's
common stock, including 4,600,000 shares offered by certain
stockholders of the Company.
18
<PAGE> 19
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 November 13, 1997 /s/ J. Mark Howell
--------------------- --------------------------------
J. Mark Howell
President and Chief Operating Officer
Date November 13, 1997 /s/ Phillip A. Bounsall
--------------------- --------------------------------
Phillip A. Bounsall
Executive Vice President
and Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule
(99) Cautionary Statements
20
<PAGE> 1
Exhibit (11) Statement Re: Computation of Earnings Per Share
-----------------------------------------------
(000's omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1996 1997 1996 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 40,572 47,626 40,126 45,374
Net effect of stock options and
warrants - based on the
treasury stock method
using average market price 1,414 2,025 1,564 1,718
--------- --------- --------- ----------
Total 41,986 49,651 41,690 47,092
========= ========= ========= ==========
Historical income before income
taxes $ 6,600 $ 8,515 $ 11,870 $ 23,721
Deduct pro forma income taxes 2,349 2,557 4,796 7,097
Deduct minority interest in
subsidiaries' earnings 1,042 30 1,042 413
--------- --------- --------- ----------
Pro forma net income (A) $ 3,209 $ 5,928 $ 6,032 $ 16,211
========= ========= ========= ==========
Per share amount $ 0.08 $ 0.12 $ 0.14 $ 0.34
========= ========= ========= ==========
Fully diluted:
Average shares outstanding 40,572 47,626 40,126 45,374
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 1,506 2,473 1,758 2,448
--------- --------- --------- ----------
Total 42,078 50,099 41,884 47,822
========= ========= ========= ==========
Historical income before income
taxes $ 6,600 $ 8,515 $ 11,870 $ 23,721
Deduct pro forma income taxes 2,349 2,557 4,796 7,097
Deduct minority interest in
subsidiaries' earnings 1,042 30 1,042 413
--------- --------- --------- ----------
Pro forma net income (A) $ 3,209 $ 5,928 $ 6,032 $ 16,211
========= ========= ========= ==========
Per share amount $ 0.08 $ 0.12 $ 0.14 $ 0.34
========= ========= ========= ==========
</TABLE>
(A) For the nine months ended September 30, 1996, a provision for income taxes
as if Allied Communications had been subject to income taxes for the entire
period presented is included.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,220
<SECURITIES> 0
<RECEIVABLES> 163,302
<ALLOWANCES> 1,882
<INVENTORY> 93,593
<CURRENT-ASSETS> 294,073
<PP&E> 20,068
<DEPRECIATION> 3,381
<TOTAL-ASSETS> 343,531
<CURRENT-LIABILITIES> 83,749
<BONDS> 0
0
0
<COMMON> 503
<OTHER-SE> 193,501
<TOTAL-LIABILITY-AND-EQUITY> 343,531
<SALES> 662,406
<TOTAL-REVENUES> 662,406
<CGS> 607,756
<TOTAL-COSTS> 607,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,389
<INCOME-PRETAX> 23,721
<INCOME-TAX> 7,097
<INCOME-CONTINUING> 16,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,211
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q 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," "forecast," 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 of the statement was made.
23
